Despite increasing attention, scholars lack the analytic tools necessary to understand international hierarchy and its consequences for politics and policy. This is especially true for the informal hierarchies now found in world affairs. Rooted in a formal-legal tradition, international relations scholars almost universally assume that the international system is a realm of anarchy. Although the fact of anarchy remains a truism for the system as a whole, it is a fallacy of division to infer that all relationships within that system are anarchic. Building on an alternative view of relational authority and recent research on the practice of sovereignty, a new conception of international hierarchy is developed that varies along two continua defined by security and economic relations. This construct is operationalized and validated, and then tested in a large-nstudy of the effects of international hierarchy on the defense effort of countries. The principal finding is that states in hierarchical relationships spend significantly less on defense relative to gross domestic product than states not in such relationships. In short, hierarchy matters and subordination pays; states appear to trade some portion of their sovereignty for protection from external security threats.