A while back I was reading a stack of financial books, and in one of them the author (I think it was William Bernstein) wrote that he'd had the opportunity to interview a member of one of these families, and asked how they'd managed to hold onto their wealth for 600+ years.
The answer was "art, gold, and land." If you had a rich estate back then and a foreign army was on the way, you could roll up your art, put your gold in sacks, and ride away. The title to the land would still be yours, and after the foreign army is expelled you just return home with your stuff.
I can think of some risks with this plan, and some improvements that could be made today, but basically these people aren't chasing returns, they think about preserving wealth for the long haul through worst-case scenarios.
That requires land to run to, and sanctuary that doesn't relieve you of your gold when you arrive.
It only works for the 0.001% .
Chasing returns is not incompatible with wealth preservation; they are strategies for different scenariors. No one is chasing returns when the bullets are flying into their face.
Reminds me of a great post on here a while back from some accountants. They argued (ultra) wealthy families care more about preserving wealth for generations than high interest rates.
I believe you are paraphrasing James Rickards, EG from US News:
> When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is "a third, a third, and a third." This is shorthand for dividing one's wealth into one-third land, one-third gold, and one-third fine art.
Since I'm fairly familiar with finance and could not find this rule anywhere else I assume he means "a lot of people say" in the Trumpian sense, IE he made it up. There's no data backing the idea that families that have stayed rich invested in those particular assets.
While it's fun to think about escaping from the invading hoards with you sack of gold and a rolled up Old Master in your sack, my guess is that the continued wealth of the Florentine families has more to do with passing on education and cultural advantages, and being lucky enough to live in a relatively stable society.
They took advantage of diversification. Unfortunately most of us don't have access to more esoteric asset classes (e.g., fine wine, art, high end cars).
One thing I learned in Florence is when the plague came the rich families from Siena and Florence took two different approaches. In Florence, some of the families noticed they might not last so they decided to, not sure if distribute wealth is the right word, but they gave a lot to the city and remaining people. They knew it would be needed for rebuilding. Siena did not and according to my guide it’s the reason Florence flourished and Siena became a lesser known city.
I would love to know a bit more about mechanism. Is it through family holdings, individual wealth management, sons of well-to-dos becoming proverbial doctors and lawyers.
Florence is especially interesting. 15th century Italy had a relatively modern (similar/ancestral to our own) economic-political system. Wealth wasn't all about land-and-title aristocracy. "Merchant" families were the rich powerful instead.
Generally speaking, I'm curious about how all thia works on the individual level. Thomas Picketty's ideas about how wealth dynamics work in the long term are convincing, but, on simple interpretation, it isn't obvious how Bill Gates fits into the picture (other than as an outlier).
"When regressing the pseudo-descendant’s earnings on pseudo-ancestor’s earnings, the results are surprising: the long-run earnings elasticity is positive, statistically significant, and equals about 0.04. Stated differently, being the descendants of the Bernardi family (at the 90th percentile of earnings distribution in 1427) instead of the Grasso family (10th percentile of the same distribution) would entail a 5% increase in earnings among current taxpayers (after adjusting for age and gender)."
So if your family was rich then, you probably make 5% more than than most people now. Nothing much to see here.
I think the story might be more in the variance rather than the mean. Sure, those in the 90th percentile make only a little more, what about the 99.99th percentile? My guess is that the ultra elite still have huge amounts of wealth and the statistic was diluted with a large sample set.
averages/median Hide too much. Better question is What is the probability of being in the 90th percentile of wealth conditional upon your ancestors being in the 90th percentile of wealth and compare that against the bottom 10th percentile?
Edit: added ‘median’ for the ctrl-f keyboard warrior
1. Wealth != Taxable income. Wealth is generally post tax holdings. It's technical, but important to distinguish.
2. This isn't too strange for Europe. The aristocracies that stratified during the enlightenment did pretty well in places where there weren't proletariat revolutions in the 19th century.
The northern Italian city states have always been odd, autonomous ducks.
The problem with wealth, company any capex taxes has tended to be dynamic effects like capital flight. But, those aside, a 1% effective wealth tax on paoer/whiteboard, basically neutralises picketty's r>g, the driving force behind wealth disparities.
Taking away the ability for those who can take longer term risks doesn't really do anything to help those who don't have that opportunity. The total income brought in from inheritance taxes isn't really enough to create a society wide impact on this type of problem either.
The ability to give your wealth onto your children is an important motivator for older people to continue to have purpose, work, and be productive members of society.
Put yourself in the life of a 65 year old with adult children. How would you feel about 80% of your death-day savings being taxed? What different choices would you make in your last decades as opposed to today?
I don't know about the US but in the UK a land value tax looks quite attractive. For one thing it's almost impossible to avoid, you can't shift land to a low tax regime. I'm not sure we will ever knowingly vote for it though.
> So inheritance tax?. Or is there an argument that this is good for society?
Why is this binary? It could be terrible for society, and something which an inheritance tax cannot cure.
Or something awful for which cures would be worse. We could eliminate most cancers from society if we shot everybody on their 60th birthday... but few would regard this as an improvement. Ditto Maoism, etc. But there are other more incremental things we can, and do, try against cancer.
No point. The very wealthy can find very good ways to avoid such taxes, e.g. through creating foundations, businesses, etc… I believe this is one of the reasons why wealthy families often create some foundation.
It allows one to put their children on the payrol, keep money in the family and prevent any outsiders to gain access to this capital through marriage, etc… You could invest most of the money and spend a minor amount on charity each year, allowing the capital to grow and avoid paying taxes. Money donated to the foundation is in many countries tax free as well, so it's another nice way to avoid paying too much income tax.
To a first approximation, yes. But it breaks apart quite quickly -> otherwise we'd the world pop would be much higher.
thought experiment, if every rich family in Flrnc had a million decedents, and there were (at least) a thousand families in Italy, then there would be a billion ppl in Italy today.
What happens? Well first high child mortality, or death before reproduction. Then you send most of your daughters off to the nunnery. Your youngest son becomes the family priest. You marry within the group (actually not that dangerous, genetically). End result? The numbers stay low.
Still many of us are probably related to these rich families. For example, otherwise normal, boss is related to the Eastern European royalty... through a courtesan. He didn't get squat from them (although he ironically ended up with their name by sheer coincidence).
Nassim Taleb uses the Florence example to make the argument that Europe has more economic inequality compared to the US. He makes an interesting point that static measures of inequality like 'top 1% of population have xx% of the wealth' aren't that useful, a better indicator would be a dynamic measure that shows economic mobility, people going both up (new money) and down the ladder (bankruptcy). It looks like in Florence, families that climbed the ladder centuries ago never came down.
$100 dollars in principal with a $1 annual contribution @7% interest is >$28 Billion invested now. Still surprising between war, revolution or poor financial management the fortune didn’t erode.
I see nothing wrong with a previously "wealthy" family remaining in the "wealthy" category. To me the real need is rising tides raising All ships (and maybe that the lowest ships are rising at faster relative rates than the highest ships).
Whereas the poor maybe used to only have (completely guessing here) basic food, grade 6 education and didnt have any printed materials, now the poor have excess calories, state mandated 12 years education and access to the internet.
on the political side, IMO dividing people is just a tactic to conquer them, so watch out for those who would turn us against eachother.
When you research the mega rich across time, up until the 21st century, you learn a lot of weird things. Some are things most people would call “conspiracy theories”. Some are things you would expect but can’t imagine actually happening (like closely protecting blood lines).
If you want to read some weird mega-rich stuff do some digging on the “red shield” family, their financial relationship with a particular large church, the sinking of the titanic, and read “The Secrets of the Federal Reserve” by Eustace Mullins (the benefactor for much of his research was Ezra Pound).
I'd surmise that over 591 years (short of an exhaustive study) many 'rich' families have -not- remained rich. I'm not sure what 'rich' means; who's in a position (or even can be) to know who was objectively 'richest' then; and centuries have a tendency to erase many or most fine details, and to embroider others.
This makes me wonder which "stable" country currently has the least amount of generational wealth.
I would assume China, due to the Cultural Revolution. From what I recall, all of their billionaires are currently first generation. But we will see as time goes on.
Or maybe South Korea since they were were colonized for a long time and suffered through a recentish, direct war.
Israel is a strong candidate given that the country didn't exist before 1948. Essentially the country was reset to zero as all Arab wealth was confiscated and nationalized during the formative years in the 1950's.
The question I'd like to see answered: Does the wealth come purely as a result of circumstance, or do the families have genetic traits that make their descendants better at accumulating / retaining wealth?
That isn't surprising. It's much, much easier to gain and keep wealth when you already have a lot of wealth (that's the flip side of the fact that it's very expensive to be poor).
[+] [-] DennisP|7 years ago|reply
The answer was "art, gold, and land." If you had a rich estate back then and a foreign army was on the way, you could roll up your art, put your gold in sacks, and ride away. The title to the land would still be yours, and after the foreign army is expelled you just return home with your stuff.
I can think of some risks with this plan, and some improvements that could be made today, but basically these people aren't chasing returns, they think about preserving wealth for the long haul through worst-case scenarios.
[+] [-] Tade0|7 years ago|reply
My family used to own some land but after WW2 it became Soviet territory and was lost.
We received some compensation eventually, but it was a pittance comparing to the original value.
[+] [-] gowld|7 years ago|reply
It only works for the 0.001% .
Chasing returns is not incompatible with wealth preservation; they are strategies for different scenariors. No one is chasing returns when the bullets are flying into their face.
[+] [-] mattferderer|7 years ago|reply
[+] [-] normal_man|7 years ago|reply
[+] [-] kamaal|7 years ago|reply
Once you make a non-trivial amount of money. Preserving it becomes way more important than adding deltas to it.
Not getting famous, keeping low key and not breeding exponentially also helps.
[+] [-] yellowstuff|7 years ago|reply
> When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is "a third, a third, and a third." This is shorthand for dividing one's wealth into one-third land, one-third gold, and one-third fine art.
https://www.usnews.com/opinion/blogs/economic-intelligence/2...
Since I'm fairly familiar with finance and could not find this rule anywhere else I assume he means "a lot of people say" in the Trumpian sense, IE he made it up. There's no data backing the idea that families that have stayed rich invested in those particular assets.
While it's fun to think about escaping from the invading hoards with you sack of gold and a rolled up Old Master in your sack, my guess is that the continued wealth of the Florentine families has more to do with passing on education and cultural advantages, and being lucky enough to live in a relatively stable society.
[+] [-] Spooky23|7 years ago|reply
[+] [-] BurningFrog|7 years ago|reply
[+] [-] wahooligan|7 years ago|reply
[+] [-] wil421|7 years ago|reply
[+] [-] partiallypro|7 years ago|reply
[+] [-] JohnJamesRambo|7 years ago|reply
[+] [-] netcan|7 years ago|reply
Florence is especially interesting. 15th century Italy had a relatively modern (similar/ancestral to our own) economic-political system. Wealth wasn't all about land-and-title aristocracy. "Merchant" families were the rich powerful instead.
Generally speaking, I'm curious about how all thia works on the individual level. Thomas Picketty's ideas about how wealth dynamics work in the long term are convincing, but, on simple interpretation, it isn't obvious how Bill Gates fits into the picture (other than as an outlier).
[+] [-] learn_more|7 years ago|reply
So if your family was rich then, you probably make 5% more than than most people now. Nothing much to see here.
[+] [-] dannykwells|7 years ago|reply
[+] [-] ForHackernews|7 years ago|reply
[+] [-] safgasCVS|7 years ago|reply
Edit: added ‘median’ for the ctrl-f keyboard warrior
[+] [-] jaclaz|7 years ago|reply
https://news.ycombinator.com/item?id=13555925
Actual paper:
http://piketty.pse.ens.fr/files/BaroneMocetti2016.pdf
[+] [-] OJFord|7 years ago|reply
[2017], also discussed in 2016: https://news.ycombinator.com/item?id=11731890
[+] [-] huffmsa|7 years ago|reply
1. Wealth != Taxable income. Wealth is generally post tax holdings. It's technical, but important to distinguish.
2. This isn't too strange for Europe. The aristocracies that stratified during the enlightenment did pretty well in places where there weren't proletariat revolutions in the 19th century.
The northern Italian city states have always been odd, autonomous ducks.
[+] [-] bpicolo|7 years ago|reply
[+] [-] ataturk|7 years ago|reply
[deleted]
[+] [-] peteretep|7 years ago|reply
[+] [-] benj111|7 years ago|reply
Or is there an argument that this is good for society?
[+] [-] netcan|7 years ago|reply
The problem with wealth, company any capex taxes has tended to be dynamic effects like capital flight. But, those aside, a 1% effective wealth tax on paoer/whiteboard, basically neutralises picketty's r>g, the driving force behind wealth disparities.
^ edit: in that theory
[+] [-] bsbechtel|7 years ago|reply
[+] [-] randyrand|7 years ago|reply
Put yourself in the life of a 65 year old with adult children. How would you feel about 80% of your death-day savings being taxed? What different choices would you make in your last decades as opposed to today?
[+] [-] tonyedgecombe|7 years ago|reply
[+] [-] iguy|7 years ago|reply
Why is this binary? It could be terrible for society, and something which an inheritance tax cannot cure.
Or something awful for which cures would be worse. We could eliminate most cancers from society if we shot everybody on their 60th birthday... but few would regard this as an improvement. Ditto Maoism, etc. But there are other more incremental things we can, and do, try against cancer.
[+] [-] wsc981|7 years ago|reply
It allows one to put their children on the payrol, keep money in the family and prevent any outsiders to gain access to this capital through marriage, etc… You could invest most of the money and spend a minor amount on charity each year, allowing the capital to grow and avoid paying taxes. Money donated to the foundation is in many countries tax free as well, so it's another nice way to avoid paying too much income tax.
[+] [-] mrfusion|7 years ago|reply
[+] [-] gwerww|7 years ago|reply
thought experiment, if every rich family in Flrnc had a million decedents, and there were (at least) a thousand families in Italy, then there would be a billion ppl in Italy today.
What happens? Well first high child mortality, or death before reproduction. Then you send most of your daughters off to the nunnery. Your youngest son becomes the family priest. You marry within the group (actually not that dangerous, genetically). End result? The numbers stay low.
Still many of us are probably related to these rich families. For example, otherwise normal, boss is related to the Eastern European royalty... through a courtesan. He didn't get squat from them (although he ironically ended up with their name by sheer coincidence).
[+] [-] rhacker|7 years ago|reply
[+] [-] carusooneliner|7 years ago|reply
Taleb's essay on inequality: https://medium.com/incerto/inequality-and-skin-in-the-game-d...
[+] [-] wand3r|7 years ago|reply
[+] [-] AnimalMuppet|7 years ago|reply
[+] [-] unknown|7 years ago|reply
[deleted]
[+] [-] kerng|7 years ago|reply
https://www.goodreads.com/book/show/22710315-one-trillion-do...
[+] [-] kensai|7 years ago|reply
https://www.bancaditalia.it/pubblicazioni/temi-discussione/2...
[+] [-] maerF0x0|7 years ago|reply
Whereas the poor maybe used to only have (completely guessing here) basic food, grade 6 education and didnt have any printed materials, now the poor have excess calories, state mandated 12 years education and access to the internet.
on the political side, IMO dividing people is just a tactic to conquer them, so watch out for those who would turn us against eachother.
[+] [-] ryanmarsh|7 years ago|reply
If you want to read some weird mega-rich stuff do some digging on the “red shield” family, their financial relationship with a particular large church, the sinking of the titanic, and read “The Secrets of the Federal Reserve” by Eustace Mullins (the benefactor for much of his research was Ezra Pound).
[+] [-] 8bitsrule|7 years ago|reply
[+] [-] throwaway5393|7 years ago|reply
I would assume China, due to the Cultural Revolution. From what I recall, all of their billionaires are currently first generation. But we will see as time goes on.
Or maybe South Korea since they were were colonized for a long time and suffered through a recentish, direct war.
[+] [-] dorfsmay|7 years ago|reply
"It’s a trait shared by elite families in China, whose high status has persisted since the Mao years."
https://qz.com/314720/heres-the-surprising-social-trait-that...
[+] [-] bjourne|7 years ago|reply
[+] [-] gwbas1c|7 years ago|reply
[+] [-] JohnFen|7 years ago|reply