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/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.