Troubled by the divisive and unfair Tom Robinson trial and trying to create meaning based on what information he has, Jem tells Scout that there are four kinds of people in the "world." He bases the "world," as all people do, on what he knows, which in his case is Maycomb society. What he tells Scout is an accurate summary of how the Maycomb social hierarchy is organized in the 1930s.
He normalizes his own group, the people at the pinnacle of Maycomb's society: white and middle class. He calls this group their "neighbors" and the "ordinary kind," as if they are the model of what humanity should be. Following that, he lists the poor but respectable white people who work hard and don't take charity. These, to him, are the people like the Cunninghams. Below them are the white trash like the Ewells, who don't work hard, are poor, and accept charity. Below them, in Jem's eyes, are the Black people.
Jem's classifications are based on money and race. People who are white and have the money to live in single-family houses near the center of town are at the top, while Black people, who Lee shows are deliberately kept poor so that the middle-class white people can exploit their labor, are on the bottom.
Scout tries to find the shared humanity between all these groups, a humanity which does exist but which is corrupted by the social hierarchy.
Towards the end of chapter 23, Jem and Scout have a discussion regarding Maycomb's hierarchy in an attempt to explain the differences among people in their community. According to Jem, there are four kinds of folks in Maycomb, which include the "ordinary kind" like themselves and their neighbors, the country folks like the Cunninghams, trashy people like the Ewells, and the discriminated Black residents. Jem's theory is closely related to Aunt Alexandra's caste system, and he attempts to categorize citizens based on their education and income.
Scout disagrees with her brother's assessment and says, "I think there's just one kind of folks. Folks." Unlike her brother, Scout does not view people based on their differences and has a significantly more egalitarian outlook on her community. Similar to her father, Scout recognizes that people are more alike than they are different and takes into consideration their opportunities and privileges.
Scout uses Walter Cunningham Jr. as an example by saying that he is "smart as he can be, he just gets held back sometimes because he has to stay out and help his daddy." Jem acknowledges that he used to feel the same way but asks,
If there's just one kind of folks, why can't they get along with each other? If they're all alike, why do they go out of their way to despise each other?
Jem views Scout's perception as innocent and naïve. After witnessing racial injustice firsthand, Jem is jaded and understands the harsh realities of his prejudiced neighbors and community. Scout is too young and innocent to recognize that society is stratified based on artificial classifications like background, education, and income.
This conversation comes as Scout and Jem think about their experiences. The exchange between the siblings is as follows:
You know something, Scout? I've got it all figured out, now. I've thought about it a lot lately and I've got it figured out. There's four kinds of folks in the world. There's the ordinary kind like us and the neighbors, there's the kind like the Cunninghams out in the woods, the kind like the Ewells down at the dump, and the Negroes.
Jem is attempting to understand the prejudice he sees surrounding him. His division of people into four groups accounts for the hatred and discrimination he witnesses everyday. He still willingly believes that people are different, and can be categorized according to race or social class.
But Scout has a different viewpoint. Her hierarchy only has room for one group. She replies "Naw, Jem, I think there's just one kind of folks. Folks". This reveals her own understanding of the world around her. She is not attempting to rationalize prejudice; she is merely accepting that it exists. This allows her to see that all people are one, no matter their background. But Jem doesn't agree:
"That's what I thought, too," he said at last, "when I was your age. If there's just one kind of folks, why can't they get along with each other? If they're all alike, why do they go out of their way to despise each other? Scout, I think I'm beginning to understand something. I think I'm beginning to understand why Boo Radley's stayed shut up in the house all this time . . . it's because he wants to stay inside."
Jem is worried by Scout response, because it basically means that there's no logical reason for discrimination based on race or class. This contrasts with his view of the world as a logical place. It's rather ironic that Scout has a better grasp on humanity, due to her age and relative lack of maturity.