In 2014, the economist Thomas Piketty warned in his bestselling Capital in the Twenty-First Century that patrimonial capitalism, wherein inheritance is the dominant form of wealth acquisition, was making a comeback. The book is best remembered for the formula r > g, where r is return on capital and g is economic growth.
The basic idea was that we risked recreating the wealth aristocracy that prevailed throughout Europe prior to the twentieth century. In that world, an ambitious young man of limited means (in those days it was always a man) stood virtually no chance of getting rich through his own labors. If he wanted wealth, he had to marry it or inherit it because money made money faster than people did.
The United States isn’t there yet. The top 10 slots in the Forbes 400 are still dominated by self-made men (these days it’s almost always a man), and, according to Forbes, the proportion of “bootstrappers” among all 400 rose from less than half in 1984 to 70 percent in 2023.
But it’s reasonable to doubt that trend will hold in 2063, given the growing concentration of wealth in the U.S. Indeed, during roughly the same period cited by Forbes, the 27 U.S. families that made both the 1983 and the 2020 Forbes 400 lists saw their net worth increase more than 1,000 percent, according to a report led by Chuck Collins at the Institute for Policy Studies.
That didn’t happen in a vacuum. For a couple of generations now, government policy has encouraged and exacerbated this trend. States have been tripping over each other to eliminate the Rule Against Perpetuities, which limits to three or four generations the period during which you can shelter wealth from taxation in a family trust. At the federal level, estates of up to $14 million are now exempted entirely from the estate tax, and the “angel of death” loophole, which at death resets to zero the capital gains tax on real estate and securities—and which President Joe Biden, when he tried to scale it back, couldn’t even get Democrats to sign on—reigns supreme. (For more detail on how, as Piketty put it, “the past tends to devour the future,” see my December 2021 piece, “Defund the Dead.”)
But there’s a counterforce to r > g, and its name is dissipation. As wealth passes from one generation to the next, its debilitating effect on individual character takes a toll and you end up with trust fund brats who piss away the family fortune chasing drugs, booze, indiscriminate sex, luxury goods, expensively dangerous outdoor sports, and laughably poor investments. It’s gotten so bad, Juliet Chung reports in The Wall Street Journal, that oligarchs are now writing mission statements for their families to abide by.
“It’s a simple question,” the wealthy investor James Harold Webb says on his personal web page. “Why can’t you be the next Rockefeller dynasty?” According to Chung, Webb gathered his children and grandchildren together to write a family mission statement. Here’s what they came up with:
“If I have to stop this car again, we’ll turn around and go home.”
Just kidding!
The mission statement said:
Life is a gift that cannot be wasted. Family is the essence of that life and, as a family, we will work hard. We will play hard. We will live in the pursuit of knowledge. We will love our family unconditionally. We will give more than we take to ensure a better world.
Everything here is extraneous except that final sentence, which is a euphemistic way of saying, “Don’t spend down the principal.”
That’s the message of all family mission statements. The family mission statement of a wealthy investor named Sam Schmidt, for instance, reads, in part:
Our mission is to preserve, grow and steward resources while prioritizing generosity so that we may invest in family through education, life enriching experiences, and quality time together.
Setting aside that “steward” is not a verb, “grow and steward resources” is the key phrase.
The advent of family mission statements suggests to me that dissipation poses a more serious threat to intergenerational wealth than I knew, because if it didn’t why would anybody resort to such desperate and ridiculous measures? Even as Piketty, Collins, and I write jeremiads bewailing the imminent return of patrimonial capitalism, I learned from Chung’s piece, the wealth advisers Victor Haghani and James White warn about patrimonial capitalism’s imperilment in their 2023 book, The Missing Billionaires.
Missing? Funny, I had the impression billionaires were breeding like rabbits. As I observed in June (“How the Billionaires Took Over”), in 1957 there were at most two billionaires in the United States (H.L. Hunt and John Paul Getty). By 1982, there were 13; by 1987, 44; by 1995, 129; by 2021, 1,370; and today not quite two thousand.
But as Haghani and White see it, these aren’t the right sort of billionaires. “Remarkably few of the billionaires in the news these days are scions of old wealth,” they observe. In 1900, they write, there were about four thousand millionaires in the United States. If at least one-quarter of those families had “invested their wealth in the US stock market and spent from it at a reasonable rate,” they calculate, the country would have 16,000 old-money billionaires.
Thank God they didn’t! But Haghani and White, perversely, see a lost opportunity. They quote Andrew Carnegie’s famous maxim, “shirtsleeves to shirtsleeves in three generations” to complain that vast family fortunes like Commodore Vanderbilt’s are gone with the wind. Never mind that Carnegie opposed inherited wealth, writing in “The Gospel of Wealth” that “great sums bequeathed oftener work more for the injury than for the good of the recipients.”
The Missing Billionaires would be a better read if Haghani and White documented the descent into madness and criminality of heirs like “Big” and “Little” Eydie Beale of Grey Gardens or Albert Edward Clarke III, who inherited Margaret Wise Brown’s royalties from Goodnight, Moon. Haghani and White’s “missing billionaire” angle turns out to be a gimmick to get readers to buy what’s really just a conventional investment guide pitched to ordinary people. But there’s a rich literature on “affluenza,” i.e., the debilitating effect of inherited wealth, that I sampled a quarter-century ago in a three–part series for Slate. Not much has changed since then.
Well—one thing has changed. I used to write about the dissolute rich with deep disapproval, judging them a terrible drag on society. Now I’m starting to believe their idleness and dissipation may be America’s last, best hope to avoid the curse of patrimonial capitalism, given our government’s deep reluctance to raise taxes on the rich.
Lately we’ve been witnessing corrupt wealth-preservation schemes enacted by some of our more energetic nepo-oligarchs. President Donald Trump and his children are the most worrying example right now, with the children of the billionaire Mideast envoy Steve Witkoff placing second. Then there’s David Ellison, the media-monopolist son of billionaire Larry. In the long run, David’s maneuvers may well turn out to be wealth-dissipating, but in the meantime he’s doing enormous mischief to CBS News in particular. Wouldn’t we be better off if these rich heirs went clubbing all night and shot up heroin all day? Or (to be nicer about it) if they rusticated in Maine year-round as gentle WASP-rot types? (I borrow the term “WASP rot” from Washington Post treatises on the phenomenon published years ago by Abigail Trafford and Henry Allen.)
The Journal piece on family mission statements leaves me with some hope that our future won’t be burdened by 16,000 Eric Trumps and David Ellisons. So do the multiple web pages I found online about what to do when your heir has a substance-abuse problem, is a gambling addict, is incarcerated, etc. To maintain some semblance of equality in the U.S., what we’re going to need (until government policymakers come to their senses) is 16,000 Big and Little Eydie Beales. Long live dissipation and regression to the mean.
The post In Praise of the Idle Rich Wastrel appeared first on New Republic.
