The richest families in Florence in 1427 are still the richest (2016)
qz.com
qz.com
It's useful to note the title of the paper: What’s your (sur)name? Intergenerational mobility over six centuries. This paper is not tracking wealth, it's tracking income via tax records. It notes things like people who are lawyers or bankers now were more likely to share surnames with people in similar professions in the 15th century. It is not tracking inter-generation transfers of wealth.
In fact, qz even drops the most interesting conclusion in the article, which is their measurement of changing intergenerational income mobility overtime. They measure inelasticity at > .8 in Renaissance Florence and a generally static society until the industrial revolution, with inelasticity coming down starting in the 20th century.
The article isn't about secret trusts set up by the Medici, but the more prosaic fact that if you father and grandfather were lawyers, you're more likely to be one too. Still interesting, but it's not evidence that families were "able to maintain their wealth" through revolutions at all.
There are actually a lot of studies of this nature, across Europe, Asia and the Americas. This result is not unique to Florence - you get much the same result everywhere in the world.
Furthermore, this result seems primarily driven by factors intrinsic to the people/families themselves and not to the society they live in. There are a number of invisible subgroups (e.g. "New France", or people with names like Bauchau) which underperform or overperform across the generations. And when people shift from one society to another (e.g. West Bengal to America), the effects persist.
Also, you should be very sceptical of any study made using Italian tax records as a data source :D
Those rich real estate owners are not frugal because they need to. They are frugal because they are smart. Don't judge their wealth before seeing their tax haven bank accounts.
The House of Windsor only formally dates back to 1910.
However if you trace it via the Mountbatten line, it'll rate as being as old as 1567, since it comes from a branch of the House of Hesse-Darmstadt in the Holy Roman Empire.
I think there's 3 things that might cause this:
- I am thinking that Florencian plutocratic houses simply never rename themselves. The Medici family for example continues to exist today, holding some minor titles.
- I think it also helps that Italian aristocrats were heavily involved in trade, and other mercantile professions so could continue to hold wealth and power after being deposed from statutory privilege. English aristocrats on the other hand, often only hold value in land.
- The English have historically allowed women to inherit, so family names are lost due to inheritance, enriching others with the same bloodline but different names.
Say your ancestor Rich Grosvenor owned the village of Belgrave near Westminster Cathedral and the farmland around it - then just by holding on to it, watching it as it becomes prime urban real estate and living off the million-pound rents you and your children can't avoid becoming billionaires a dozen times over. Then you can proceed to buy and sell the British government and media at your pleasure, having been made a duke and a lord of the realm...
House of Wetten (1030) -> House of Hanover (1710) -> House of House of Saxe-Coburg and Goth (1826) -> House of Windsor.
There is a long lineage for the Windsors. Note the name change in 1918 from Saxe-Coburg to Windor to avoid diplomatic incidents by association. To get an idea of the breakdown of English aristocracy and estates, read this insightful article by Charles Spencer, "Enemy of the Estate" ~ http://www.vanityfair.com/news/2010/01/english-aristocracy-2...
"I am thinking that Florencian plutocratic houses simply never rename themselves."
Yes, that's what it looks like.
There's no estate tax upon your death because the assets were already transferred. The assets aren't taxed on transfer, either, but only as they're paid out to the beneficiaries. The effect is as if the original grantor (your great Uncle Gates) was immortal, giving out stipends to his descendants.
You don't hear about this much because the state laws are only a few decades old, but the repercussions play out over generations. It'll become a thing in another 100 years or so when people finally realize what's happening.
Before this the trick was to use corporations. Maybe nominally non-profit, but mostly existing to employ the descendants. That's still a good idea depending on what you're trying to accomplish. Like with trusts you create it in a state with friendly legislation.
It sucks that conservatives are so hell-bent on repealing the estate tax, but it's really not a battle worth fighting over. The war was lost long ago. What nominal revenue the estate tax brings in has been shrinking for awhile, and it'll eventually shrink to nothing.
At this point people are just fighting for an idea. And I literally mean _just_ an idea. Retaining the estate tax won't stop anything, and it might give people a false sense of comfort. Maybe better to let it get repealed, then hope that in a few generations there's enough backlash to not only restore the estate tax, but to foreclose the alternatives as well.
Eight states have repealed the rule against perpetuities.
These states are Alaska (repealed the rule for vesting of
property interests), Delaware (repealed entirely for
personal property interest held in trust; 110 year rule for
real property held directly in trust), Idaho, Kentucky
(repealing the rule interests in real or personal property),
New Jersey, Pennsylvania, Rhode Island, South Dakota.
Nine states have adopted longer fixed periods for the rule
against perpetuities, sometimes only for certain types of
property. These states are Alabama (100 years for property
not in trust; 360 years for property in trust), Arizona (500
years), Colorado (1,000 years), Delaware (110 years for real
property held in trust); Florida (360 years), Nevada (365
years), Tennessee (360 years), Utah (1,000 years),
Washington (150 years).
Source: http://www.actec.org/assets/1/6/Zaritsky_RAP_Survey.pdf
If you were establishing a multi-generational trust you'd want to put it in a politically, economically, and legally stable jurisdiction. Historically those options were limited to the U.S., U.K., and maybe a couple of other European nations. That's less the case now. But who knows what the world will look like in a 100 years. There's plenty of reason to want to keep money in the U.S. So I wouldn't argue that U.S. law is inconsequential in the face of foreign options. I just don't see us returning to an earlier time wrt restraints on generational wealth transfers. The viability of foreign options makes it even more difficult to reverse the trend.
0. https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...
Can you talk us through what exactly it is that we misunderstand, and what the correction would be?
Control of the distribution of wealth and income is certainly a tricky, multi-faceted challenge that society had to face since the beginning of civilization, and certainly will have to face many a day.
In the US we have a mixed bag of libertarians who think it just and egalitarians who think it unjust. If you ever want to see either the token estate tax ended or the loopholes closed, and not just indefinitely moan over the imperfect world we live in, you have to make your case. Arguing over the estate tax is a reasonable proxy: if you could actually convince people the estate tax was important and necessary, they would also be inclined to believe we should close the loopholes.
In the proposals floating around to repeal the estate tax, there is at least one that suggests repealing the tax entirely but then not giving estates the step up in cost basis.
This has a set of interesting results, including paying no tax until an asset is sold. For instance, if your parents bought at&t stock at $10, and it's worth $20 when you inherit it, you pay no tax. But when you sell it, let's say at $25, you will pay capital gains tax on the difference between the sell price and the _original_ buy price. Estate tax right now gives a step up in the cost basis regardless of whether the tax limit (roughly $10million) is ever hit.
And just to cover the topic, there are two main reasons against the estate tax. The first is that the state has no right to that money. The second, thought, is much more problematic. If you inherit a business, valued at $20 million, you'd have to pay estate tax of roughly $5 million upon your inheritance. If you just owned the at&t stock I referred to above, no big deal - sell some, pay the tax, and walk away with your remaining $15 million.
But if you have a family business, the effects can kill the business. For instance, if your parents own a retail outlet or manufacturing facility, you can't easily sell part of it.
The US has never had an issue with permanent wealth like Europe has, even for the hundreds of years before the estate tax was put in place.
In addition, a large proportion of the "family farms" complaining about the estate tax are sham farms, essentially real-estate investment vehicles that throw a handful of cows on them in order to qualify for farm subsidies and property-tax exemptions. This is an especially popular kind of "family farm" in exurban Texas. There are genuine family farms, but they are much rarer than the number on paper, and typically don't, coincidentally, happen to hold as much prime investment land.
The current estate tax threshold largely misses real family farms, but it doesn't have to move much to become a disaster. When I was in high school I personally witnessed neighbor widdows being beggared by the then ridiculous estate tax threshold. That memory is seared into my brain.
[1]https://taxfoundation.org/estate-and-inheritance-taxes-aroun...
Wow, the Renaissance was really ahead of its time.
So 5% extra as the result of being related to a wealthier family 600 years ago. While definitely remarkable when considering how much happened during that time that should have destroyed wealth, it's far from apocalyptic.
There seems to be no implication that the descendants do not have to work either, just that they earn slightly more.
Even on the assumption that the rich only have 2-3 children, a billion-dollar inheritance should be diluted to nearly nothing after 15 generations. And with the 4-8 children that were usual back in the day, in less than 10 generations.
Having such a massive difference that it can be traced by very low-powered population statistics after 600 years means that the effect on having a head start in terms of wealth is enormous on your potential to stay wealthy.
Not if your children exclusively marry other wealthy people. Then the rate of dilution depends primarily on the growth in the overall population of the wealthy in each generation. The Italian population overall has quintupled since the 1400s, even if we make an allowance for the wealthy having more living children who reproduced, the wealth will not have diluted away completely.
You'd need a higher rate to grow just based on that, plus there are untimely deaths and non-reproducing offspring...
When you are a part of the Illuminati, anything is possible!
Another interesting statistic has families that were made wealthy in a short time by circumstance (lottery, judgement, IPO, etc) and are still rich, vs those that lost all of their wealth again.
It seems the best way to have the family wealth hang around is to create an institution with it that has as its mission to manage that wealth. Too much control by family members is strongly correlated with losing it all (which isn't too surprising when you think about it).
Wars and conflicts are the large redistributors of wealth. Not that it's a fun way to do so.
The tl;dr is that the government stole a huge chunk of land from the Cherokee but the white public got really angry because the politicians intended to split up the land among themselves. To avoid being tossed out of office they setup a lottery and distributed the land randomly. About 20% of Georgia's white population at the time got a huge chunk of land for free. The study shows it didn't have much of an impact on families over the long-term.
The paper: http://www.nber.org/papers/w19348
The podcast: http://freakonomics.com/podcast/would-a-big-bucket-of-cash-r...
Especially since this is talked about for being so different from the norm.
Europe is big. I don't think the United States is less mobile than Italia.
Thus, you could have someone in the US start out making $30K, then make $200K over their lifetime. Due to the spread in "classes", they might have only jumped up on class even though their income went up 6x.
In Europe, where the classes have less spread, someone could have gone from $30K to $100K and gone from the bottom to the top class.
Yes, mobility across classes is greater in Europe, but the American has the bigger increase in income.
The counterargument is usually "well let's set the cap at X million" which I find very problematic because I don't see an ethically sound way of defining these lines in the sand. Additionally in the age of webscale(tm) it's reasonably possible to start a "new dynasty" from scratch. Unfortunately most of these debates tend to boil down to "the rich are evil" which is usually when I use interest in them.
I've only roughly browsed the study but the effects aren't that big compared to compound interest from 1427 to now. If anything I'd argue the rich are still rich but not as rich as expected is the take away message.
Inheritance tax is not an effective way to avoid this. A different solution is needed
same as if you sell a thing you already paid VAT for - new buyer then should also pay VAT on selling price, right? foreign person shouldn't be favored better than your own children.
Well, but that's just about 60 years...
Over 600 years, a family of 4 becomes a family of thousands. Take any reasonable sum of money and divide it by 20,000 and its not that big of a sum of money anymore.
To a man with a hammer and sickle, every problem is a class struggle.