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​"Self-Portrait as a Fountain" by Bruce Nauman)

Book Review--"Old Money: The Mythology of America's Upper Class" by Nelson W. Aldrich, Jr.

7/30/2018

38 Comments

 
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This was the third book that I read this summer. Understanding competing notions of wealth and class is especially important if I choose to pursue a career on the wealth management side of finance. A financial advisor or a private banker needs to understand what is at stake/ what is important in the lives of the families he is serving--as well as what is and stake and important in his own life and the life of his family.

Wealth management is a difficult task, if the goal is successful generation-to-generation wealth transfer, across multiple generations. It takes a very delicate combination of variables for a person to become rich in the first place, and preserving those variables into the second, third, and fourth generation is difficult, especially when the youth of younger generations become far-removed from the original social circumstances that made the ancestor so focused on success. It is the natural order of things for order to fade into chaos, industriousness to grey into sloth, and wealth to distill into poverty. 

As an example of the tendency for wealth to fall apart and decay across generations, Aldrich points out that "whatever wealth-generating enterprise it was that initially carried the family into history, the chances are that it did not continue under family management for more than the proverbial three generations. One study has shown that the attrition rate of family businesses in America -- enterprises, that is, for which there's evidence that the founder intended to pass them on to the next generation -- is about 80 percent in the first-to-second generation transfer, and again 80 percent in the second-to-third generation transfer." 

That is jarring. It means that only 4% of businesses started by a grandfather will successfully still be intact as a family possession by the time the grandson or granddaughter is ready to go and claim his or her inheritance. 

Old Money, as Aldrich defines it, is the collection of cultural practices visible and present among wealthy families who are trying to avoid the social casualty of business- and wealth-attrition from generation to generation within the family. Whether the family's wealth-preservation project fails or is successful, Aldrich classifies a family as Old Money simply for the fact of ever having once been wealthy and for trying, successfully or not, to preserve the financial and social legacy of that ancestor's success.

The principal difference between Old Money and New Money, according to Aldrich, is the presence or lack of a concern for planned cross-generational wealth transfer, as opposed to excessive or inappropriate focus on the present generation's success in the market of earning and consumption.

Whereas the key actor on the historical stage, for the New Money individual, is indeed he or she himself as an individual, the key world-historical actor for the Old Money individual is the family--deliberately engineered to stay healthy, functional, and successful in the generations to come. 

Quoting Charles W. Eliot, one of the past presidents of Harvard University, Aldrich writes: 

"The family, rather than the individual, is the important social unit. If society as a whole is to gain by mobility and openness of structure, those who rise must stay up in successive generations, that the higher level of society may be constantly enlarged, and that the proportion of pure, gentle, magnanimous, and refined persons may be steadily increased. New-risen talent should reinforce the upper ranks. … The assured permanence of superior families is quite as important as the free starting of such families." 

I think the understanding of wealth that this book presents is relieving, honestly. It takes some of the burden of achievement off my shoulders as an individual and distributes the load more fairly across the future generations of my family. After reading this book, I am increasingly less concern with finding the "perfect" job for myself. I'm more focused on finding a functional way to reach financial goals and benchmarks and then work with a financial advisor to set up financial and social instrument for the clean and effective transfer of that wealth to my children, grandchildren, and great-grandchildren.

The chief downfall or flaw in the Old Money project is probably the low success rate of the project. I keep thinking of that statistic, quoted above, that only 4% of family businesses are still owned in the family's possession by the time the grandson or granddaughter is old enough to go and claim it. 

What combination of school, adventure, cultural experiences, outdoor experiences, etc., could give a descendant who grows up in relative comfort, with all of his or her needs accounted for, the same kinds of discipline and height of character that was necessary for the ancestor to be able to earn and manage his or her wealth in the first place? Aldrich spends the remainder of his book, "Old Money," trying to answer precisely this question.

Photo credit: "American Dream" by Sean Gale Burke.
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