What is conflict theory?

Conflict theory argues that due to competition for limited resources, society is in a perpetual state of conflict.

Conflict TheoryConflict Theory is a sociological perspective that views society as characterized by various forms of inequality and conflict. It emphasizes the role of power, resources, and social structures in shaping social relations and driving social change.
Key ConceptsInequality: Conflict theory highlights inequalities in society, including those related to wealth, class, race, gender, and access to resources. It asserts that these inequalities lead to conflicts between different groups or classes.
Power Dynamics: The theory emphasizes the significance of power dynamics in society. It suggests that dominant groups or individuals use their power to maintain their status and control over resources, often at the expense of less privileged groups.
Class Struggle– One of the central ideas of conflict theory is the concept of class struggle. It posits that society is divided into distinct social classes, such as the bourgeoisie (owners) and the proletariat (workers), who engage in conflicts over resources and influence.
Social Change– Conflict theory contends that societal change often occurs as a result of conflicts between different groups or classes. These conflicts can lead to revolution, social movements, or changes in power dynamics, ultimately shaping the course of history.
Critique of Society– Conflict theorists often critique existing social structures and institutions, including the economy, education, and political systems, as mechanisms that perpetuate inequality and reinforce the interests of the dominant class.
Application– Conflict theory has been applied to various areas of sociology, including the analysis of social movements, labor relations, racial and gender inequalities, and the study of power dynamics in society.
Limitations– Critics argue that conflict theory may oversimplify social phenomena by focusing predominantly on conflict and inequality while overlooking aspects of cooperation, social cohesion, and the role of shared values in society.
Complementary Theories– Conflict theory is often seen as complementary to other sociological theories, such as structural functionalism and symbolic interactionism, which provide different perspectives on the functioning of society.
Social Activism– Conflict theory can inspire social activists and advocates for change, as it highlights the need to address social injustices and inequalities. It has played a role in advocating for social reform and equity in various contexts.

Understanding conflict theory

Conflict theory was developed by German philosopher Karl Marx who studied the causes of conflict between the bourgeois (middle to upper-middle class) and proletariat (the working class and poor) in Europe.

Marx was particularly interested in the political, social, and economic ramifications of increasing capitalism in Europe in the mid-1800s. Since capitalism was premised on the existence of a powerful minority class of wealthy individuals and a relatively oppressed majority class, Marx believed the opportunities for conflict were rife. 

Conflict theory is based on the idea that both classes are locked in a perpetual battle over resources that are not distributed evenly across society. Wealthier individuals tend to hoard the resources they possess, while poorer individuals do whatever they can to obtain them. These incompatible interests are the drivers of conflict.

Note that Max believed conflict itself was neither good nor bad and instead, should be considered a natural human tendency that most default to. As a consequence, the theory could be used to explain any social phenomenon such as revolution, war, violence, discrimination, and most other forms of injustice.

Conflict theory in economics

In an economic context, Marx focused on two factors:

  • The mode of production – in other words, an industrial factory, and
  • Relations of production – a term describing the unequal balance of power between factory workers and factory owners.

Since the bourgeoisie owns (and controls) the mode of production, they tend to exploit the proletariat as a way to increase profits. The proletariat has much less power, with only their labor to sell and no access or control over capital. 

This causes the common predicament where the proletariat works as little as possible to be paid as much as possible. The bourgeois factory owners, on the other hand, want the proletariat to work as hard as possible for the least amount of pay.

Conflict theory in finance

Governments attempt to manage conflict over financial resources via the reallocation of funds between the rich and the poor. Some common initiatives include a mandated minimum wage, special incentives, favorable tax structures, and social assistance.

The underlying belief behind these measures is that a wealth gap that becomes too wide will cause social unrest to ensue. This may range from a peaceful protest on one end of the spectrum to outright civil war. Advocates of conflict theory believe the government bailouts and Occupy Wall Street movement that occurred during the 2008 GFC is one prime example.

Indeed, competition for limited resources ultimately reached a point where the government needed to intervene to redistribute resources more effectively. Since that time, the divide between the rich and poor has grown once more and there may be similar conflicts in the near future.

Key takeaways:

  • Conflict theory argues that due to competition for limited resources, society is in a perpetual state of conflict. It was developed by German philosopher Karl Marx who studied the class conflict between the wealthy and not-so-wealthy.
  • In an economic context, conflict theory deals with the interaction between the mode of production and relations of production. Workers attempt to work as little as possible for the maximum amount of pay, while factory owners strive to pay the lowest possible wage while extracting maximum worker productivity.
  • Governments attempt to manage conflict over financial resources via the reallocation of funds between the rich and the poor. This can be achieved via numerous initiatives or as a response to financial events such as the GFC.

Key Highlights:

  • Conflict Theory Overview: Conflict theory, developed by Karl Marx, posits that society is in a constant state of conflict due to competition for limited resources. It focuses on the tensions between different classes within a society.
  • Origin and Focus: Karl Marx developed conflict theory to understand the conflict between the bourgeois (wealthy) and proletariat (working class) in the context of increasing capitalism in Europe during the mid-1800s.
  • Basis of Conflict: Conflict theory asserts that conflict arises from the unequal distribution of resources in society. The bourgeoisie tend to accumulate resources, while the proletariat struggles to acquire them. This disparity leads to conflict between classes.
  • Neutral View of Conflict: Marx saw conflict as a natural outcome of societal dynamics, neither inherently good nor bad. It could explain a wide range of social phenomena, including revolutions, violence, discrimination, and injustices.
  • Economic Context: In economics, conflict theory analyzes the mode of production (industrial settings) and relations of production (power dynamics between workers and owners). Factory owners aim to maximize profits by exploiting workers, who seek to earn more for their labor.
  • Government Intervention: Governments use policies like minimum wage laws, tax structures, and social assistance programs to manage conflicts arising from wealth inequality. The goal is to prevent severe social unrest caused by a widening wealth gap.
  • 2008 Global Financial Crisis (GFC) Example: Conflict theory advocates argue that the government bailouts and the Occupy Wall Street movement during the 2008 GFC were responses to conflicts arising from economic inequality.
  • Ongoing Relevance: Conflict theory remains relevant today, as the wealth gap continues to grow, potentially leading to more conflicts if not addressed.
  • Key Principles: Conflict theory is rooted in the idea that competition for limited resources drives societal conflict, class struggle is a core aspect of society, and power imbalances play a significant role in shaping social dynamics.
  • Application Beyond Economics: Conflict theory can be applied to various social contexts beyond economics, such as politics, culture, and institutions. It helps explain power dynamics and conflicts in diverse areas of society.

Connected Economic Concepts

Market Economy

The idea of a market economy first came from classical economists, including David Ricardo, Jean-Baptiste Say, and Adam Smith. All three of these economists were advocates for a free market. They argued that the “invisible hand” of market incentives and profit motives were more efficient in guiding economic decisions to prosperity than strict government planning.

Positive and Normative Economics

Positive economics is concerned with describing and explaining economic phenomena; it is based on facts and empirical evidence. Normative economics, on the other hand, is concerned with making judgments about what “should be” done. It contains value judgments and recommendations about how the economy should be.


When there is an increased price of goods and services over a long period, it is called inflation. In these times, currency shows less potential to buy products and services. Thus, general prices of goods and services increase. Consequently, decreases in the purchasing power of currency is called inflation. 

Asymmetric Information

Asymmetric information as a concept has probably existed for thousands of years, but it became mainstream in 2001 after Michael Spence, George Akerlof, and Joseph Stiglitz won the Nobel Prize in Economics for their work on information asymmetry in capital markets. Asymmetric information, otherwise known as information asymmetry, occurs when one party in a business transaction has access to more information than the other party.


Autarky comes from the Greek words autos (self)and arkein (to suffice) and in essence, describes a general state of self-sufficiency. However, the term is most commonly used to describe the economic system of a nation that can operate without support from the economic systems of other nations. Autarky, therefore, is an economic system characterized by self-sufficiency and limited trade with international partners.

Demand-Side Economics

Demand side economics refers to a belief that economic growth and full employment are driven by the demand for products and services.

Supply-Side Economics

Supply side economics is a macroeconomic theory that posits that production or supply is the main driver of economic growth.

Creative Destruction

Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.

Happiness Economics

Happiness economics seeks to relate economic decisions to wider measures of individual welfare than traditional measures which focus on income and wealth. Happiness economics, therefore, is the formal study of the relationship between individual satisfaction, employment, and wealth.


An oligopsony is a market form characterized by the presence of only a small number of buyers. These buyers have market power and can lower the price of a good or service because of a lack of competition. In other words, the seller loses its bargaining power because it is unable to find a buyer outside of the oligopsony that is willing to pay a better price.

Animal Spirits

The term “animal spirits” is derived from the Latin spiritus animalis, loosely translated as “the breath that awakens the human mind”. As far back as 300 B.C., animal spirits were used to explain psychological phenomena such as hysterias and manias. Animal spirits also appeared in literature where they exemplified qualities such as exuberance, gaiety, and courage.  Thus, the term “animal spirits” is used to describe how people arrive at financial decisions during periods of economic stress or uncertainty.

State Capitalism

State capitalism is an economic system where business and commercial activity is controlled by the state through state-owned enterprises. In a state capitalist environment, the government is the principal actor. It takes an active role in the formation, regulation, and subsidization of businesses to divert capital to state-appointed bureaucrats. In effect, the government uses capital to further its political ambitions or strengthen its leverage on the international stage.

Boom And Bust Cycle

The boom and bust cycle describes the alternating periods of economic growth and decline common in many capitalist economies. The boom and bust cycle is a phrase used to describe the fluctuations in an economy in which there is persistent expansion and contraction. Expansion is associated with prosperity, while the contraction is associated with either a recession or a depression.

Paradox of Thrift

The paradox of thrift was popularised by British economist John Maynard Keynes and is a central component of Keynesian economics. Proponents of Keynesian economics believe the proper response to a recession is more spending, more risk-taking, and less saving. They also believe that spending, otherwise known as consumption, drives economic growth. The paradox of thrift, therefore, is an economic theory arguing that personal savings are a net drag on the economy during a recession.

Circular Flow Model

In simplistic terms, the circular flow model describes the mutually beneficial exchange of money between the two most vital parts of an economy: households, firms and how money moves between them. The circular flow model describes money as it moves through various aspects of society in a cyclical process.

Trade Deficit

Trade deficits occur when a country’s imports outweigh its exports over a specific period. Experts also refer to this as a negative balance of trade. Most of the time, trade balances are calculated based on a variety of different categories.

Market Types

A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.

Rational Choice Theory

Rational choice theory states that an individual uses rational calculations to make rational choices that are most in line with their personal preferences. Rational choice theory refers to a set of guidelines that explain economic and social behavior. The theory has two underlying assumptions, which are completeness (individuals have access to a set of alternatives among they can equally choose) and transitivity.

Conflict Theory

Conflict theory argues that due to competition for limited resources, society is in a perpetual state of conflict.

Peer-to-Peer Economy

The peer-to-peer (P2P) economy is one where buyers and sellers interact directly without the need for an intermediary third party or other business. The peer-to-peer economy is a business model where two individuals buy and sell products and services directly. In a peer-to-peer company, the seller has the ability to create the product or offer the service themselves.


The term “knowledge economy” was first coined in the 1960s by Peter Drucker. The management consultant used the term to describe a shift from traditional economies, where there was a reliance on unskilled labor and primary production, to economies reliant on service industries and jobs requiring more thinking and data analysis. The knowledge economy is a system of consumption and production based on knowledge-intensive activities that contribute to scientific and technical innovation.

Command Economy

In a command economy, the government controls the economy through various commands, laws, and national goals which are used to coordinate complex social and economic systems. In other words, a social or political hierarchy determines what is produced, how it is produced, and how it is distributed. Therefore, the command economy is one in which the government controls all major aspects of the economy and economic production.

Labor Unions

How do you protect your rights as a worker? Who is there to help defend you against unfair and unjust work conditions? Both of these questions have an answer, and it’s a solution that many are familiar with. The answer is a labor union. From construction to teaching, there are labor unions out there for just about any field of work.

Bottom of The Pyramid

The bottom of the pyramid is a term describing the largest and poorest global socio-economic group. Franklin D. Roosevelt first used the bottom of the pyramid (BOP) in a 1932 public address during the Great Depression. Roosevelt noted that – when talking about the ‘forgotten man:’ “these unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power.. that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”


Glocalization is a portmanteau of the words “globalization” and “localization.” It is a concept that describes a globally developed and distributed product or service that is also adjusted to be suitable for sale in the local market. With the rise of the digital economy, brands now can go global by building a local footprint.

Market Fragmentation

Market fragmentation is most commonly seen in growing markets, which fragment and break away from the parent market to become self-sustaining markets with different products and services. Market fragmentation is a concept suggesting that all markets are diverse and fragment into distinct customer groups over time.

L-Shaped Recovery

The L-shaped recovery refers to an economy that declines steeply and then flatlines with weak or no growth. On a graph plotting GDP against time, this precipitous fall combined with a long period of stagnation looks like the letter “L”. The L-shaped recovery is sometimes called an L-shaped recession because the economy does not return to trend line growth.  The L-shaped recovery, therefore, is a recession shape used by economists to describe different types of recessions and their subsequent recoveries. In an L-shaped recovery, the economy is characterized by a severe recession with high unemployment and near-zero economic growth.

Comparative Advantage

Comparative advantage was first described by political economist David Ricardo in his book Principles of Political Economy and Taxation. Ricardo used his theory to argue against Great Britain’s protectionist laws which restricted the import of wheat from 1815 to 1846.  Comparative advantage occurs when a country can produce a good or service for a lower opportunity cost than another country.

Easterlin Paradox

The Easterlin paradox was first described by then professor of economics at the University of Pennsylvania Richard Easterlin. In the 1970s, Easterlin found that despite the American economy experiencing growth over the previous few decades, the average level of happiness seen in American citizens remained the same. He called this the Easterlin paradox, where income and happiness correlate with each other until a certain point is reached after at least ten years or so. After this point, income and happiness levels are not significantly related. The Easterlin paradox states that happiness is positively correlated with income, but only to a certain extent.

Economies of Scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Economies of Scope

An economy of scope means that the production of one good reduces the cost of producing some other related good. This means the unit cost to produce a product will decline as the variety of manufactured products increases. Importantly, the manufactured products must be related in some way.

Price Sensitivity

Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Negative Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

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