Definition
Plutocracy refers to a form of government where the wealthy hold the primary control or influence. This could be direct control via monetary power, or indirect control through influencing policies and regulations. It’s not specifically a finance term, but rather a political or societal term closely related to finance due to its focus on wealth.
Key Takeaways
- Plutocracy is an economic system where wealth is the primary determinant of power and status. It’s a governance system led by the richest members of the society.
- In a Plutocracy, a small part of the population, namely the wealthiest individuals, have control over major decisions, policies and law-making. This often leads to economic disparity and social inequities since the decisions are typically in favor of the wealthy.
- Although no country identifies itself as a Plutocracy, in practicality, certain elements of it can be seen in numerous societies. This is particularly the case where corporate wealth influences or controls political power, commonly through fundraising and lobbying.
Importance
Plutocracy is a significant financial term as it refers to a societal structure where power and influence are concentrated in the hands of a few wealthy individuals or families.
This type of system can have significant impacts on economic policies, wealth distribution and equality within society.
It tends to favor the rich and can contribute to social and economic inequality, creating a wealth gap between the rich minority and the majority of the populace.
Plutocracy is essential to understand in the financial world as it can shape the economic climate of a country, influencing business decisions, tax policies, and the volatility of financial markets.
Explanation
Plutocracy is a type of societal structure often used to describe a situation where wealth is the primary determinant of power and status. The core purpose of a plutocracy is to allow the wealthiest individuals or groups in a society to assert influence over political decisions, economic policies, and legal systems.
The origins of the term come from the Greek words ‘ploutos’ meaning wealth and ‘kratos’ meaning power or rule. In this setup, the wealthier sections of society control the decision-making processes either directly or indirectly, playing a substantial role in shaping societal norms, standards, and legislation.
Although plutocracies are not formally recognized forms of government, they are often used as a critical lens to understand certain socio-political dynamics. Use of wealth in these systems can range from campaign financing, lobbying for favorable legislation, or indirectly influencing public opinion through control over media outlets.
Furthermore, a plutocracy could also influence economic decisions such as the allocation of resources, tax legislation, and market regulation. Critics argue that these systems perpetuate income inequality and hinder socio-economic mobility, while proponents often point to the efficiency of decision-making and economic growth under such systems.
Examples of Plutocracy
The United States: While it’s a democratic nation in label, some argue that the U.S. also operates as a plutocracy in many ways. Individuals and corporations with substantial wealth have considerable influence over government policies and decision making. This is evident through the heavy impact of lobbyists and corporation funding in U.S. politics.
Russia: Under the presidency of Vladimir Putin, Russia is often cited as a prime example of a modern plutocracy. This is largely due to the massive concentration of wealth among a small group of oligarchs, who exert outsized influence over Russian politics and its economy.
The Gilded Age in America (1870s – 1900): During this time period, the immense wealth and economic power was primarily held by a small group of business tycoons like Rockefeller, Vanderbilt, and Carnegie. Their significant wealth enabled them to not only control industry but often, through their financial contributions, influence politics and policy-making.
FAQs on Plutocracy
What is Plutocracy?
Plutocracy is a form of government in which the rich have power and control. The wealthy class makes the decisions and rules, often to the detriment of the less affluent citizens.
What is the origin of Plutocracy?
Plutocracy originates from the Greek “ploutos”, which means wealth, and “kratos”, meaning power or ruling. It was used to describe the ancient Greek societies where the wealthy were in control.
What are some examples of Plutocracies?
There are different views on which countries today can be considered plutocracies, but some argue that the United States, with its significant wealth disparity and influence of big corporations in politics, exhibits characteristics of a plutocracy.
What is the impact of Plutocracy on the economy?
Plutocracies can hinder economic growth and increase income inequality. The control of wealth in the hands of a few can lead to a lack of opportunities for the larger population, thus creating a wide wealth gap.
How does Plutocracy differ from Oligarchy?
Both systems are ruled by a small group, but a plutocracy is ruled by the wealthy, while an oligarchy is ruled by a specific group, which could be based on various factors like family, military power, or education, not necessarily wealth.
Related Entrepreneurship Terms
- Oligarchy
- Income Inequality
- Capital Concentration
- Economic Elitism
- Wealth Disparity
Sources for More Information
- Encyclopedia Britannica: This site offers in-depth research articles on a wide range of subjects, including finance terms like Plutocracy.
- Investopedia: It is a trusted source for financial information and frequently covers concepts including Plutocracy.
- Merriam-Webster: Besides being a widely recognized dictionary, it also provides detailed definitions and explanations of various terms, including economic terms.
- Economics Help: This site specifically focuses on economic concepts and terms and can provide a specialized view on the topic of Plutocracy.
