Can Economics Explain the Rise and Fall of the British Aristocracy?
On the supply of and demand for aristocrats...
In the modern world, especially in places like the United States, we tend to look unfavorably on aristocracy. Dukes, earls, barons, knights? These are just terms from a bygone era. In fact, Americans often mock their European cousins for carrying on with these titles. Sir Paul McCartney? How silly.
Nonetheless, readers of Economic Forces have no doubt realized at this point that I like to write about two things: (a) how economics can help us to understand the world, and (b) why particular institutions persist. This makes it much harder for me to mock aristocracy. The British aristocracy, for example, lasted a very long time. Sure, the modern aristocracy in the United Kingdom is mostly just symbolic and status-based. However, this wasn’t always the case. At one time, the aristocracy served in important public service roles. In fact, the pre-modern aristocracy lasted for over 300 years. During those 300 years of public service, England experienced many successes including its rise as a global power, the acquisition of a massive empire, the Industrial Revolution, and the moderation of monarchical power. One might therefore wonder what role, if any, the aristocracy played in that process.
Regardless of whether the aristocracy played any role in those broad changes, the fact that the pre-modern aristocracy survived for 300 years calls out for explanation. What purpose did the aristocracy serve? Why did it persist? What lesson(s) can economics teach us about the existence and persistence of the aristocracy during this period? Fortunately, Doug Allen has attempted to use economics to explain the pre-modern aristocracy. His argument will be the subject of this week’s newsletter.
The Aristocracy: Some Background
Allen’s argument is focuses on the pre-modern British aristocracy. This is the aristocracy from approximately 1550 - 1880. When people write about this period, and the aristocracy in particular, they often describe this as a period of corruption. The use of the word corruption is largely the result of comparisons with modern notions of meritocracy. The role of the aristocrats in public service came not from their superior abilities or talents, but rather through patronage, heredity, or outright purchases of a position. When combined with their lavish lifestyles for the period, it is not hard to understand why the modern eye might view the aristocracy quite unfavorably.
But if the aristocracy was this reprehensible and corrupt, why did it last so long? It is even more challenging to answer this question given that the aristocracy seemed to govern with the consent of the people. The lack of popular revolts, including during the long period in which the king lacked a standing army, seems to present a challenge to the conventional narrative of corruption.
To get a sense of why the aristocracy persisted, we might want to first briefly describe what public services they provided and how these positions were obtained. In short, the aristocracy controlled essentially all public offices. Both houses of Parliament consisted of members of the aristocracy. They also served in roles as judges, local administrators, and officers in the army and navy. They were in charge of port management and tax collection.
Sometimes these positions were obtained through patronage. This occurred when the king would assign a member of the aristocracy to a particular position. This was particularly true of high level offices. Unlike these high level offices, lower level offices could be bought and sold and were hereditary.
Offices that could be bought and sold generally generated income for the owner. Offices obtained through patronage sometimes generated income or fees directly, but also could have compensation in the form of a salary. Offices that were assigned by patronage could be taken away from the public servant without any form of compensation. Removal from office ws also generally associated with the aristocrat being ostracized.
Crucially, these offices were not filled by any recognizable form of merit. There were no public service exams. There were no clearly defined skills that had to be demonstrated. There was also little, if any, monitoring of the aristocrats performance.
Requirements of the Aristocracy
To be a member of the aristocracy, one had to comply with a number of requirements. Allen lists the following requirements:
An aristocratic family had to have a coat of arms.
Aristocrats had to have extremely large land holdings.
There were significant limits and prohibitions on alienation of land across generations.
One could not join the aristocracy unless the substantial quantity of land was held for more than one generation.
Aristocrats were expected to live extravagantly, but also to volunteer their time.
Loyalty to both the king and to others in the aristocracy was required. This included the requirement that children of the existing aristocrats intermarry.
Entry not only required multigenerational land holding, but the land must have a country house that served not only as the aristocrat’s home, but also as a meeting place for fellow aristocrats.
Membership in the aristocracy required proper education. This meant a particular type of education that emphasized the learning Greek and Latin, classic literature, and the broader liberal arts. This also meant attendance at particular schools. Notably absent was any learning of practical skills or trades.
Those who gained access to the aristocracy by rising from the merchant class had to abandon their businesses as part of the process.
Removal from the group could occur due to a breach of trust or a loss of honor (e.g., the failure to take part in a duel). Exit was permanent.
How Can We Use Economics to Explain the Role and Requirements of the Aristocracy?
A common argument is to suggest that the aristocracy is just a status game. To ascend to the aristocracy is to achieve a high level of status. For status to mean something, it needs to be exclusive. Nonetheless, this is hard to square with all of the rules and requirements of the aristocracy. If membership in the aristocracy was purely a status good, then one would expect to find significant hurdles to joining the aristocracy. In the language of economics, one would expect a substantial fixed cost associated with entry. Indeed, substantial fixed costs of entry are outlined above. Yet, the rules do not apply only to a fixed cost of entry. There are a number of costs that are only incurred after joining the aristocracy. It is hard to square that with the idea that this is solely about status.
An alternative hypothesis is that the purpose of the aristocracy was to provide public service. Given that this was the main occupation of the aristocracy, this doesn’t seem unreasonable. Again, however, one needs to square this with the rules and requirements outlined above. It is not immediately obvious how to do that. Allen, however, provides a theory.
Allen presents his argument as follows. In the pre-modern period, the monarchy lacked a large bureaucracy capable of collecting taxes and providing public goods. The basic infrastructure of the pre-modern state made this impossible. Nonetheless, the state needed a way of collecting taxes, administering public services, holding trials, etc. One potential solution to this problem would be to have a trusted group of advisors/nobles/aristocrats perform these tasks. The key word there is “trust.” In pre-modern societies, monitoring was quite difficult. In part, this was due to the fact that it was hard to adequately judge the relationship between inputs and output. As Allen points out, the Industrial Revolution didn’t just lead to significant technological improvements in production, it also led to innovations in monitoring and innovations that reduced the variability of outcomes due to nature. Because it was hard to relate inputs with output and monitor public servants, pre-modern states had to find an alternative. A trusted class of aristocrats is one potential solution.
Reliance on trust, however, is fraught with a number of issues. Most notably, a reliance on trust is a reliance on the honesty of the public servants. In other words, for a trusted group of aristocrats to adequately provide the desired public services, the king would have to believe that this aristocrats would be honest in the provision of these services. For example, the king would have to trust tax collectors not to skim some revenue and blame the shortfall on robbers or bad weather.
Trust comes with a commitment problem. The person providing public service was engaged in repeated dealings with the king. To the extent to which dishonesty can be hidden, the public servant could benefit himself at the expense of the king. Since monitoring was difficult and costly, it stands to reason that reliance on trust alone would be insufficient to prevent dishonesty. In order to rely on trust, the king needs to be able to impose a punishment on the public servants that is greater than any benefit the public servant could obtain through dishonesty.
In this context, the rules and requirements of the aristocracy begin to make sense. If you look at the list above, one can think of the conditions outlined as requirements for investment in what Allen calls “hostage capital.” What aristocrats and would-be aristocrats are investing in are forms of physical capital, human capital, and social capital that only have value as long as the person (and their family) remains a member of the aristocracy. In the event that a person is found to be dishonest, removal from the aristocracy was swift and permanent. Should that happen, the value of these investments are lost. In short, these rules and requirements create a commitment mechanism that forces aristocrats to remain honest in their dealings with the monarchy since the failure to do so wipes out the value of the aristocrat’s capital.
Concluding Thoughts
As a stated at the beginning, we tend to look at aristocracy today as an antiquated characteristic of the Old World. However, the durability of the British aristocracy suggests that it served an important purpose in society. The fact that the pre-modern aristocracy served the public during a time of British ascendancy in the world should give one pause about modern mockery. Allen presents a compelling theory of the aristocracy as a solution to the problems inherent in the pre-modern state.
If Allen’s theory is correct, then one would expect that the transition from aristocrats from important public servants to pure social status without any right to rule would be explained by some type of change in monitoring technology. The improved ability to monitor and assess the performance of public servants would remove the need for trust and therefore the need for punishment of those who proved untrustworthy.
This is precisely what Allen argues. The Industrial Revolution brought about standardization in measurement and reduced the variability of production outcomes. Measurement of time and performance became much easier. This eroded trust as an important component of public service. Trust was therefore replaced with civil service exams and monitoring.
The Industrial Revolution also increased the rate of return on productive capital. This provided an alternative path to wealth and status. Thus, there wasn’t just a decline in the demand for aristocrats, the combination of a higher rate of return from productive capital and a lower rate of return from investment in hostage capital also resulted in a decline in the supply of would-be aristocrats.
Allen argues that the peaceful nature of this process supports his hypothesis. Changing incentives caused the monarch, aristocrats, and would-be aristocrats to alter their behavior. No major conflict or revolt was necessary. Instead, aristocrats no longer had the incentive to live their costly, extravagant lifestyle because the rewards of membership in the aristocracy declined.