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The Decline of the Heiress

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Tyler Cowen cites a fun 2009 paper by Lena Edlund and Wojciech Kopczuk that points out that, contra Thomas Piketty, the super-rich are today more made up of self-made (and partially self-made) men than in 1970 by looking at the decline in women among the ultra-rich:

Using estate tax returns data, we observe that the share of women among the very wealthy in the United States peaked in the late 1960s at nearly one-half and then declined to one-third. We argue that this pattern reflects changes in the importance of dynastic wealth, with the share of women proxying for inherited wealth. If so, wealth mobility decreased until the 1970s and rose thereafter. Such an interpretation is consistent with technological change driving long-term trends in mobility and inequality, as well as the recent divergence between top wealth and top income shares documented elsewhere. …

Despite the Margaret Whitmans and Oprah Winfreys of the world, the Forbes 400 lists suggest that family remains the primary route to wealth for women. According to the 2004 list, the wealthiest women in America inherited their wealth. Ms. Whitman’s achievements afforded her only the 152nd spot, well short of positions occupied by the widow and the daughter of Sam Walton, the Mars fortune heiress, Cox daughters, and others. In fact, all seven women among the 25 richest Americans came to wealth through their families. In contrast, of the 18 top men, 14 were self-made.

Table 4 lists, by year, the number (and share) of women on the list, and specifically those who had inherited their wealth. It is noteworthy that while women make up 45–50 percent of those who inherited wealth, their share among the self-made is substantially lower (6.6 percent in 2003). Moreover, the drop in the share of women is mirrored by a drop in the share of individuals who inherited wealth. In 1982, more than one-third had inherited, whereas by 2003 this fraction had more than halved.

Right. There simply weren’t all that many great fortunes created in America from 1929 into the 1970s compared to during the preceding Robber Baron age. Thus, a large fraction of the richest people in America in the first Forbes 400 compendium in 1982 were heirs and heiresses of the great pre-1929 fortunes.

Back before the explosion of New Money over the last few decades, heiresses were a subject of much more public fascination. Lord Rosebery, for example, is said to have had three goals in life: to marry an heiress (Hanna Rothschild, the richest woman in England), to become Prime Minister, and to own the Derby winning racehorse, at all of which he succeeded.

Galton pointed out that the richest heiresses tended to come from long lines of only children, so their low average fertility might be partially hereditary.

In America, heiresses were often major celebrities whose lives were followed in great detail in the press. For example, Woolworth heiress Barbara Hutton was known as the Poor Little Rich Girl, and her seven marriages were followed avidly:

1933: Alexis Mdivani, a self-styled Georgian prince, divorced 1935;

1935: Count Kurt Heinrich Eberhard Erdmann Georg von Haugwitz-Hardenberg-Reventlow, divorced 1938;

1942: Cary Grant, divorced 1945;

The lowest born of her husbands, but probably the most gentlemanly in his treatment of her.

1947: Prince Igor Troubetzkoy, divorced 1951;

Drove the first Ferrari in the Grand Prix.

1953: Porfirio Rubirosa, divorced 1954;

Dominican diplomat, race car driver, and swordsman. Often rumored that one sizable part of him was evidence of some black ancestry. Cheated on Barbara throughout their 53-day marriage with Zza-Zza Gabor,

1955: Baron Gottfried Alexander Maximilian Walter Kurt von Cramm, divorced 1959

Baron von Cramm was Hitler’s favorite tennis player, and was promoted by the Nazis as a symbol of Aryan superiority, but his flaming homosexuality was a PR problem.

1964: Pierre Raymond Doan, divorced 1966.

Somehow or other this guy got himself adopted into the Laotian royal family.

Not surprisingly, Hutton had about $3500 when she died.

Similarly, as a little girl, Gloria Vanderbilt (mother of Anderson Cooper), was the subject in 1934 of perhaps the most publicized child custody divorce battle in history.

Nowadays, heiresses have to be successful fashion designers (Gloria Vanderbilt) or make a sex tape (Paris Hilton) to get the same level of publicity.

Yet, it could be in the future that the vast new fortunes of the last 35 or so years will create a large new caste of heirs and heiresses who will clog the ranks of the Forbes 400. For example, the Pritzkers take up eleven spots on the Forbes 400 and their excellent political connections (Penny Pritzker, the Secretary of Commerce, played the single most important role in making a part-time legislator, part-time lecturer, and part-time lawyer into Presidential Timber) may help them hang on.

 

13 Comments to "The Decline of the Heiress"

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  1. off topic: http://www.bloombergview.com/articles/2014-06-03/will-putin-pay-90-billion-for-crimea

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  2. Like I’ve been saying, the most plausible non-disastrous outcome for the Crimean mess is that Moscow and Kiev eventually hammer out a deal in which Russia compensates Ukraine for Crimea.

  3. Maybe the 1930′s through the 1970′s are an anomalous period when first the rich got hit by the Depression and then by high income taxes. Not too many new big fortunes created then, and the pre-1929 fortunes were divided up and dissipated for 50 years.

    I say that the proportion of heiresses among the wealthiest is on the upswing. You have not heard the last of heiresses.

    Also it’s “Lord Rosebery.”

  4. Rosebery was also probably gay or bisexual. One genetic benefit of homosexuality: gays can marry into rich and powerful families that have ugly duckling daughters that are spurned by heteros who care much more about looks. Wikipedia’s article describing their marriage is pretty funny on this point.

  5. “contra Thomas Piketty”

    No, not contra him. He does not say that dynastic wealth is increasingly prevailing over earned wealth, but predicting this for the future, and noting this what normally happens, with certain exceptional periods (like WWI and II).

    The huge bull market of 1980-now in stocks, bonds, and real estate and huge increase in earned income for top executives, lawyers, and entertainers created a bumper crop of self-made multimillionaires.

    He does not claim this didn’t happen, but that it is an exceptional period, partly caused by things like relaxation on social norms regarding executive pay, and people at large getting over the great depression fears and realizing that stocks were greatly undervalued before the big bull market.

    The huge increase in the value of bonds occurred because both inflation and real interest rates started falling around 1980. Bonds can’t really get much higher than they are now with 30-year bonds now yielding only 3.3%. Stocks have gone up because corporate profits are growing at the expensive of labor income and one-time gains from globalization/shedding domestic workers, plus higher earnings multiples from lower rates. While this could continue for a bit longer, we’ll never see those types of massive gains creating so many new rich men again.

    Think about this: a lot of formerly upper middle class suburbs in California are now full of plain old 1500-2000sf houses worth $1.5-$5 million, creating a gigantic new class of millionaires who bought these houses for $25-200K 20-30 years ago. But that’s not going to happen again, California is plain out of really nice places to live that are cheap, same with New York and DC.

    The US, Canada, Europe, Korea, and Taiwan are all now in the early stages of Japan-style demographic decline and economic stagnation. There probably won’t be another big bull market, and the economic opportunities to make a fortune in a stagnant economy is much more limited than it was in the 1980-2008 period that created so many new rich people.

  6. Steve, do not give up on the heiress. You live in LA fer chrissakes.

    Testing, testing, 123…

  7. says:
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    On that last husband:

    Barbara’s final husband was a commoner. She paid $50,000 to have a Vietnamese prince adopt him so he became Prince Raymond Doan Vinh Na Champassak. He was a Laotian chemist and painter. Four years after they were married, they separated.

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  8. Lot’s of the wealth of those pre-1929 families wound up in tax exempt foundations and trust and holding companies. How much wealth is actually controlled by the Rockefeller family is distinct from how much is actually owned by any of the individual members. I mean, JP Morgan Chase is essentially a mint, which can print money to be used by the Rockefeller Foundation which can seed any program that will eventually be taken over by the US federal government or the UN. Who cares if the trillions involved are technically yours when you can put them to work however you like.

  9. “Barbara’s final husband was a commoner. She paid $50,000 to have a Vietnamese prince adopt him so he became Prince Raymond Doan Vinh Na Champassak.”

    That’s wonderful. Really, why shouldn’t your loved ones be Vietnamese royalty? Warren Buffett never spends his money so creatively. Larry Ellison might spend a hundred million to have a tank full of sharks with laser beams attached to them their snouts, but would he pay $50,000 to make little Megan a princess?

  10. WhatEvvs [AKA "Pseudonymph"]
    says:
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    “Lord Rosebery, for example, is said to have had three goals in life: to marry an heiress (Hanna Rothschild, the richest woman in England), to become Prime Minister, and to own the Derby winning racehorse, at all of which he succeeded.”

    The Spectator, 2005:

    “His aims in life, he once said, were to win the Derby, marry an heiress and become prime minister. He achieved all three, winning the Derby at last in the year he became prime minister.”

    Clever lifting.

    Also from the Speccie article:

    “Pederasts pop up again and again in Rosebery’s life…”

    Nothing special in British history from the 19th century on. This is probably true in the US now as well.

  11. The post (and josh’s comment) bring to mind the “old right” conspiracy theories of the Birchers, Ezra Pound, William S. Burroughs (an heir himself), and these days Alex Jones.

    Supposedly, the robber barons set up the Fed, the CFR and other powerful institutions and rigged the income tax sypstem to prevent their heirs from competition. John D. Rockefeller alone was supposed to be in control of half the entire wealth of the US and spent his later life as a “philanthropist” setting up tax-free foundations to keep his money in family hands. When Nelson R. was nominated for VP he was revealed to have paid negligible income tax, for example.

    So hidden inherited wealth controls society from behind the scenes. I hereby out Pickett as a right wing extremist!

  12. Underworld types often hide their wealth by putting it in the name of friends and relatives.

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