The rich are different! Or are they?

The conclusions of Guido Alfani's As Gods Among Men are at odds with a culture which sees the rich as merely reaping the results of hard work.
Elon Musk and PM Modi. (Photo | Twitter,  Narendra Modi @narendramodi)
Elon Musk and PM Modi. (Photo | Twitter, Narendra Modi @narendramodi)

There is persistent and widespread fascination with wealth and the wealthy. There is curiosity about the individuals and, where relevant, their lifestyles, habits, dramas and scandals. There is interest in their achievements and the source of their wealth. Emulation plays a part. Many study the rich to identity the secrets of their success. There is jealousy and resentment at the inequities of fate and circumstance which favour some people.

Outside of variable biographies (self-serving ‘I did it my way’ autobiographies should be avoided) which offer hagiographic or slanderous portraits of individuals, there is surprisingly limited literature on the subject. Guido Alfani, a professor of economic history at Bocconi University, in As Gods Among Men: A History of the Rich in the West (published by Princeton University Press) seeks to address this gap. The title draws on the medieval view that the wealthy would automatically act as mortal divine beings using their wealth to help their communities.

Accessible to the general reader, the book is a history of the rich primarily in Western societies. It looks at the last thousand years with occasional forays further back. It provides insights into the identity of the rich, the source of their wealth, how they maintained their fortunes and the role they played in their societies.

The book is structured around brief portraits of individuals - some familiar (the Medici of Florence, the Augsburg Fuggers, Americans such Andrew Carnegie, the Rockefellers and John Pierpont Morgan and recent tech billionaires) and others less well known (William the Conqueror’s companion Alan Rufus who controlled a scarcely comprehensible 7 percent of England’s national income at one time). Alfani complements this with academic research, especially on inequality.

As Gods Among Men argues there are similarities in the acquisition of wealth and behaviour of the rich across history. Public attitudes towards wealth also show an interesting constancy. Some tolerate wealth on the basis that the rich deploy this to benefit their society. An alternative view, in part based on religious tenets, is that excessive wealth is evil, sinful, and contrary to the common good.

Alfani poses important questions, some of which are explored deftly but the treatment of some of the others is less satisfactory.

First, there are several possible sources of wealth: high income; Intellectual property or business ownership; successful investments; inheritance, or luck.

Wealth deriving from income requires a high paying executive position or profession. While possible, this is increasingly limited to a few people with the right skills for the times. It also requires the right birth, upbringing and connections.

Social mobility -- the ability of a person to change their socio-economic situation, either in relation to their parents (inter-generational mobility) or throughout their lifetime (intra-generational mobility) -- requires equality of opportunity, which has diminished over time. In European OECD countries, children with the greatest socio-economic disadvantage grow up to earn as much as 20 percent less as adults than those with more favourable childhoods. Across OECD countries, it takes nearly five generations for children from low-income families to approach the average income in their country.

Innovation or creation of a business -- entrepreneurship -- is another source of wealth. In the US, close to 90 percent of the nation's millionaires own businesses.

Successful investments can create wealth. This can take the form of astute or lucky purchases of shares or real property. The property price boom since the 1980s has converted many homeowners and investors into 'paper millionaires'. Successful investing as a source of wealth can be characterised as piggy-backing on the innovation of others.

Genetic luck can confer great wealth by mere dint of birth. Similarly, pure luck, such as lottery winnings, can also create riches.

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Alfani finds that a high proportion of wealth is inherited from families or through association with royal dynasties. There are specific historical episodes such as the opening up of global trade and the industrial revolution of the late 19th century when adventurous and daring individuals generated wealth. Interestingly, he finds that riches from invention or entrepreneurship is small relative to inheritance.

The book does not examine, in detail, an important shift in wealth creation -- the rise of financialisation. 19th century innovation focused on the real economy -- the internal combustion engine, energy sources especially hydrocarbons and electricity, telecommunications, industrial chemistry, pharmaceuticals, and entertainment. In contrast,  late 20th century innovation -- digitisation -- has focused on marketing, selling and delivering existing goods and services. Most who have generated wealth from these developments have used financial techniques to extract value assisted by venture capital and early stage funding.

Second, Alfani does not look at the motivations of the rich. Originally, many acquired great wealth as a by-product of service to monarchs or regimes, often in service of god and country. Some even believed that their work benefitted mankind. Today, a high portion of the rich set out to be rich. The means are less important than the end.

Competition between the rich is evidenced by keenly studied rankings of the richest. In effect, having more money than you can conceivably spend is insufficient if your perceived peers have a dollar more. One billionaire’s simple instruction to his boat builder was: “I want a super-yacht bigger than HIS.”

There is an apocryphal story about Vanguard founder John Bogle, a billionaire. When a neighbour tried to impress him with his possessions, the down-to-earth advocate of index funds answered that he had one thing that his rich neighbour did not have: “Enough!

Third, the wealthy use power and influence to preserve their riches. Alfani finds that they maintain a strong grip on their money by actions -- political donations and lobbying- to shape policy. He also finds that avoiding taxes and finding ways to make economic gains in volatile times, such as a recession or a pandemic, is a key part of riches.

Fourth, Alfani's justification of wealth on the basis of spending and philanthropy is interesting. The Medici did enhance the civic life of Florence. Millionaires Leland Stanford and Herbert Hoover provided much-needed help during the Great Depression personally financing many social benefit programs.More recently, some of the work of the Gates foundation has helped the disadvantaged.

But for the most part the spending of the rich and their philanthropy embodies serious contradictions. It is opaque about the source of the wealth which may derive from exploitation, operating in jurisdictions with poor pay and working conditions or inadequate environmental controls.

Few individuals or corporations 'give away' their money, which is placed in tax efficient trusts or foundations, with the donor retaining substantial control. The structures are generally tax deductible or provide protection from death, inheritance or estate duties. The trust or foundation also provides employment and status for the donor, his or her family and associates and confers business advantages.

To borrow from Shakespeare’sThe Merchant of Venice: "[Philanthropy] is twice blessed. It blesseth him that gives and him that takes." It is the worst of trickle-down economics as humourist Will Rogers observed during the Great Depression: “Money was all appropriated for the top in hopes that it would trickle down to the needy.”

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Fifth, Alfani chooses not to address the peculiarly modern tendency of the rich to provide unsought advice on how to run the world which many think is beyond their expertise. Peter Thiel and Elon Musk, with their strongly espoused libertarian leanings (though they are not adherents of that ideology) are prime examples. Stateless and virtual internet based firms claim that in minimising tax they are engaged in "self-taxation", substituting philanthropic contribution for taxes which allows targeting specific areas of interest to their owners. In effect, private interests rather than elected governments determine how taxes should be spent. Such influence is unhealthy in a democracy.

Wealth and the wealthy have grown since the beginning of time. Alfani finds that there have been only brief periods when this tendency has been checked -- primarily the 14th century Black Death and the two World Wars. During these infrequent episodes,  shortages of labour and also the broader environment, such as the sacrifices necessitated by wars, led to modest redistribution of wealth and income. Depressingly, the concentration of wealth inevitably resumed. The 2007/08 financial crisis and the Covid pandemic did not halt the inexorable gains by the rich. This primarily reflects their ownership of real estate and financial assets which benefitted from state largesse and ultra-low interest rates.

Many societies today tend to extol the wealthy especially in how-to-get-rich quick books. Idowu Koyenikan in Wealth for All: Living a Life of Success at the Edge of Your Ability eulogises: “When money realizes that it is in good hands, it wants to stay and multiply in those hands.”

In Think Your way to Success: Let Your Dreams Run Free, Stephen Richards castigates those not rich: “The discontent and frustration that you feel is entirely your own creation.”

The conclusions of As Gods Among Men are at odds with a culture which sees the rich as merely reaping the results of hard work.

As Alfani argues the position of the rich and super-rich in Western society has always been intrinsically fragile. This is rising as the wealthy are increasingly reluctant to contribute to the common good in times of crisis, rejecting even such stopgap measures as temporary tax increases. Today, the wealthy instead see themselves as victims of persecution. They argue that the attacks on them are politically motivated, playing to populist sentiments, encouraging envy and jealousy. Stephen Schwarzman, founder of fund manager Blackstone, drew parallels between America's class war and Nazi Germany's war on its 1 percent, the Jews.

In 2014, Nick Hanauer, whose family were forced to flee Nazi Germany, heard the sound of tumbrels and guillotines: "The pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It's not if, it's when.” As President John F Kennedy set out in his Inaugural Address on 20 January 1961: "If a free society cannot help the many who are poor, it cannot save the few who are rich."

There is an essential question about wealth -- what does it buy? For most of us who are slaves in all but name and free only within narrowly circumscribed limits, it about modest freedoms perhaps to enjoy small luxuries without having to look at the price label for fear that it is beyond our reach.

As Fyodor Dostoevsky knew, money is "coined liberty". Yet today, the greed of a few and the alignment of riches with power is gradually eroding the consensus that holds our fragile communities together.

Feuilleton is historically a part of a European newspaper or magazine devoted to material designed to entertain the general reader. Extraneus,  in Latin 'an outsider', is a former financier and author. A reasonable club cricketer, he took up a career in money markets because he wasn't good enough to be a professional cricketer, needed to make a living and no one offered him a job as a cricket commentator or allowed him to pursue his other passions.

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