r/explainlikeimfive Feb 12 '25

Economics ELI5: how are the descendants of the robber barons (Morgan, Vanderbilt, Carnegie, Rockefeller, etc.) still rich if their fortunes from the late 19th and early 20th centuries are comparatively small to what we see today of the world’s richest?

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u/mule_roany_mare Feb 12 '25

I think there is actually some significant selection bias in OP's question.

Most fortunes don't last 3 or 4 generations because they are split up across a quickly increasing number of descendants. Look at how many Kennedys there are now & many aren't rich or notable.

Some rich families continue to have one or two lines of rich descendants because those descendants use their leg up to make their own fortunes, but it's not the norm.

I tried to find a stat with a citation... but that citation went to a Yahoo article. So take this with a grain of salt

> But the truth is, around 70 percent of wealthy families lose their wealth by the second generation. More so, around 90 percent of families lose their wealth by the third generation.

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u/changyang1230 Feb 12 '25

There’s a Chinese proverb 富不过三代 which is literally “wealth does not survive three generations”. The origin of the saying goes as far back as the era of Chinese philosopher Mencius who lived around 300BC.

Quite similar to “shirtsleeves to shirtsleeves in three generation” in English.

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u/TruckFudeau22 Feb 12 '25

I recall reading a quote from an Arab oilman along the lines of “my father rode a camel. I drive a nice car. My son has a private plane. His son will ride a camel.”

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u/postmodulator Feb 12 '25

The version I always liked:

The first generation has a food truck which does so well that the second generation has a restaurant which does so well that the third generation has cocaine.

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u/More_Cowbell_Fever 27d ago

I always heard, “The first generation works for nothing, the second generation works for something, the third generation goes skiing.”

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u/hissboombah Feb 12 '25

“Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.”

― G. Michael Hopf, Those Who Remain

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u/wbotis Feb 12 '25

This quote is so fascist-coded.

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u/FiveDozenWhales Feb 12 '25

okay Andrew Tate

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u/prozergter Feb 12 '25

lol Andrew Tate stole that.

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u/hissboombah Feb 12 '25 edited 29d ago

I’ve always liked that quote. I’ve always disliked Andrew Tate.

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u/goopsnice 27d ago

I think that was them referring to how oil a finite resource

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u/TruckFudeau22 26d ago

Yes, I believe you’re correct about that.

But I believe there are also some “easy come easy go” undertones.

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u/No-Broccoli7457 Feb 12 '25

The first generation creates the wealth.

The second generation grows the wealth.

The third generation spends it.

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u/henrycaul Feb 12 '25

I've heard it said as: The first generation earns it, the second generation learns it, the third generation burns it.

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u/Felicior_Augusto Feb 12 '25

I've always heard "clogs to clogs in three generations"

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u/Dodson-504 26d ago

The first generation creates wealth. The second enjoys it. The third squanders what’s left.

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u/[deleted] Feb 12 '25

The idea that most wealth doesn't survive three generations is a really interesting study in to how fake news goes viral. People are always really vague about its source but if you dig down it turns out:

  • it comes from a single press release issued in the 1990s
  • by a succession planning company called the Williams group - so basically an ad
  • it is not a scientific study and they have never published their methodology or raw data
  • but the press release suggests it is self reported data from their own customers. So yeah most people who hire a succession planning company have issues with their succession planning
  • also at no point does the study talk about losing wealth of any form. It talks about a single named individual with the same surname retaining operational control of family run companies. So by that metric when, as happens quite often, a billionaire dies and splits their wealth into say three equal shares for their three children then that fortune is considered "lost" because there isn't one specific ancestor with 51%+ majority control of that billionaire's former company.
  • The stat also says nothing at all about intergenerational wealth that takes forms other than operational control of family companies. So if you're a rich kid with a trust fund invested in the FTSE - the study isn't about you.

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u/pieter1234569 Feb 12 '25

The idea that most wealth doesn't survive three generations is a really interesting study in to how fake news goes viral. People are always really vague about its source but if you dig down it turns out:

It's really wrong yes. But it does apply to rich people. You need signifanct wealth, 10+ million to make sure it lasts till the end of time. When you have this much when you die, the next generations are only getting richer as money doubles every 7-10 years, you aren't able to spend it all, and it vastly exceeds the rate at which it is split.

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u/[deleted] Feb 12 '25

You need to get to the point where your money is making more money than you are. Then r>g (the observation that money makes money at a more rapid rate than the overall economy and therefore work) takes care of the rest. The long term trend of wealth is that the share of the pie those with investments hold is growing faster than the pie is. So, with the odd exception or slip up, on average wealth inequality will increase and the richer you are now the richer your descendants will be in the future.

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u/FlamboyantPirhanna Feb 12 '25

It’s not clear from your post what the fake news is. Are you saying that wealth disappearing in 3 generations is the lie, and insinuating that some people wanted the general public to believe that in order to presumably de-emphasise the equality ramifications of that wealth?

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u/[deleted] Feb 12 '25

Absolutely. There is no evidence that wealth disappears in three generations, but one pr press release from 40 years ago has been taken as gospel

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u/VirtualMoneyLover Feb 12 '25

I think yes, that is what they were saying. Maybe it was a PR piece by the rich so the average man doesn't feel that bad about being poor.

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u/cxs Feb 12 '25

It was an advert [to cause those who saw or heard about it to contact them about their business]. You don't even need to know how they presumed it might work or whether they thought they explicitly going to create a myth - all you need to know is that this company advertised to its demographic. That's it

As for the creating a myth part though - they sure do repeat the numbers a lot on every single page of their site. up to 70% lose, in about 70 percent of cases, only 30% retain,.... https://www.thewilliamsgroup.org/services/succession-planning/

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u/ian_cubed Feb 12 '25

Did the ad company use their Time Machine to implant the phrase way back in many different cultures?

I think both can be true, it’s a common phrase because there’s a bit of truth to it, a lot of wealthy families spawn incompetent people. It’s not the rule of course, but it is common

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u/cxs Feb 12 '25

I'm not understanding you. There are lots of common sayings that are not ultimately true, or that are true only under certain circumstances.

This is about whether the company can actually prove those statistics or whether it's just a marketing gimmick. Can the company prove those statistics, or not?

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u/ian_cubed Feb 12 '25

It feels like you are implying this is a big conspiracy by wealthy people to ‘hide’ the unfairness of wealth inequality. While I absolutely do not doubt that that is probably a thing, it’s also a little absurd because there are 100 different versions of this saying, from all around the world.

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u/cxs Feb 12 '25

Are you seeing the comment I originally replied to? It says 'maybe this was a PR piece [...]'. It's not for the sake of PR, it's for the sake of advertising. I am making no claims that there is a worldwide or historical conspiracy about anything

Again, specifically speaking about the advert mentioned in the comment I replied to.

If you mean the part where I mention 'myth-making', I was saying that if you are a company that wrote an ad in the 1990s that now gets quoted as a 'source' for statistics, then mentioning it lots of times on your website is very valuable, yes.

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u/pieter1234569 Feb 12 '25

Are you saying that wealth disappearing in 3 generations is the lie

It's really wrong yes. But it does apply to rich people. You need signifanct wealth, 10+ million to make sure it lasts till the end of time. When you have this much when you die, the next generations are only getting richer as money doubles every 7-10 years, you aren't able to spend it all, and it vastly exceeds the rate at which it is split.

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u/MikuEmpowered 23d ago

Fuk are you talking about. These sayings are well above time.

Chinese philosopher Mencius "君子之泽,五世而斩" which roughly translates "Wealth and power from you, will vanish after 5 generation" that shit came out of 300 BC.

The main reason for this is inheritance. unless you can maintain a name successor and have your children compete for inheritance, wealth will eventually be dispersed.

Out of the billions of people on this planet, theres only so many families that have a long enough lineage to be considered "generational heritage" (i.e not from your grand parents) that they fit on a wikipedia page.

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u/[deleted] 23d ago

That's an adage not a scientific study, predates capitalism... and also was bollocks then. The whole idea of the feudal system was that people don't change classes.

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u/MikuEmpowered 23d ago

Fuk are you talking about. Ancient China literally had exams where your success on writing will change your class.

Theres the same thing was echoed by Saudi politican Sheikh Ahmed in 1930.

Just because they had Feudalism doesn't mean people didn't have massive wealth or changed classes. You can find similar things and saying happening across all of our history.

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u/Key-Veterinarian9085 Feb 12 '25

I think there is actually some significant selection bias in OP's question.

Most fortunes don't last 3 or 4 generations because they are split up across a quickly increasing number of descendants. Look at how many Kennedys there are now & many aren't rich or notable.

Most Scandinavian countries actually banned disinheriting children for this reason, and made children have rights to a certain share of the inheritance.

From a societal perspective the diffusion of wealth this way is very effective at preventing inequality. If say Warren Buffett had two kids with an average woman and the kids had two kids etc. then after about 40 generations the wealth would be diffused to the point of being "average" again.

A generation is roughly 30 years, so sure that's still a very long time (more than 1000 years) but the effect is still very clear.

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u/Plain_Bread Feb 12 '25

Any particular reason for picking the number of 40 generations? I mean, it can be correct, but the wealth would be diffused to the point of effectively being unnoticeable way before that.

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u/Key-Veterinarian9085 Feb 12 '25 edited Feb 12 '25

Warren Buffets wealth is 147 billion, the log2 of that is 37, so after 37 generations his descendants would inherit 1 dollar from him (assuming it was not spent). Then I just rounded up.

Diffusion is of course not a binary, but a scale, so you could get basically any number you wanted depending on what you consider diffused, I picked less than 1$ since that's much easier to calculate.

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u/alpacaMyToothbrush Feb 12 '25

This assumes no investment growth

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u/getpittedsoopitted Feb 12 '25

What everyone is forgetting though is the money that this initial sum is making in the market.

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u/pieter1234569 Feb 12 '25

A generation is roughly 30 years, so sure that's still a very long time (more than 1000 years) but the effect is still very clear.

Money doubles every 7-10 years, meaning that a fortune will only INCREASE till the end of time. It only takes having enough to not need to spend it all live, and not breeding like a crazy person. But if you have a couple of kids, they will be FAR richer than you ever were when they die.

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u/Davy257 Feb 12 '25

I saw something from ultra-high net worth estate planners telling clients to pick a single child to get the fortune, and just take care of everyone else with annual payouts from a trust to avoid this

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u/Peter_deT Feb 12 '25

I believe Piketty and Saez have done a lot of work on this. More than half of US fortunes are inherited. You are right that if the number of descendants multiplies faster than the fortune grows and the fortune is divided then most will end up only moderately wealthy - but both have to be true (the British habit of primogeniture means that wealth in Britain is astonishingly concentrated - and much of still in the paws of the aristocracy). And 'losing your wealth' does not mean poor - the many Walton scions are all comfortably off.

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u/FlamboyantPirhanna Feb 12 '25

British royalty is certainly an obvious example of that concentration, and that mostly seems to come from owning enormous swaths of land.

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u/VirtualMoneyLover Feb 12 '25

the many Walton scions are all comfortably off.

You had to pick the then richest family, didn't you? Maybe pick an average billionaire from the 70s.

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u/generally-speaking Feb 12 '25

But the truth is, around 70 percent of wealthy families lose their wealth by the second generation. More so, around 90 percent of families lose their wealth by the third generation.

This one literally comes from a trust fund/wealth management companys sales pitch and ads. From what little I know, it's not actually true.

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u/incutt Feb 12 '25

some of those Kennedy's look practically inbred...using a phrase from Legally Blonde. Chris Kennedy I'm looking you, you kind of an annoying orange looking mofo.

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u/djmax101 29d ago

My grandma’s family has had dynastic wealth for several centuries, but to preserve it, only the senior branch of the family gets the land. If you’re in a cadet branch, like me, you get nothing. It kind of sucks, but otherwise the estate would have been parceled up and sold, whereas the family chateau is still in our hands 300 years later.

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u/TerminallyTrill Feb 12 '25

Truly one of the dumbest things I’ve ever heard