The History of Unions in the United States

What Is a Plutocracy?

A plutocracy is a type of government that effectively allows only wealthy people to rule, which can result in policies exclusively designed to assist the wealthy. Such a dynamic is reflected in the word itself; the Greek words "Ploutos" and "Kratos" translate to wealthy and power, respectively.

Understanding Plutocracy

Plutocracy doesn't have to be a purposeful, overt government format. Instead, it can be created by allowing the wealthy to access certain programs and educational resources, thereby giving them more sway. The concern of inadvertently creating a plutocracy is that the regulatory focus will be narrow and concentrated on the goals of the wealthy, creating even more income—and asset-based inequality.

In a plutocracy, access to political power is limited and requires one to possess wealth or to have the support of the wealthy by being willing to serve their interests. This may be a matter of official rules and restrictions that explicitly require that a person have some specified level of economic affluence to exercise political authority, such as voting or holding public office. However, plutocracy more often arises informally and is implicitly embodied in constitutional, legal, or regulatory measures that create barriers to participation in politics and political life that can be met only through the possession or expenditure of significant wealth.

Policies enacted and enforced in a plutocracy tend to redound to the benefit of the wealthy, either directly or indirectly. The specific content of government policies may vary greatly based on local and historical economic, political, and social conditions. Again, these do not usually take the form of explicit policies that openly favor the wealthy as a stated policy goal, but nonetheless set in motion economic processes and practical consequences that favor the interests of the wealthy.

For example, most modern countries are nominally democracies that, in practice, require the support of wealthy donors to campaign for office or influence policy effectively. Wealthy individuals and corporations' expenditures on political campaigns, legal lobbying, "socially conscious" activism, and occasionally direct bribery determine most or all of public policy. As a result, a relatively small proportion of the population, with access to the majority of the wealth and control of the commanding heights of economics and finance, are able to shape both public opinion and public policy in their own interests.

Such policies are almost never promoted as explicitly favoring the interests of the wealthy, but tend to be cloaked in some other seemingly legitimate public policy goal that just coincidentally results in advancing or securing the interests of the wealthy. These ostensible justifications may run the gamut from protecting the environment to national defense to promoting public health. Increasingly, they may even be carried out in the name of things like fairness, equality, and righting historical injustices.

Public policies that favor the wealthy in a plutocracy often do so not by directly advancing their interests, but by harming the interests of the middle class and small businesses so that the wealthy tend to enjoy a more secure competitive position in day-to-day business, investment activity, and financial markets. Examples of such policies include legal or regulatory barriers to entry, free-market reforms that advantage wealthy individuals and large corporations, or public interest and educational campaigns that direct public scrutiny away from the wealthy and toward other segments of the population who can be made scapegoats for various inequalities and injustices.

Plutocracy in the U.S.

"Of all forms of tyranny, the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of a plutocracy," President Theodore Roosevelt wrote in his autobiography. Roosevelt wrote this at a time when the wealthy paid little or no income tax and could afford summer homes in Newport, which made the White House look shabby. 

Although many people talk about the widening gap between rich and poor in the United States, plutocracy is more an implicit concept than a formal governing model in any modern country. Author and former Harvard Business School professor David Korten believes that plutocracy "describes our situation in the United States far more accurately than the term democracy. We have been an Empire ruled as a plutocracy since our founding." 

Princeton University professor Martin Gilens and Northwestern University professor Benjamin I. Page concluded in a study that "multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence."

Others have come to similar conclusions. According to 2017 research by Thomas Hayes and Lyle Scruggs, political science professors at the University of Connecticut, the concentration of state incomes with select individuals produces a sharp reduction in social welfare schemes. They write that "income concentration at the top has become so skewed, and politicians so reliant on their support for re-election, that representation in America may have veered quite far from the ideal of one-person, one-vote in recent years."

Plutocracy vs. Oligarchy

Oligarchy defines a political structure in which power is concentrated within a small group of people. However, unlike a plutocracy, this group of people doesn't necessarily have to be wealthy.

For example, an oligarchy can consist of a military ruling a country, a central committee of revolutionary communist leaders, or even rule by expert technocrats. Only when an oligarchy is concentrated among a small group of wealthy individuals can it also be considered a plutocracy.

Examples of Plutocracy

Plutocracy has been present since ancient times. The Roman Empire was considered a form of plutocracy in which a senate consisting of the wealthy aristocracy had the power to elect local administration officials and propose new policies.

In recent times, America is held as an example of a nation with elements of plutocracy, as explored above, due to the disproportionately powerful influence wielded by the wealthy in the country's election and policy-making process.

In the early 1900s, America was also heavily influenced by a small group of plutocrats based in New York City. This was eventually investigated by the Pujo Committee. Now household names, some of these individuals included business titans and robber barons such as J.P. Morgan, William and John D. Rockefeller, and others who had virtual monopoly control over the U.S. financial system.

The Bottom Line

Because of the self-reinforcing cycle of wealth, access to political power, and the impact of public policy on the economic relations of society, plutocracy is a rather common form of government, even where the nominal model of governance is democratic.