The Economic Case for Aristocracy

Without economic support for a public-spirited class, oligarchy will steadily corrupt virtue

The subtle shift that toward the economization of all modes of political thought that accompanied the Enlightenment is as profound as it is underappreciated. We can see this shift in one of its most profound manifestations if we contrast classical political thought on the nature of societal leadership with the neutralization of this question in contemporary political thought through an invocation of market incentives and utility maximization.

As is well known, in the eighth book of his Republic, Plato discusses five basic types of political regimes. They are aristocracy, timocracy, oligarchy, democracy and tyranny. Plato views societies as tending to cycle through regime type through time, starting with Plato’s ideal of a refined aristocracy and eventually degenerating into outright tyranny. For our discussion let us focus on only two of Plato’s regime types most relevant for our discussion: aristocracy and oligarchy.

The Normalization of Oligarchy

It is worth briefly recalling the basics of these two regime types before carrying on our discussion. An aristocracy is divided into three classes: the ruling class, the auxiliaries of the ruling class and the majority of people. The ruling class is ideally composed of philosopher-kings—that is, people educated in the virtuous practice of government in the service of the common good. The auxiliaries in Plato were the army, but this could be extended today to include the police and the security and intelligence services. The majority are the rest, who are divided into two subgroups: property owners and those who do not own property. In modern societies we can best think of this as capitalists and workers, with capitalists expanded to include the C-suite managerial class as well as actual business owners.

Oligarchy for Plato is similar in some respect to aristocracy but is a disordered form of it. In an oligarchy, the main defining feature of a person is whether they are rich or poor. Political power is effectively distributed through the concentration of wealth. That is, those who can accumulate wealth in doing so accumulate political power. Government in an oligarchy is government of the rich over the poor. Oligarchy for Plato is a highly dysfunctional system. For one, the accrual of power is tied up with the accrual of wealth and the latter tends to corrupt the former. This leads to mismanagement, with the society not being governed for the common good but rather to further the financial aims of the oligarchs. Since Oligarchy also results in the concentration of wealth, class tensions also build, which eventually accumulate revolutionary force and push the society into tyranny.

In our modern age we tend to look at the distribution of power in society through the lens of economics. Modern economics teaches that market forces tend to distribute resources in an “efficient” manner. The more we allow market forces to dictate social and political life, the wealthier and happier we will all become. This conception is pushed to an extreme in so-called public choice economics, where the behavior of political agents—that is, those in politics and the administrative state—is looked at as a manifestation of purely self-interested behavior. In doing so, the public choice theorists effectively take as a given that our governmental systems are oligarchical.

Interestingly, the notion of economic efficiency can be traced back to the Italian economist and sociologist Vilfredo Pareto. Initially Pareto seemed to fall into the classical liberal tradition of thinking that simply liberating market forces would result in optimal outcomes. But as time went on Pareto grew disillusioned with this view and started to focus on the importance of elite structures in society, which eventually led to his flirtation with the then-ascendent Italian fascist movement. This flirtation can in large part be explained by Pareto’s intransigent modernism and his unwillingness to take more classical political traditions seriously, but the very fact that the key theorist of efficiency ended up realizing the need for nonmarket-based political hierarchies is revealing.

The liberal economic framework, left unchecked, inevitably normalizes oligarchy. Because its framework deals entirely with selfish motivations and market forces, which are themselves set in motion through the accumulation of wealth, proponents inevitably assume that most of peoples’ day-to-day lives should be managed through the accumulation of wealth. In practice this obviously means oligarchy, with most of society being organized by corporate oligarchs and government even being retooled as a machine that tries to increase economic efficiency—which in this instance is a code word for: ever more accumulation of wealth.

It is not that the liberal economic is premised on normalizing oligarchy. It is simply that, as a mode of inquiry, it narrows the minds of its proponents to the extent that they cannot think of any form of social organization that is not best managed in an oligarchic fashion. Proponents of totalizing liberal economic modes of thought do not typically intend on advocating for oligarchy—although some of the more extreme theorists like Hans-Hermann Hoppe, that great sage of the Silicon Valley libertarians, do tend in this direction—rather the framework that they have adopted shutters their mind to thinking in any other way.

The Microeconomics of Aristocracy

The temptation then, is to throw out the liberal economic framework altogether. But this in unlikely to be effective. This mode of thinking is not just completely ingrained in our ruling elite, but it is in many instances quite useful. The management of resources and people is today mainly management that is best dealt with through reference to modern economics. The most promising path away from the promotion of an increasingly dysfunctional oligarchy, then, is through. To infuse our economic framework with aristocratic virtue, the most promising first step is to think through the economics of aristocracy itself.

What is the basic economics of the aristocracy? Phrased differently: what economic function do the aristocracy perform? First, we should be clear that we will move away from Plato’s ideal aristocracy, which was meritocratic in nature. Plato thought that the best and brightest—those who attended his school, naturally—would constitute the aristocracy. But in larger societies we have seen that this meritocratic system is untenable. Indeed, meritocracy itself seems to devolve rapidly into oligarchy. Actually Existing Aristocracy, to coin a term, is a hereditary affair. Aristocratic privilege is passed from one generation to the next. This does not mean that Actually Existing Aristocracies do not have a meritocratic component. New entrants are often allowed into the aristocracy, but the basis of the system is hereditary.

Aristocrats, as Plato explained, are people whose function in life is to rule. They are above, for example, capitalistic motives. They are motivated only for the common good of their societies. In this sense, we might think of them as being accumulations of human capital. But this is human capital of a very specific type. Economists often think of human capital as an input into the production process. But aristocrats are outside of the production process. They possess a wholly different type of human capital that we might refer to as “leadership capital.” The basic economic function of the aristocracy is, then, to accumulate leadership capital. This accumulation of leadership capital sits at the top of the social hierarchy and ensures that society is run in line with the common good. By running society well, the aristocracy opens the space for capitalists to accumulate wealth.

Why does aristocracy need to be hereditary? There appear to be two reasons for this. First, aristocracy is all about maintaining standards. Since leadership capital is not used up in the production process, it does not have a market value. The values of the aristocracy are independent of market valuation. So, the aristocracy must form these values for themselves and then defend them. New entrants cannot be allowed in unless they conform to these values. In a meritocracy, there are no protected values and so it inevitably tilts into an oligarchy as everything is reduced to market valuation. But in an aristocracy, if an upstart wants to pass behind the velvet rope, he or she must recognizably conform to the values of the aristocracy.

The second reason that functional aristocracies are hereditary is due to the production of leadership capital itself. The aristocracy must imbue its children with values and skills that exist outside of the marketplace. There are no market incentives for parents to imbue their children with these values and skills. Aristocrats are truly “born to rule” in the sense that, since childhood, they are surrounded by people exercising the skills and values needed to run society properly. This is why we often see pseudo-aristocracies emerge in corners of modern oligarchies. For example, we will often see political dynasties emerge. This is not so much because of some unfair advantage that the children of incumbent politicians have over everyone else, but rather because politicians and other leaders in oligarchies often instinctually try to create a hereditary line by raising their children in an aristocratic manner. But because there is no macroeconomic support system for this, the political dynasties exercise limited power and inevitably burn out.

The Macroeconomics of Aristocracy

This leads us to the macroeconomics of the aristocracy which is arguably the core problem of aristocratic formation in our time. In precapitalist economies, aristocracies could function easily due to most of the wealth being generated from the land. Since the aristocratic class had attained its status through warfare and conquest of the land, this led to a macroeconomy set up perfectly for aristocratic rule. The land generated economic rents that could then support the aristocratic households. These households could then reproduce leadership capital using the rents. People could move into the aristocratic class, typically through marriage into aristocratic families and thereby getting access to a share of the rents.

In the late nineteenth century, industry overtook land as the main source of national income. This led to a crisis of the aristocracy that we are still living through today. The aristocrats became increasingly impoverished and, unable to maintain their estates, they allowed themselves to be cannibalized by the business oligarchs. By the 1920s, aristocratic values were in rapid decline and the leftover aristocrats became increasingly decadent and absurd. This bred contempt for the aristocracy as people asked themselves why these privileged, decadent people were still around despite their contributing nothing to society.

Yet even in the early period of modern oligarchy it was widely recognized that many of the roles the aristocrats had played required leadership capital to maintain them. Yet while the aristocracy should largely stand outside the marketplace, it requires wealth to attract people of adequate value. Put bluntly, there is no way to maintain even a partial aristocracy without the aristocratic lifestyles being attractive relative to, say, the lifestyles offered by business or banking. It was for this reason that key formerly aristocratic positions were compensated in such a way that the people who occupied these roles could lead upper-class lifestyles. Yet as the oligarchy deepened its clutches and even these roles were subject to market pressures, the last vestiges of the former aristocracy collapsed.

Take the example of the American judiciary. Even today, this remains one of the few remaining positions in the United States with an air of aristocracy to it. In 1968 the average judge was paid a salary of about $35,625 a year which would be roughly $427,500 in today’s prices. Yet in 2023, the average judge is paid only $265,625 per year—almost half what a judge was paid in 1968 on an inflation-adjusted basis.

This picture gets even worse if we assume that, to get adequate leadership capital in judicial roles, judges should live upper-class lifestyles. In 1968 the average household income of a household in the top 1 percent of earners was around $26,095. An average judge’s salary was roughly 1.4 times this, putting the average judge comfortably in the upper class. Yet today, when the average household income of the top 1 percent of earners is around $570,003, an average judge’s salary today is only half of this—meaning that most judges cannot, on their salary alone, lead an upper-class lifestyle.

Sources: Bureau of Labor Statistics, United States Courts, Atkinson & Voitchovsky 2011

We are not claiming, of course, that if we simply raise judicial pay that this will end our present oligarchy. Judicial pay merely highlights the problems that the oligarchy is generating in crystal clear terms. Everyone would surely agree that if they found themselves in court, especially if they were accused of a crime, they would want someone on the bench deeply imbued with a respect for the common good. Yet the baseline economic incentives today are simply not there. Some publicly spirited people may well become judges, but many such people will presumably opt instead to go into corporate or financial law so that they can live upper-class lifestyles. Our oligarchic system is skewing incentives so violently that we cannot even be confident that we are attracting people of sufficient quality to interpret and enforce our laws; and since a market economy is founded on property rights and laws, this highlights an obvious absurdity.

Broaching the topic of how to instantiate a functioning aristocracy is beyond the boundaries of the current essay. But it is perhaps thinking through a few basic statistics to see if there would be serious financial impediments to doing so. For the sake of argument, let us say that to have a functioning aristocracy, the United States would need 500 aristocratic households. Let us also say that these households would require an annual income of $1.5 million each to support their aristocratic lifestyle. This would ensure an upper-class lifestyle but would not burden the aristocrats in the realm of obscene wealth which would be corrupting. The total cost of this program would be $750 million annually.

Let us put this cost in perspective. The total Federal budget in the United States was $5.8 trillion in 2022, meaning that the cost of the aristocratic program would be around 0.013 percent of the total Federal budget. The Federal budget is a true behemoth, encompassing everything from military expenditure to Medicare. Perhaps it is better to take a component from the budget that has some resemblance to the aristocratic program and compare it to that. International Affairs is a component of the budget that goes to fund diplomatic outreach efforts. While some of this funding goes to international aid and security assistance, much of it goes on diplomacy which is arguably a sort of funding of an American aristocratic class working abroad. The total funding for International Affairs in 2022 was $71 billion, meaning that our aristocratic program would cost around 1.06 percent of this budget. By any measure, an aristocratic program is easily achievable from a financial point-of-view and so the only real hurdle is political.

Budgeting would not be excessively difficult either and could simply replicate the time-tested primogeniture model. If we opted for a government-funded aristocracy – and we should be clear, there are other potential models – then the government would judge how many aristocratic families are needed initially and what the annual growth rate would be. Assume that each family has a relatively high fertility rate of 3. This would mean that one of the children – not necessarily the eldest – would take over the aristocratic household after his or her parents died. The other two children would then be freed up to go into the professions, business, the courts, the clergy and so on. This would be a de facto distribution of top-class leadership capital across these fields, injecting them with a much-needed dose of public spiritedness. In the past, this is how the aristocracy operated, with the children who did not inherit the land going into and improving other sectors in society.

The most important question moving forward for any revival of an aristocracy that will function is as follows: from where will the aristocrats derive their income? How can we ensure that people who should be forming an aristocracy and producing and reproducing leadership capital are able to lead upper-class lifestyles? If we do not solve this problem, then these people will simply pursue these lifestyles through business and will melt into the oligarchy. The question of how to economically support an aristocracy in a modern capitalist economy is not some silly nostalgic question asked over gin and tonics in a private club in Mayfair. It is a question of absolutely pressing concern. Our oligarchies seem to have completely expended the aristocratic leadership capital that they relied on to function. Unless a new injection of leadership capital is undertaken, and this leadership capital is allowed to accumulate naturally, a Platonic cycling of regimes seems almost certain. And even the oligarchs will find what comes next unpleasant.