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The richest families in Florence in 1427 are still the richest (2016) (qz.com)
380 points by albertzeyer 3 months ago | hide | past | web | favorite | 255 comments

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.

This idea ultimately didn't work in eastern Europe.

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.

So maybe "art, gold, land, and 600 years of government that respects the continuity of property holdings of their subjects".

That's a pretty rare occurrence. IIRC France and Italy(or actually various states occupying this territory throughout history) qualify here.

Not sure about Germany with its cycles of partition and unification but everything east of Berlin to the Ural mountains is out of the question.

We need to tax wealth, not income, to increase social mobility. Taxing income hurts entrepreneurs, taxing wealth pushes the idle rich to work harder.

Taxing wealth will only increase the mobility of the wealthy.

Luckily at least you're alive. In my country whole social class was wiped out after ww2.

> After World War II, Czechoslovakia, the predecessor of the Czech Republic and Slovakia, acting to seize what they considered to be German possessions, expropriated the entirety of the Liechtenstein dynasty's hereditary lands and possessions in Bohemia, Moravia, and Silesia which compose the Czech Republic. The expropriations (which were the subject of an unsuccessful court case brought by Liechtenstein in the German courts and the International Court of Justice) included over 1,600 km² (which is ten times the size of Liechtenstein) of agricultural and forest land mostly in Moravia, also including several family castles and palaces.


Feudal holdings require feudal power.

Nevermind that the lands were private property and not feudal holdings.

I would say it worked until the world changed in such a way that old systems were entirely dismantled.

But even in previous eras that system of wealth preservation only worked when it worked. If the invading army was never expelled, your land could be lost. And carrying all those valuables around with you while fleeing, well I'm sure people still got robbed sometimes. So it wasn't a foolproof solution. But there were limited options, and maybe not a better options.

Even now, what's the solution for wealth preservation in times of upheaval and displacement? I have no idea. Right now most of us trust in the banking system to some degree and that's only good as long as the system stands. If it collapses we're all boned and might wish for a bit more art, gold, and land to fall back on.

This does all sort of go out of the window once the worst case scenario becomes "the government steals everything from you and kills you if you resist."

Careful with the terminology there. "Stealing" is only really meaningful in the context of a legal framework, which happened to change in most places in Europe around the turn of the 20th century.

I'm more inclined to frame it in terms of an outdated, inegalitarian social order being overturned, resulting in massive upheaval and atrocities due to the power vacuum being rapidly filled again by the most ruthless actors.

It's still stealing even if it's called "eminent domain" or "civil asset forfeiture". It's basically stealing backed by little green men with guns.

my family was in the same boat but never got any compensation, probably partly due to the territory being swapped to a different sovereign nation ( old Poland -> contemporary Ukraine)

Exactly the same kind of shift here.

That being said the compensation, IIRC, didn't cross 10k PLN, so divided between all people entitled it wasn't much.

Relevant Article: Poland's lost property https://www.ft.com/content/be98d9aa-360d-11df-aa43-00144feab...

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.

Financing wars has always been lucrative, and remains lucrative to this day.

unless you sell guns of course

so the richest families in Florence in 1427 were the 0.001 percent? At any rate it seemed to have worked for them.

Its called survivor bias :)

so you're saying that there are a number of formerly rich families at the time who have not made it to the present with wealth intact? I guess that seems reasonable, but don't have any data yet. On the other hand there should still be some wealth today that was not among the wealthiest then?

(of course I wonder how much of that maintaining wealth was - instead of gold, art, and land - strategic marriage)

Certainly there are a good number of formerly rich, now poor or extinct families. It's practically a cliché of nobility.

yes, it seems likely, even 'certain' but as I understand it also seems not to have been verified using data in this case? I like my certainties verified.

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.

There is a kind of middle ground. A few years ago I had a conversation with a friend that completely redefined investment versus speculation for me.

This friend's grandfather had been a lettuce farmer in Monterey the 1930's. The value of the land rose significantly during his grandfather's lifetime. The grandfather had the good sense to set up a trust for his children. The trust has continually invested in other businesses over the years. My friend manages one of the businesses owned by the trust. Some of his sibling/cousins just get a draw from the trust. Some, like my friend, work for the trust and get both a salary and a draw.

In the mind-blowing conversation I had with my friend, he told me about his plans for the upcoming weekend -- a combination family reunion, barbecue, and trust board meeting. Agenda: discuss the "cousins" -- that is to say, the kids of the next generation from age 7 to 17, thinking about which ones are likely to be in the "I'll just take my draw, thanks" group, and which would be likely candidates to be groomed for the next generation of trust management.

At that point, it hit me like a ton of bricks: investment is when you expect your as-yet-unborn grandchildren to someday take over and operate the asset as a on-going business. Anything else is speculation. For me that illuminated a whole different way of thinking about business and investment.

Pretty much the House of Saud strategy, and may be the strategy of every powerful family there is out there.

In the House of Saud case, its basically 'brother-stab-brother' process to become a king, the children nodes(cousins) in the tree generally get contracts to build airports, roads, or become police commissioner of some city. More powerful cousins get to become foreign ministers and run the economy etc.

Cousins who fork off too far away from the branch, typically settle for pensions and may be get their kid's educations in some foreign university sponsored. But again these sort of cousins eventually are the last generation to receive these draws. Because if you let power slip, its basically over. In things like these, money follows power.

Recently I heard of a similar case here in India. Where family politics had forked off a colleague too far away from the home branch. Or he would be pretty darn rich. Apparently his great grandad was a major feudal lord, his father settled for draws, the more powerful uncles have now pushed most other cousins out. And they and children pretty much keep every thing for themselves.

Once you get to a non-trivial money to give away in inheritance, bringing order to family politics is another big thing to do.

Political families in the Sub continent are another interesting thing. Every decade you see a powerful brother/cousin die. Only one survives. Then the game starts again between his kids :)

There was a whole Economist Article on this last month


Maybe influenced by Tywin from Game of Thrones after he talked a lot about legacy, but it seems wise and a fun thought process to think of your family in dynastic terms and planning for future generations.

I think it’s a good way to stay grounded and towards harmony with family.

Of course it’s not realistic if you’re not going to pass on wealth, but interesting to think about if that’s the goal.

Also makes pursuit of $billion$ more altruistic as you’re planning for your dynasty, rather than just yourself.

I remember a similar discussion on here about hedge funds. The goals of the ultra-rich investors are often very different than average people.

In a 401k investment account we try to find the best ways to get a return on investment and increase the value of assets. There's risk involved, but for many it's the best chance they have for a true retirement.

Ultra-rich, on the other hand, often go to their hedge fund manager with the simple goal of "can you make sure I'm never not rich." They aren't focused on the upside of their investments (though they probably at least want to keep up with inflation) -- they're concerned with the __downside__ and the risk of becoming 'not rich.'

Might be this recent thread:


Yes, this is why I tend to avoid investment vehicles. I'm not wealthy enough to gamble.

Do you plan on just saving cash then for retirement?

Already have, although I doubt that retirement is in my future regardless.

I believe you have seriously overestimated your financial literacy if you don't have any investment vehicles deployed.

I never made a claim about my financial literacy. It's not as low as you assume, though. I've started (and sold) several successful businesses, and am well-versed in investment activity.

It's more a case of everyone having different levels of things they are willing to tolerate. That mine is different from yours doesn't indicate that either of us is incompetent.

That said, if your goal is to be wealthy, investments are an important part of that. That doesn't happen to be my goal, though.

The quality of life difference between being poor and being rich is much greater than the difference between being rich and being ultra rich.

From that perspective it makes sense to focus on wealth preservation.

High interest rates is how wealth is preserved in the face of spending.

It depends on just how much money the family has. If the pile of cash is big enough even conservative interest rates/rates of return can cover a really good life.

This seems to rely pretty heavily on the "title" to the land being respected. Works fine until the foreign army ISN'T expelled.

If the title is not respected, they still have their art and gold. I think the real statement here is: have something that afterwards still has some value, which you can use to build upon. Other sources of wealth like money, will more like be gone when the state folds, or time goes on. Timeless wealthes are the way to stay rich over the ages.

For most of those 600 years gold was money.

Coins were money. Gold was just one of the materials they were made from. There also was copper, silver, and others. Raw gold alone was somewhat useful, but AFAIK usually not as valuable as local gold-coins. Usually trading something golden meant accepting some loss, like today.

And even then it sometimes works. Many (but not all) large Spanish land grants were respected in the US southwest/California after the Mexican/American war.

Of the foreign army gets expelled by a force that has zero interest in respecting whoever was there previously. At that point you might as well throw in the towel and open up a cheap Chinese buffet restaurant in a former mill town in upstate NY (or something like that).

>>these people aren't chasing returns, they think about preserving wealth for the long haul through worst-case scenarios.

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.

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.

I wonder if the Italian states had a hands off attitude on inheritance and titles because of the church?

That's a nice anecdote, but it's really bad science.

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).

That's not the point at all. The point was that their wealth was in assets that do not depreciate, and are hard to take by force.

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 have my sincerest doubts this is why Florence flourish and Siena did not. It likely has a lot more to do with trade routes and the Arno river.

There are many reasons Florence flourished. Another reason Sienna didn’t is because people stopped doing pilgrimages to Jerusalem. Siena relied on these pilgrims and one big thing the banks did was exchange various currencies.

A big reason was Spain united with Florence and together took out Siena. If the Italian War went the other way, Siena would have been ascendant and Florence just a subdued duchy.

Recommended sources on this? I'd be interested to read a book or article or anything on this period of history :)

That's fascinating, thanks for sharing it.

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).

> it isn't obvious how Bill Gates fits into the picture (other than as an outlier).

Gates came from a wealthy family, which put him in a much better position to do high-risk, high-reward things (e.g. he could drop out of Harvard to work on his business, knowing that if the company failed his family could afford to send him through again).

I think this is vastly underappreciated. Even myself as a mere middle class kid never worried about what’s if this company goes under or I lose that job. Especially when starting to freelance this insured me from payment delays or going in over my head and needing more time get something finished.

I had the confidence to believe in myself for the long run but also always knew mum and dad would have my back in the short run should anything go awry.

Gary Kildall had every opportunity to do what Gates did, and did not come from a wealthy family nor did he go to Harvard.


In fact, IBM first went to Gary Kildall for DOS.

Lots of people got rich off of software in those days, hardly any of them went to Harvard.

Quite the opposite in my reading: Kildall's place in the history of computing is being the guy who did not become "Bill Gates" despite having all the right skills and being at the right place at the right time. One difference between Gates and Kildall at the time was pedigree, and look how it turned out.

(Now I'm off to reminisce about GEM)

What about Ray Dalio? He dominated his industry almost as successfully as Gates and is about the same age. There is no pedigree benefit there. His dad was a jazz musician.

Drawing a blanket conclusion from a single comparison of only two samples is a hasty generalization. Downvoting somebody out of comfort for your fallacy is kind of assholish.

The existence of rags-to-riches stories elsewhere does not make Bill Gates an example of one. And that's what this whole sub-thread is about: is the riches to even bigger riches story of Bill Gates an example of rags to riches, just transposed upwards, or is it an example of dynastic headstart?

When you look at that pivotal moment when MS and DR were sent off on completely different trajectories by the 800 pound gorilla that IBM was at the time, it's unquestionably the headstart one. While Kildall was just trying to get a good price for their product/expertise (solid middle-class thinking at its best, nothing wrong with that), Gates was already playing the high-level game, brokering between IBM and SCP by merit of a foot in the door via family ties.

Ray Dalio made his money on Wall Street before striking it out on his own. He didn't drop out of school or anything.

> Drawing a blanket conclusion from a single comparison of only two samples is a hasty generalization.

It seems unreasonable and uncharitable to imply that people are building their worldviews off of the stories of Gates and Kildall alone.

What is your evidence that "pedigree" made the difference?

Edit: how rude of me to ask for evidence!

I didn’t downvote you, but to honestly answer your edit: you’re not being downvoted because you’re asking for evidence. You’re being downvoted because it seems unlikely your question is being asked in good faith. Do you actually believe there is an empirical basis for the person’s opinion that pedigree played a part, or are you just challenging it becuase you know there is no such empirical evidence for those two specific cases?

Moreover it’s kind of missing the forest for the trees...yes, pedigree might not have literally been the differentiator between these two specific entrepreneurs. But do you have any meaningful critique to the basic idea that people with better than average starts in life have better than average outcomes? That is what is primarily under discussion here, not Bill Gates in particular.

usrusr said "in my reading" and that pedigree was the factor that made the difference. It is therefore fair to ask for a reference.

IBM knew about Gates, and went to Kildall first (in fact, Gates suggested Kildall to them). Why would they have gone if "pedigree" was what they cared about? Kildall had what they wanted, Gates did not. It dropped in Kildall's lap, and he botched it. IBM went back to Gates, and Gates didn't need to be asked twice.

Apparently you have read all the same references as I: without his maternal network, it is quite unlikely that Gates would have ever been in the position to suggest Kildall. Or to later not suggest Paterson as replacement, but instead resell him/his work for the markup that made Microsoft.

Even if that network wasn't actively involved at all (e.g. by notifying Bill of the opportunity to supply BASIC, I think it is highly unlikely that it want involved at least that amount), the buyers at IBM would definitely have been aware of his family ties and unconsciously or not have awarded more default trust than to a random stranger. It is also not unlikely that Microsoft was given a chance in hope of currying favors with a certain person high in their own org chart or in fear of negative repercussions. Both the hoping/fearing and the favors/repercussions don't even have to happen voluntarily or consciously, it's hard enough to suppress those effects when you become aware of them and don't want to be that kind of person.

> it is quite unlikely that Gates would have ever been in the position to suggest Kildall

IBM was looking for microcomputer software. Microsoft was the biggest player in that field at the time. Why would IBM not have contacted Gates?

Even then: the Kildall negotiations evaporated because of superficial formalities (fear of signing an NDA, according to wiki), almost like a language barrier between corporate and upstart. Gates would have either not been given the same lawyer treatment or not have been intimidated by it since that culture was not foreign to him.

NDAs are normal, I sign them all the time, and I have no "pedigree" and never went to Hahvahd and my parents were lower middle class.

The fact is IBM passed over pedigree Gates and went to Kildall FIRST and Kildall was offered the deal FIRST. All Kildall had to do was say "yes". The notion that one had to be born wealthy to get that deal is simply false.

Sure, but why was the NDA not signed? Fear that the big guy would screw over the little guy, inability to tell normal behavior from exploitative. The Kildalls were entering a foreign culture (not by nationality, but by corporateness/class) and blundered. The person who was more at home with the culture then got the deal, despite not even having a product. That's exactly how the family advantage works, not some comically evil "sorry you are not from a sufficiently important family, no contract for you".

You're delving into sheer speculation. Exactly what went wrong at their meeting is not known, many stories about it have circulated, the NDA thing is just one of them.

Kildall was not some ignorant yokel from the backwoods. Besides, titans of the computer industry do deals with yokels all the time.

In fact, Kildall did later make a deal with IBM to sell an IBM branded CPM/86 for the PC. Consumers had a choice between IBM PC-DOS, and IBM CPM/86. The former was $40, the latter $240. People (like me) chose the cheaper one, because nobody could explain what was better about CPM/86. And the rest is history.

You are absolutely right about speculation. But so is the assumption that it all did not matter at all and the WIndows dominance would have happened in just the same way had Gates been a farmboy (I'm exaggerating a bit, you never claimed that). But in dubio pro reo is not applicable, since nobody is accused: it's not a crime to get along better with some group than someone else.

Maybe that is the misunderstanding that kept this discussion alive for so long: I'm not trying to privilege-shame anyone, just questioning the claim that it did not make a difference at all. (Actually I think that privilege-shaming is a really stupid concept, it won't ever achieve more than make its targets bitter or cynical, if it has an effect at all. It's not wrong to take an opportunity, just don't force it through improper means)

I remember reading somewhere that when IBM was looking for an OS and was starting to talk to Bill Gates, John Akers (IBM senior exec, maybe CEO then?) was briefed on it and said, "Isn't that Mary Gates's boy?" Akers and Mary Gates were both on the national board of directors for United Way — and reportedly Mary Gates had talked to Akers about the importance of the newer, smaller companies in the burgeoning computer industry. [0]

[0] https://hbr.org/2005/12/how-to-build-your-network

Obviously IBM was looking at Gates before noticing he was Mary's son. Don't forget that Gates was already a major player in the microcomputer software business, he didn't need any more "connection" than that. Of course IBM would go knocking on his door.

I think nobody is arguing that this happens in 100% of the cases but being wealthy and/or well connected adds "an ace under the sleeve".

The 70s and 80s were also great times to start a computer related company, that's for sure.

The point is that Gates' background was hardly a precondition for his success.

Edit: Gary Kildall could have done everything Gates did, and Tim Patterson wrote DOS, not Gates.

Tons of people knew how to program and had access to computers. Computers were not invented in 1975. The lower middle class neighborhood public high school in my neighborhood in 1975 had a computer and offered programming classes.

There's a reason Allen raced to show Gates the Popular Electronics issue - he knew there'd be others doing the same thing right away.

Gates and Allen background was having written a BASIC for the Altair . Allen had also previous experience in programming. Not many (and much less younger) people had this background.

Specifically Gates and Allen were given timesharing access to a DEC-10 at school - which was an incredibly rare privilege in the early 1970s.

Allen had already written an 8008 emulator on the same model of mainframe as the one at Harvard. And that made it possible to update the emulator while at Harvard and then use it as the basis of their version of BASIC.

Any programmer at the time could have written in 8080 emulator. They didn't have to be a kid in school. The DEC-10 was a popular computer. MIT had computers available to students, too. Gates didn't invent BASIC - it was developed by others for use by students.

Edit: There were many thousands of computers at the time, and programmers to run them. The 8080 instruction set is trivial:


and any semi-competent programmer can write an emulator for it in a few hours. The magic ingredient Gates and Allen had was Recognizing The Opportunity, and then Acting On It. There was no technical wizardry involved, and no resources that were not also available to thousands, and soon tens of thousands, of others.

The Jobs and Wozniak story makes this even clearer. Wozniak showed his designs to HP and offered it to them. HP's engineers were utterly uninterested in it. (And remember that the Apple 1 was built with off-the-shelf parts anyone could buy.)

There were few programmers at that time, so few programmers could have potentially reach the market. Compare it with now when you just need to download an open source programming language and compile it on many platforms.

This is completely irrelevant and misses the point.

A counterexample would be someone from a poor background dropping from college to found a startup.

Zhou Qunfei, the founder of Lens Technology, came from a very poor background and dropped out of high school at 16 to work at a factory. She eventually started her own company when the factory closed.

"If it's so easy to find a counterexample would you furnish me with one?"

You've misinterpreted what he's saying. He's saying "that isn't a valid counterexample".

If it's so easy to find a counterexample would you furnish me with one?

Counterexamples matter a great deal when someone claims that something is a rule without exceptions. They're very nearly pointless when someone states something that has many obvious exceptions but still means something, "men are taller than women", "rich people can take risks that poor people cannot" etc.

https://en.wikipedia.org/wiki/St._Petersburg_paradox BTW.

Which is what I was pointing out rhetorically...

Also, it's not just that rich people can takes risks that poor people cannot. It's that they never risk a minimum standard of living. Poor people making decisions like that do.

> someone from a poor background dropping from college to found a startup

Steve Jobs

Edit: Jan Koum is another

Steve Jobs' family had a nice middle-class life, and his parents even moved so he'd be in a better school district iirc.

> Steve Jobs' family had a nice middle-class life

According to the original argument, that directly contradicts the assertion that only highly priviledged people linked to the elite are able to succeed.

Unless the goalpost is moved further away to the point that middle class is now part of the elite, it's quite clear the original argument doesn't hold water.

Exactly. There is a jealous undercurrent on HN about success. Usually it is around so and so started rich and/or was just lucky.

Is some luck involved? Sure. It also helps greatly to not have to worry where their next meal is coming from, but that is very different than having to start in the elite.

There is a severe discount of what can be best coined “courage” by Aristotle, the balance between brashness and fear, when it comes to startups from people who don’t exercise it. Everything looks so predictable in hindsight that the virtuous quality of taking a chance is voided because someone started life eating better baby food. It’s plain ignorant.

Saw this on the Jackie Chan thread yesterday: "It's surprising how much luckier people who prepare are."

Jobs had no money, no connections, no "pedigree", and was a college dropout. Jobs' parents were blue collar, his dad was a repo man, and their background was poor.

Jobs grew up in San Francisco. His father supported an interest in electronics, and he got an in at HP by being mentored by a neighbour who worked there.

He joined the HP Explorer's Club and got to see world-leading new products ahead of release at a time when HP were creating incredibly impressive calculators and personal computers.

He also attended lectures on the HP campus - which wasn't just educational, but also contributed to his relatively fearless approach to networking.

The family may not have been rich, but it's just plain wrong to say he had no connections and no advantages.

Anybody in that area at the time could have done it. And SV was hardly the only place where adults worked on electronics. HP wasn't the only computer company. DEC was in Massachusetts, for example. Texas Instruments was in, well, Texas. Tektronix was in Oregon. Universities all had electronics schools. Radio Shack and HeathKit made electronics learning kits for kids. Los Angeles had a thriving microcomputer industry at the time.

The notion that Jobs was in some unique position is not correct.

Poor people aren't able to move just to switch school districts for their child's benefit...

Also, they had a nice single-family home with a yard in a suburban area.

Poor people migrate thousands of miles on foot to enter the US and then somehow reach every corner of it.

Land in the U.S. isn't available, however, to just "migrate on foot" with your family a few miles into the better school district. We have laws and property has to be bought. As a child who grew up in one of the not-good areas, I can tell you it's a lot harder than you think. :)

I have access to a readily available safety net through marriage (essentially, my in-laws aren't going to let their grandchildren starve). I've made some high-risk, high-reward job changes that have mostly panned out quite well. At one of the low-points of my career (job ending, unable to find a new one in time), the "lowest" I stooped was to reach out to a recruiter. If I didn't know that my family had a safety net available, I would have done more desperate acts—such as widening my search to unskilled jobs and other positions outside of my field; that might have staved off immediate suffering, at the cost of potentially severely stunting my career.

> Gates came from a wealthy family

Not just wealthy, but extremely well connected through his mother, who sat on several University of Washington, corporate and charity boards, including the United Way boards through which she knew John Opel (CEO and Chairman of IBM… right around the IBM PC's development).

Let's give some credit to Bill, ok? How many Vanderbilts, Rockefellers, Astors, Rothchilds, Waltons etc etc did what Bill Gates did? Combined, they have thousands of offsprings and had way more money that Gates' father had.

So yeah, Bill cam from a well to-do family but he also was extremely {insert here}...

So yeah, Bill cam from a well to-do family [and has amazing talents] but he also was extremely lucky...

The group that spawned Bill Gates was smaller than the entire human population; it means he was one in maybe a thousand as opposed to one in seven billion. If anything that should be encouraging to the average person in society because it indicates that there isn't an uncrossable intelligence or otherwise biological gulch between the average person and success (which would be even harder to change than a social one).

Anderson cooper was a Vanderbilt. Different but still similar in how he got to the high rungs of news anchoring

If Bill Gates weren’t from such a wealthy family it is likely he wouldn’t have ever attended Harvard. Grooming for Harvard and the ilk start up from an early age. It is also likely no one would know who he is today as well. He might had been that genius principle engineer that would have went on to do absolutely amazing work, but not one to start or lead a company.

Imagine how many potential Bill Gates are majoring in CS from average to good state universities that have the potential to do so much more in academia and industry, but come from poor families/no one to help them. You’ll probably never hear of them/know they exist.

I think that's questionable and downplays his abilities. He won National Merit Scholarship. He scored 1590 out of 1600 in SAT. He had a profitable business running when he was still in school automating some traffic calculations, and he was actually hiring his classmates. You don't see that often. And I think one more important thing happened - he met very bright Paul Allen and together they were very powerful duo. Of course having wealthy family helped not to care about some stuff, but it wasn't just luck.

>I think that's questionable and downplays his abilities. He won National Merit Scholarship. He scored 1590 out of 1600 in SAT.

I think you underestimate how much a proper background can help you in terms of admissions to elite schools. I know someone that scored a 1600 out of a 1600 on their SAT, but came from more of a modest background than Bill. They were denied from Harvard. Harvard receives plently of high SAT scoring, high achieving applicants. Smart people from poor backgrounds have a lot more to overcome in life to get to the same point as others with more resources. A head start with a secure background can make a large difference later in life. I'm sure if my friend didn't go to one of the worst high schools in the state, and went to a better STEM school, they could have been admitted to Harvard. Who knows how that would have changed their life for the better. Now we will never know.

Don't know about Harvard, but I interviewed people for admissions into Oxford CS. If anything, poor background would help you - while we all try to be as objective as possible, if anything we would cut you a bit more slack if you came from a poor background.

In this day and age, I would argue that access to education is actually nearly ubiquitous when it comes to STEM. Lack of encouragement/emphasis on education from parents and the rest of the social circle is a much bigger problem. That, and smart poor kids just don't apply, because they wrongly think they don't stand a chance.

Arguably, a smart kid growing up in a poor family, but with parents that put great emphasis on education, has an advantage over a rich kid - the rich kid is unlikely to have the same kind of drive to succeed.

This is excellent news. Great to hear this.

You're conflating "proper background" with legacy and they are very different things. Harvard (and most/all other Ivy League institutions) dramatically lower the standards of enrollment for legacy applicants. In other words people whose father or mother went to Harvard. This is not how Bill Gates got in. His father went to the University of Washington on the G.I. Bill.

A "proper background", outside of legacy, is generally a negative thing when applying to elite institutions as applicants from 'improper backgrounds' will receive bonus points on their applicant score. All other things being equal the guy who went to Bodunk High is generally going to have a better admittance score better than the guy who went Carnegie College Preparatory Academy.

The one issue of course is that all other things are often not equal. The guy who went to our imaginary prep school is probably going to have had greater resources to enable his endeavors and often a better family life at home. And that's why the guy from Bodunk High is given a boost on his score.

And in my opinion, having been somebody who came from a poor background and was able to go to a top tier university, I don't think it really makes much of a difference. The crazy high overachievers who go on to become the Bill Gates didn't achieve that because of Harvard, and obviously in Bill Gates case as he dropped out - he would have done phenomenal whether he went to Harvard or Party U. It's a similar story with people like Michael Dell. He came from an upper middle class family but nonetheless worked jobs ranging from dish washer to telemarketer. In college at UT he started what would become Dell literally from his dorm room. He would drop out his freshman year once it became clear the business was viable.

Elite universities just have this sort of win-win feedback scenario going for them. They attract all these sorts of individuals and then get to implicitly take some credit for their achievements, which then affirms the university's elite status. Meh. I would fully agree though that if your ambition is just to go send out resumes and gradually work your way up for other people, then an elite university degree would help you eventually end up with a somewhat nicer white picket fence than somebody who went to a less premier institution. But these are not the sort of people we're talking about.

Yes, there's no doubt that he was very skillful. The point the other commenters are making is that that isn't everything

Bill gates himself admitted on Reddit that without his parent's wealth, he probably wont be doing what he would be doing without the proper education foundation provided to him.

Yes, the point I'm making is wealth of parents also isn't everything. Bill Gates was an outlier on his own.

>He might had been that genius principle engineer that would have went on to do absolutely amazing work, but not one to start or lead a company.

Exactly! Bill Gates success is tied to much more mundane things like sales strategies and close business relations to major businesses like IBM (thanks to his mother) to the point that Bill Gates decided that he'd be better off just getting contracts at any cost even if it means over-promising and in the end buying software from Tim Paterson and merely ported it over to whatever IBM was selling at the time.

"poor" people go to university. Rich people take advantage of their connections.

> If Bill Gates weren’t from such a wealthy family it is likely he wouldn’t have ever attended Harvard.

If Bill Gates weren't from such a well-connected family, it is also likely Microsoft wouldn't have been selected to develop the OS for the IBM PC.

genius principle engineer

He was never considered an especially talented developer. He bought the OS that was used for the IBM PC.

I was referring more to potential, as opposed to what he actually did in software development. Per stories from Harvard, he had some mathematical talent. With talent like that he could have essentially pursued whatever intellectual pursuit he wanted and have obtained results in it. Whether that be software development, mathematics, running a business etc. My point is there are others out there like him, we likely won’t know about them because they aren’t from such affluent families.

I suspect Digital research Blowing off IBM had more to do with it

That had to do with CP/M not being the standard/mainline OS for the IBM PC (and even then, CP/M was supported but released 6 months after DOS and for 6 times the price), it didn't have to do with IBM selecting Microsoft as their OS developer / vendor, especially since microsoft didn't even have an OS when they were selected.

I find this line of thinking interesting and wonder if it can apply to other areas?

For example, if Lebron James wasn't born with such great genetics, it's likely he wouldn't have been a "once in a generation" NBA superstar, and instead just a really good rec league player.

Or, if Marilyn Monroe wasn't so attractive, it's likely she wouldn't have been a cultural icon, and instead just an average D-list actress.

The implicit assumption in the grandparent post is that it's good for society if the most gifted basketball players play in the NBA, the most attractive people act in the best movies, and the most talented engineers lead the top companies. Of course personal talent is a question of luck just as much as parental wealth - a meritocracy will not allocate the top places to those with the most worthy souls any more than a nepotocracy does - but more nepotistic societies are less efficient overall in a way that makes life worse for everyone there than more merit-based ones.

Also career guidance. This is a hugely important ingredient if you want to start ahead of people your age (from what to do on your free time to what summer work you do where, if any, between college years, through what you see on your parents lives, their friends, etc. And it seems very underappreciated on these discussions, that normally turn to accusations of nepotism and corruption, tax avoidance, or other means to transfer wealth and power among generations.

His mother also (probably) helped very directly, since she was in the same committee as the chairman and president of IBM when Bill was just starting Microsoft: https://www.nytimes.com/1994/06/11/obituaries/mary-gates-64-...

I can't believe that people are arguing that your economic background has no bearing on your chances for being wealthier then average. Thanks for your post.

Here's a few things that produce such a phenomenon, pretty much universally:

1. Everyone alive has a lot of ancestors who lived 600 years ago. Let's say there are about 4 generations per century, so 24 in 600 years. In the extreme you could find about 2^24 = 16 million ancestors from those times. In reality there's some recombination, but you could easily have tens of thousands of (24 times grand)-parents. Some of those were beggars, some were princes.

2. Some societies had mechanisms to preserve wealth concentration within "the family", such as primogeniture [1]. With this arrangement, the majority of the wealth of a family was transferred to only one descended. The outcome was that if you were rich, a few generations down the line one single descendant would be rich, and pretty much all your others will be poor. Just look at Prince Charles in the UK who will one day inherit the crown, and Prince Harry who will be a nobody. Sure, they both have royal weddings, and people follow their various affairs in tabloids, but at the end of the day, Harry's grandsons will have inherited from their queen grand-grand-grand-grand-mother something around zilch compared to one of Charles's grand-sons who will be king.

[1] https://en.wikipedia.org/wiki/Primogeniture

That reminds me of the story when a reporter asked Gerald Cavendish Grosvenor (the Duke of Westminster) if he had any advice for young entrepreneurs and he replied “Make sure they have an ancestor who was a very close friend of William the Conqueror.”

In a similar vein, I remember reading Proust’s novels some time ago and one of the protagonists was explaining to some other protagonist that you could be seen as a very respected member of the society of that time (think France of the 1800s - the 1900s) only if some of your ancestors had taken part in the crusades as noted (meaning non-anonymous) individuals, ~700-800 years before.

These points are true. And note that 2^24 is larger than the population of Italy at that time.

But you should be extremely cautious about presuming that these 2^24-minus-duplications ancestors were anything like uniformly distributed. Top-10% Florentines today may easily have a majority of their descent from top-10% ones 600 years ago. Because the rich had more kids, in a time of very slow overall population growth.

Well, my guess is that 100% of the Florentines today have easily a majority of their ancestors in the top 10% of the Florentines 600 years ago. Survival of the fittest and stuff ...

Could be, I was trying to be cautious!

But many, many, people are extremely surprised to think that survival of the fittest has any relevance within historical time. Let alone between us and Dante.

> family holdings, individual wealth management, sons of well-to-dos becoming proverbial doctors and lawyers

The last. The article wants to make it sound like this is inherited wealth (alla Picketty) but this isn't really supported. For example, you find much the same pattern even across say the cultural revolution, which I hear was rather rough on inherited nest eggs. The rec. book on this (as in one of the old comment threads below) is Clark, "The Son Also Rises" ( http://amzn.to/2jFnUmZ ).

I'd say that family holdings are definitely a factor, specifically vineyards and olive groves, at least for the very richest. TBH, I can only provide anecdata, but most of the wine and olive producing country around Florence is owned by a few families that have owned it for centuries.

I don't doubt that the rich own nice things (and that their rich ancestors did too) but the question is whether this is causal, and I'm highly dubious, over these long time-scales.

Clark has evidence from lots of countries, and I'm still surprised just how uniform the numbers are. Even in places where private property was all-but-outlawed for 2-3 generations in the middle.

Regarding the first case, the rich don't just own nice things, the rich own assets, which means they get richer. Once you get past a certain level of wealth, you have to try pretty hard to become poor again.

As for the second, the rich have the resources to dodge or mitigate that kind of state action in all but the swiftest and most brutal of cases.

I totally agree that there are plausible mechanisms by which wealth today might help your grandkids stay wealthy. But the empirical question is whether these actually explain much of what we see. Many things which sound plausible to novelists turn out not to be very solid. And I'm trying to tell you that the data is not kind to such explanations here.

Re family status surviving Maoism or whatever: If you posit that there is something besides actual assets which is helps "dodge or mitigate", then I ask why this same something isn't in play in normal times. If it alone can explain the persistence, that weakens the case for assets mattering so much.

The other line of evidence is things like the Georgian land lottery, which elevated some people to quite significant wealth. Their kids lived well. But it's been, I forget, 150 years or something, and their decedents are no longer unusual at all.

Bad investments, if you are wealthy, is the most obvious cause of going poor again.

Machiavelli's descendants still own land and vinyards for example

Another mechanism may be that rich families tend to attract richer-than-average persons to marry into them.

The biggest problem is that wealth means power and power means you take wealth from less powerful people.

This just means that the average spousal wealth doesn't change with marriage (assuming sharing of all assets). It doesn't explain why wealth stays the same over longer periods of time / over generations.

My point is that the family name will be preferentially handed down the more affluent "blood lines".

They created modern banking. The Medici Bank [1] extended credit across Europe to finance trade.

[1] https://en.wikipedia.org/wiki/Medici_Bank

and they were followed by the Fuggers, the Welsers, and finally the Rothschilds.

Interestingly the Medici fall down was caused by the exact same terms of the success of the others: Financing wars. The Medici had just bad luck that their king (of England) lost his war, and the Tories never paid them back (of course). The Germans and then the Rothschilds were more clever, they've won their important wars.

Isn’t the real lesson behind the Rothschild’s generational success that your king is inevitably going to lose a war or two and therefore to diversify beyond a single kingdom?

Assortative mating perhaps? I'm sure the rich kids would have hung out with each other, known who each other were, and so on.

Similar mechanisms keep the business opportunities within certain spheres. Everyone's going to know who has money to help your new startup, and those people get the chance to invest.

The morality of accumulating massive wealth have also changed since the 14th century..

Also Bill Gates is an individual who read history and decided to do good.

"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.

You could at least partially address this concern with a non-parametric model of wealth ranking instead of absolute wealth level.

Over 600 years, that's still a surprising result!

Why do you think so? Given the magnitude of the result, the mechanism might be genetics rather than social immobility.

Surnames are heritable through the male line only. Genes are heritable through both parents. Wealth is some societies is heritable mostly through the male line, and in other societies through both lines.

Assuming that in the ~584 odd years from the study to the present day that 20 generations passed (average of 30 years per generation), the specific great-great-grandparent who passed on that name has roughly a 0.5^30 on that person (which is an infinitesimally small number).

However, rich people usually marry rich people. It's likely these results aren't just direct inheritance, or direct genetics, but it shows stratification within Italian society.

How could someone be genetically predisposed to make more money?

IQ is highly hereditable and has a higher correlation with income than the 5% here.

Soft skills, have been shown to be a higher predictor of income than IQ.

You are right that something's been passed down - but it's not the genes. It's the social connection to:

* Get jobs without applying for them.

* To learn important economic news before anyone hears them. E.g. President bought 1200 Cuban cigar just before banning imports from CUBA. Read this: https://www.cigaraficionado.com/index.php/article/great-mome...

* To get contracts regardless of ones qualifications. I've read that Aristocrats ensure their kids have ivy league degrees to maintain a illusion of fairness.

There's an article I read here on HN that says, Ivy league schools are successful because they select applicants who would be successful without them.

If genetics doesn't affect income, why is there a correlation between identical twins raised separately?

See e.g. https://helda.helsinki.fi/bitstream/handle/10138/38881/HECER...

It wasn't stated there is no effect, just that social class has a larger impact at the highest rungs of society.

>You are right that something's been passed down - but it's not the genes.

That sounds like a claim that there's no causal connection running through genes.

I would posit the other question, how could they not?

Propensity to lying, cheating, saving, nepotism, length of life, fecundity, access to healthcare, intelligence, math ability and so many more factors are easily inheritable.

It's been nurtured so long that it feels like nature.

Yeah. Even if they were genetically dispossessed to have higher IQs, better health and extreme motivation it should have been pretty genetically diluted after 600 years.

Assortative mating can help maintain or increase any endowment. Think of that as being a within-family/smaller-scale version of the existing genetic gradient by SES (eg "The Genetics of Success: How Single-Nucleotide Polymorphisms Associated With Educational Attainment Relate to Life-Course Development" https://www.gwern.net/docs/genetics/correlation/2016-belsky.... , Belsky et al 2016; "Genetic analysis of social-class mobility in five longitudinal studies" http://www.pnas.org/content/early/2018/07/03/1801238115 , Belsky et al 2018a.)

I'm so grateful for the parent commenter who looked at the VoxEU source, because it helped put things into perspective.

A 5% earning increase isn't too surprising, given that the land claims and other investments are still respected today. It's a bit like Fry's bank account on that early Futurama episode. Those 600 years were a battle between compounding interest and regional turmoil/uncertainty. It's pretty cool that the holdings still have a legacy while not stifling all social mobility.

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

> averages Hide too much.

I had to read the article because of your comment.

You're wrong.

When competent researchers talk about salary/income they always do median because average doesn't account of skew like Bill Gates.

If you do a ctrl+f with mean or average you won't find it. But if you do ctrl+f and search for median you'll find it.

So You think what I said is somehow undone by avg vs median? Hahaha thx for making me laugh

Agree that average hides the distribution, but median is simply a specific percentile value (the 50th), just not the 90th.

A few quibbles.

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.

That said, it's taxable on death, typically. Italian inheritance tax looks to be pretty low though (sub-10%). That's miniscule.

Related: "You won’t believe how far into this ‘millennial homeowner’ piece it takes for us to mention their inheritance!"

So inheritance tax?.

Or is there an argument that this is good for society?

Why inheritance, why not just a wealth tax?

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

Valuing assets is difficult. Doing it every year would be infeasible. Doing it at the point when someone dies and their estate is distributed is much easier. In a lot of cases assets will be auctioned off anyway so you get a valuation for free.

(But there must be a lot of cases in which someone sells for a large sum of money a work of art or a copyright that they inherited and people then think: Hang on, was the value of that thing taken account of when the estate was distributed? Should additional inheritance tax be applied now, even though X years have passed and we really can't guess what the value would have been at auction X years ago?)

Is it though? - land and real estate (commercial and residential): already valued and taxed annually ! - company stock is re-valued on a regular basis as part of the audit process. - commodities like gold etc - easy - possessions like art, boats etc - small % of wealth except in the most expensive items, which can be appraised every few years, just like real estate.

seriously: what else is there?

If the government were to start taxing people on the value of their assets you can be quite sure that within a year or so most rich people would have their assets in a form that makes it much harder to value them.

But there's a problem also for ordinary people, who have most of their assets in the form of their house. In the UK land isn't valued annually.* Unless your house is very similar to a nearby one that was sold recently, nobody really knows what it's worth. Speculation concerning what development might be permitted in the future can have a big influence on the value. It would be scary if some bureaucrat's guess were to significantly affect one's annual tax bill. And it would be expensive for everyone if that resulted in disputes going to court.

* Local taxation is based on the "rateable value" of property, but this is inaccurate, banded, often out-of-date, and only a small part of a typical family's total outgoings.

> If the government were to start taxing people on the value of their assets you can be quite sure that within a year or so most rich people would have their assets in a form that makes it much harder to value them.

Switzerland, which tends to be viewed as a haven for the rich, has a wealth tax. It would appear to be a counterexample...

Note that it has other tax features which may make it appealing to the rich (no capital gains tax, e.g.).

>Doing it every year would be infeasible.

In the Netherlands, there is an asset tax. Your assets (money, stocks, bonds, etc.) over a certain threshold are taxed 30% annually on an assumed investment gain of 4%, so effectively a 1.2% tax on everything over a threshold of a couple ten thousand euros.

I think the numbers are different this year, but nonetheless it certainly isn't infeasible.

Not that I'm a fan of it due to double taxation.

How is that fair? If in a bad year, your assets lose value, you are still paying a tax, that defies logic to me.

Does NL have capital gains taxes in addition to this asset tax?

Personally, I don't find it fair and in the past the 4% assumed gain is absurd.

There is no capital gains tax.

I suppose ideologically a wealth tax presupposes that all wealth is bad, whereas an inheritance tax just targets unearned wealth.

How would a wealth tax differ from a capital gains tax? The net effect would seem to be similar?

> ideologically a wealth tax presupposes that all wealth is bad

Isn't it the same as saying that income tax presupposes that all income is bad. We should tax wealth not because wealth is bad but because doing so might have a positive effect on society.

> How would a wealth tax differ from a capital gains tax?

capital gains tax taxes realised return on capital. wealth tax is based on the total wealth regardless of it's performance.

Re ideology. Its an choice between 2 similar taxes. And there are many, many reasons for structuring taxes.

Re captial gains tax. Over the very long term, you would expect your investments to at least track inflation, and you would expect to sell of those investments to buy things. Its not clear to me that these 2 taxes necessarily end up very different. Should we not expect to get at least a flavour of what to expect by looking at capital gains tax?

I am curious to see the comparison as well. I suppose one difference is that capital gain tax can be delayed far into the future. Wealth tax could also have a cooling effect on stock market bubbles.

Capital gains tax might also be a tax deduction due to a loss of capital. With a wealth/asset tax it doesn't matter if you actually gain or lose.

It doesn't presuppose that wealth is bad. The tax would just be repayment for creating a society that allows that wealth to exist.

That's not really what taxes are for, historically. Paying for the things that everyone uses in common, that's what you get taxed for. That and discouraging unwanted behavior.

> I suppose ideologically a wealth tax presupposes that all wealth is bad, whereas an inheritance tax just targets unearned wealth.

I don't agree with that framing, but even so if you look at the debate about income inequality today, you'll see people have issues even with earned wealth, in astronomical amounts (eg Bezos, Gates, Koch brothers, etc).

"The Koch brothers are the sons of Fred C. Koch, who founded Koch Industries, the second-largest privately held company in the United States" wikipedia

"His [Bill Gates] father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates' maternal grandfather was J.W. Maxwell, a national bank president." Also wikipedia.

So these aren't exactly people who worked their way up from the gutter.

But yes some people probably do have problems with earned income, I still think the distinction is worth it though.

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 longer term risk argument is interesting, but my pension investments would say otherwise. Also even if its 'only' zero sum, that money is still going somewhere, either allowing someone else to make a long term investment, or something more immediate.

What would you say are the "society wide impacts"? I tend to subscribe to the view that money is the root of all evil[1], so at the extreme, a 100% inheritance rate would solve the problem.

[1]In the sense that money leads to power, increased education opportunities for children etc etc.

A 100% inheritance tax would encourage wealthy people to consume their wealth, rather than invest it for the long term.

This will make the wealthy enjoy their wealth more, but it will make society poorer while also making it less free.

If you think about it, someone earning a lot of money but not consuming it engages in altruistic behavior. You earn money by providing goods and services for others, but then instead of enjoying the money, you work at investing it and managing it to provide even more goods and services for others!

Doesn't consuming wealth, rather than investing long term, end up as a net positive for society though? This may be a naive view, but it seems money placed as an investment has less of an impact, at least on the local economy, than money spent on more immediate things. At the very least it seems likely that money spent in the pursuit of consuming your wealth before death would result in it being somewhat more evenly spread amongst those who need the money, people working in bars, restaurants, manufacturing. Long term investments are more likely to end up being added to the coffers of large companies who may not even have any use for that money and just cycle it further round the investment economy to no real end.

I don't think so. Consider what happens to real resources. Consuming wealth is the equivalent of a rich person buying a yacht (i.e. having it built, paying all these people money) and then burning it down. How is society better off?

The scarce workers who would have been employed elsewhere, doing something productive, wasted their time building the yacht. The materials that went into it were wasted. The engineers, managers that oversaw its construction wasted their effort.

Consuming scarce resources, rather than investing them, by its very definition makes society poorer.

I think this is the right way of thinking (ie a materialist view, which looks at what an economic system means in real resources), but it's obviously more complicated than a binary choice between "rich people spending all their money on non-productive toys" and "rich people investing all their money into socially useful enterprises".

The invested (saved, not consumed) resources that rich people have won't necessarily go to socially useful enterprises. Instead, they'll probably be invested in things whose main purpose is to create more capital for the capitalist class to invest, not to decrease human suffering. The two things have historically been correlated, but there's no guarantee that this will last forever, and good reason to think that it won't.

At some point (and maybe we've already reached it) we will have enough capital for everyone in the world to live a maximally happy life. Arguably, any investment beyond that point (beyond what is necessary to maintain that capital sock, and perhaps grow it at the same rate as population growth) is malinvestment, since if our goal is to maximize human happiness, additional capital is useless beyond that point, so we should use those resources to do something else.

The obvious problem with this line of thought is determining when we've got "enough" capital, and therefore when we can stop playing capitalism and whack up the gains. Obviously 1918 Russia was the wrong time and place to do that, but hindsight is 20/20.

Another issue is that a lot of our capital stock is not in the form of physical stuff, but institutions, contracts, and relationships that a socialist revolution would actually destroy. The reason Amazon is worth so much money is not because of all the physical stuff it owns, but because of the structure, contracts, and relationships within the company itself allow that physical stuff to be more productive than other physical stuff employed by other firms, and indeed even by the laws that allow firms to exist at all. Any "revolution" will obviously severely disrupt a lot of these relationships, from employer-employee relationships, to government contracts, IP laws, etc. Indeed, that's the whole point of a socialist revolution, but similar things on a smaller scale are faced with almost any progressive policy proposal: changing the social contract to be more beneficial to workers and redistribute society's wealth can actually reduce the amount of wealth in the society. That doesn't mean we shouldn't do it, since less wealth distributed more evenly will probably be a net positive for the majority of people, but we can't pretend this problem doesn't exist. It's a conundrum that I rarely see the Left wrestle with, but I think we need to.

Well said.

Regarding wealth redistribution reducing wealth in society. Would you say that that is a short term blip, that may or may not lead to increased wealth in the future? A company restructuring can reduce productivity before increasing it.

Also you presuppose revolution, that isn't necessarily required. Post war Europe went quite far along that road democratically and peacefully, and seemingly in the short term successfully (I suppose the inverse of the scenario in my prior paragraph)

I'm not sure a private-sector restructuring is exactly the right frame for left policy change, since the whole point of these changes is to refocus ourselves away from the tyranny of constantly optimizing for productivity instead of happiness. Also, even in a successful corporate restructuring, there is pain all around (layoffs and capital losses) before there is any gain to anyone. This is the hallmark of disastrously unsuccessful left policies like the Cultural Revolution, where tons of people suffered but there was no real gain to anyone except perhaps a small minority of Party members for decades. In my view, a successful left policy change should make a minority "suffer", while almost everyone else benefits or, even better, make everybody better off with outsized gains to the worst off.

I'm not advocating a revolution, and meant to bring it up as one limit of left policy change. This exact problem (radical changes to relationships during a revolution destroying lots of wealth) is why I think a Russian-style revolution is a bad idea, unless the revolutionaries are making the conscious choice to create a post-revolution society that is drastically poorer than the pre-revolution one. I don't think most people (except extreme radicals) would support this goal. Any socialist revolution would therefore have to downplay or ignore this fact in order to succeed, which is precisely what happened in places like Russia, China, and Cuba in the 20th century. (To be fair, the Russians were the first to try this, so they didn't have anyone else to look at and learn this lesson.)

That doesn't mean incrementalist left policies don't have to grapple with the problem though. Single-payer healthcare, for example, would probably reduce the amount of wealth in society, since most of the value in private healthcare firms comes from the current structure of the healthcare market. A leftist should be OK with this and support single-payer anyway because most people will gain.

> To be fair, the Russians were the first to try this, so they didn't have anyone else to look at and learn this lesson.

They were well aware of this [1]. That's part of the reason why most leading revolutionaries, including Lenin, saw the spread of the revolution to western European countries as a requirement for their (edit: I meant to write "its", but "their" is probably more accurate after all) long-term success. IIRC he remained deluded in the prospects for this until his death.


There's probably a more direct source for this but here's one I remember. This is from "The Conquest of Bread" (1892), albeit an anarchist rather than a bolshevik, Peter Kropotkin was famous enough during that time to prove the point:

It is evident, as Proudhon has already pointed out, that the smallest attack upon property will bring in its train the complete disorganization of the system based upon private enterprise and wage labour. Society itself will be forced to take production in hand, in its entirety, and to reorganize it to meet the needs of the whole people. But this cannot be accomplished in a day or a month; it must take a certain time thus to reorganize the system of production, and during this time millions of men will be deprived of the means of subsistence.

Fascinating! I have always understood the desire to spread the revolution to the West was straight from Marx, where the struggle against capitalism, a global system, must of course be a global one.

Coldly understanding that "millions of men will be deprived of sustenance" while the new Socialist system takes place, and yet doing it anyway, is I guess just a reflection of how steely-eyed these radicals were. Still, my point stands that this was not how it was sold to the masses. Going out with a message of "Out with the bosses, we'll take all the riches ourselves!" is a much easier sell than "Listen, I know you are all desperately poor and suffering, but that will have to get even worse, and a lot of you are probably going to starve, before it gets better if we're going to build socialism."

> I guess just a reflection of how steely-eyed these radicals were.

Yeah, I mean, there's a lot of factors to take into account during that time ofc, most social upheavals will not come with an attached short-term economic benefit. I do not think that they necessarily thought that most would simply die either, but experience a generally hard time rebuilding. Tsarist Russia was a powder keg that were likely to blow up even without the brutal version served by the bolsheviks.

You're right, I didn't really mean to address your initial point about that, I'm just cherry-picking and adding some thoughts. Propaganda will always emphasize the positives and downplay the negatives as you wrote. In fact, and maybe I'm getting a bit side tracked, but Lenin and others of the more cynical revolutionaries of that time, and probably before and today, thought it might be necessary for things to get worse to reach the conditions needed for the revolution to succeed. Of course there's some amount truth to that, but it's nevertheless very much in line with the terror that followed in the means to an end fashion. On the other hand, Bertrand Russell, for example, while agreeing on the need for communism thought the price to pay through these bolshevik methods were just "too terrible" to justify it. So the spectrum of revolutionaries during that time was quite wide.

I don't think either consuming or investing is inherently better than the other. investing all of your wealth and never consuming is pointless, why bother creating it in the first place? on the other hand, consuming all your wealth is also an obvious failure mode; eventually there will be nothing left. a successful society needs to strike a balance between investment and consumption. the steps to make this happen probably cannot be expressed in a short HN comment.

> Doesn't consuming wealth, rather than investing long term, end up as a net positive for society though?

Most of the time it's very opposite. Unless with "consuming" you mean donating.

I think there's an argument to be made that the opposite is true - if the wealthy are spending their money then it's going to someone, after all. That someone is likely home builders, artisans, restaurants, clothiers, etc rather than offshore tax havens.

Yes, the wealthy would presumably engage lawyers and business advisors to help their offspring and people they like create companies for the next generation.

Maybe my son would like to open a travel agency. Maybe then I'd like to use that travel agency almost exclusively so that I could keep tabs on his progress and offer my advice. Oh look, his travel agency, despite being extraordinarily expensive, is very successful and now I don't have any money left to pay inheritance tax on...

Well, that travel agency does end up paying corporate and then dividend taxes on the earnings... and anything paid out directly to the son as salary means income taxes.

My hypothesis would be that wealth would be more spread out. So you may have less concentrated long term investment, not necessarily less overall.

I'm interested how society would become less free. Would it not increase social mobility? Or are you thinking of something else?

See my reply above.

By less free, I mean that anyone who wants to leave their children the fruits of their labour is now unable to do so. The more restrictions on individuals, the less free a society is. And it is a very big motivator for some people - many people value the standard of living of their children higher than their own.

But I do get your utilitarian argument. After all, every next dollar of our wealth we value less than the previous one. So in this sense, I can see why you would think that redistributing that wealth would make the society better off overall. But I think you misjudge the effects of consumption vs investment and of the incentives on the overall wealth of a society.

> The more restrictions on individuals, the less free a society is.

I think this is a fallacy. Freedom, when defined this way (taken to its extreme), is not desirable for society as a whole. It only helps the wealthy and powerful and works against the poor.

If you are poor or indebted, you are not really free, even if there are no individual restrictions. People in need will probably be inclined to "freely" take out loans, giving up their freedom. Wealthy people may want to keep a good portion of society in need so they'll always be "freely" working for them.

Having to work full time for a salary to live a middle class life feels like unbounded indentured servitude sometimes. We have significant benefits over historical indentured servitude but the freedom is still lacking. 40+ hours of my week, including prime creative hours, for potentially 45+ years of my life are given to my employer so I can live in a decent house, buy healthy food, pay for my family's needs, travel once or twice a year, etc. I am giving up time/energy I'd rather give to my family and creating art/innovative technologies from the thousands visions and ideas I have every year. My situation, though far from unique, is one I've gotten myself into. Getting out now requires me to put my personal desires aside for many years, maybe decades, while working to become wealthy enough to hopefully enjoy true freedom while I am still young and energetic. Who knows if that will pan out. The alternatives are lower pay, more "free" time, or intermittent bursts of high pay/free time. Neither of those are freedom (fiscal autonomy) in my mind, only an illusion of it. I could talk about this all day but I'll stop there...

Have you heard of the FIRE movement? Basically, if you save 30-50% of your pay by reducing expenses, you can shorten that 45 years very considerably.

It generally involves becoming less materialistic than the average American, though.

Ah ok get you.

The fruits of your labour argument is a good one which is why I would advocate a 100% inheritance tax.

I'm less convinced by your freedom argument, taken to its logical conclusion, murder should be legal because you're removing the rights of the murderer to do what they want. So I guess it comes down to where you draw the line?

Consumption v investment. There are good arguments each way, I don't know if higher inheritance tax would lead to higher of either. I think they tend to form a balance though.

The line for personal freedom is always where it infringes on the rights of others. Keeping your own wealth or passing it on per your own wishes after your death does not infringe on anyone else's rights. Taking someone else's wealth away from them infringes on their rights.

That's an argument against all taxes.

It can be, yes.

And yet, there's a difference between, say, a 30% inheritance tax and a 100% inheritance tax. The 100% tax means that you cannot leave anything to your children. The 30% tax means that you cannot leave all of it to your children. One is more prohibitive (and therefore infringing) than the other.

And also the line that prevents you taking the freedom argument to it's logical conclusion that murder is acceptable.

> Also even if its 'only' zero sum, that money is still going somewhere, either allowing someone else to make a long term investment, or something more immediate.

I'm not sure I understood your point correctly, but most wealth that is passed between generations is passed in the form of investments, not cash, so that wealth is performing the same societal benefit as your pension. What I meant by long term risk was that rich kids can afford to start businesses, because if they fail, they can fall back on their family's wealth to bounce back.

I would avoid adopting the world view that money is the root of all evil (or leads to power...). If you gave everyone $1B, no one would be measurably more powerful than they are today, because everyone else can afford the same things they can, so prices would rise until an equilibrium is achieved (same goes for educational opportunities, etc, unless you cap teacher pay effectively holding teachers back).

Again, a 100% inheritance rate would make society more equal by taking away opportunities from those who had ancestors that worked hard to provide that opportunity for them, not by giving more opportunity to those who weren't so fortunate.

Inequality is way deeper than money; finding blame in capitalism is alright, if you want to fight inequality and corruption you have a wildly different enemy than mere money

I agree. My personal view is earned wealth is more acceptable than inherited wealth. And that entrenched money is a significant contributing factor to certain types of corruption and inequality.

If the Son never inherited the Fathers money, he'll have to earn his own before bribing that politician.

So what should the father do? Just give his money to the state when he dies? Spend it all?


If you take the view that the state requires $X per year to function. If the money doesn't come from inheritance tax, it has to come from somewhere. I don't know about you, but I'd prefer to pay my taxes when I'm dead.

If they want to spend it, fair enough.

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.

Would a land value tax necessarily target wealth? That wealthy billionaire with 5 yatchs and a private jet may not own any land. Yes they would probably be hit with increased rent on the rented flat, but that would tend to hit everyone to some degree.

Wouldn't a land value tax essentially end up like an expanded council tax?

Yachts and jets depreciate quickly, I'm not sure they are a problem. Land however is something we all need to live on and off of.

> 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.

Foundations are a tool to encourage the rich to 'donate' money though.

Theres nothing in principle to stop the state from increasing the arm length that the foundation should be held at, although that may lead to a loss of 'charitable' donations.

I'm not sure theres no point to taxes even if they're avoided. At the very least it sends a signal about what society finds acceptable.

What you describe is the Trump Foundation to a T.

Whose conduct has been called criminal...

wsc981 3 months ago [flagged]

I'm sure it not much different from the Clinton Foundation.

I’m confused. Any family from the 1400s would have millions of descendants by now.

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).

Your thought experiment assumes that each person today is a descendant of only one family.

I'm actually still confused why people have more than 2 children at all. Where 2 would be a decline in population, for the most part.

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.

Taleb's essay on inequality: https://medium.com/incerto/inequality-and-skin-in-the-game-d...

$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.

Maintaining 7% interest over 600 years might not be easy...

There is a great book that I read a while ago (fiction) which this article reminded me of. Called a trillion dollars:


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.

From the article:

"It’s a trait shared by elite families in China, whose high status has persisted since the Mao years."


Thanks for the article! This is fascinating and I will look into their paper more, but on a quick glance, I wonder about their methodology here:

> The authors identified 13 surnames that appear with unusual frequency in the Qin examination system—the Chinese test to identify who will become a member of the highest elite in the country, the state bureaucracy. They selected them from more than 50,000 successful candidates (the most successful) in the Yuan, Ming, and Qin dynasties, starting in 221 BCE (we are talking China). These surnames are overrepresented in the modern imperial era and in modern Chinese elites—the high officials in the Nationalist government from 1912 to the triumph of the communists in 1949; professors at the ten most prestigious universities in the country in 2012; chairs of the boards of companies listed in 2006 as having assets of $1.5 million and above; and members of the (still communist) central government administration in 2010.

It is my understanding that while the Chinese do have a variety of surnames, they are often based on region. Not to mention, the 3 surnames "Wang, Li, and Zhang" are attributed to almost 30% of Chinese people.

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.

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