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Updated August 22, 2020

Plutocracy Definition

A plutocracy is a system of government where the wealthiest people in a country rule or possess the power, and thus govern directly or indirectly. Plutocracy is often linked to the term “dynastic wealth.” 

How a Plutocracy Works

A plutocracy may not be the result of a planned system of government. Instead, plutocracies can gradually form by allowing sole access to essential political and educational resources that only the rich can afford.

The democratic concern of a plutocracy is that the wealthy will wish to maintain their power and, therefore, only represent the interests of the wealthy as opposed to people of all levels of education and income.

Plutocracy Examples

Famous examples of plutocracies include Ancient Rome, the pre-World War II Empire of Japan, and the pre-Revolutionary Kingdom of France.

Some modern economists and historians suggest that the United States was effectively plutocratic for the periods between the end of the Civil War (1865) and the start of the Great Depression (1929). This was reflected by the increased ability of the wealthy to significantly affect the nation's law-making and election processes, in tandem with the existence of the powerful oil, steel, and railroad monopolies.

Oligarchy vs. Plutocracy

An oligarchy is a system of government in which a small group runs the government. The group is chosen because of favorable factors such as military capability, wealth, race, political connections, religion, and education.

In a plutocracy, the wealthy rule, but not always by being the elected leaders of the government. In many cases, the affluent may influence decision-makers by legal and illegal means, such as lobbying, bribing, and funding election campaigns. 

Both terms, plutocracy and oligarchy, represent the voice of a concentrated minority. They are almost always used to convey a negative impression, based on the belief—or fear—that the minority is more likely to work selfishly for its own interests than for the interests of the nation. In that scenario, the oppression of the populace is more likely under these forms of government.

Why Does a Plutocracy Matter?

In the modern vernacular, the term plutocracy is typically used in a pejorative sense to describe or warn against an undesirable condition. Stating that a particular form of government is marching towards a plutocracy is therefore a cautionary warning sign that these undesirable actions should be stopped.

For example, President Theodore Roosevelt wrote in his autobiography, “Of all forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of a plutocracy."

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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

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