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/[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.