Why The Rich Get Richer

Do certain groups of people stay wealthy — for generations? Do the rich actually get richer? I have been studying France’s old money families for the answers.

My friend Michel, and my son Will, both wrote to challenge my interpretation of France’s upper crust families and their relationship with wealth.

Michel believes the “rich families” idea is mostly a propaganda idea conceived by left-wing ideologues. He tells me that the “old money” families do not merely appear to be living in genteel poverty; they are actually poor.

Maybe so. But, as you will see, the financial component of wealth may be of less importance than people realize. Besides, if I am not accurately reporting the way things are…at least I believe I am telling you the way they ought to be.

Will, meanwhile, who is studying the classics in college, quoted Aristotle on the subject of money. (I always admire people who can bring the ancients into a conversation, even though much of what the Greek philosophers had to say was not worth reading.)

Aristotle’s point was that wealth and honor go together. Or more broadly stated — wealth comes to those who do other things right. Which makes sense. Those who are lazy, ignorant, untrustworthy, foolish and dishonorable may be shoo-ins for public office — but not for a life of wealth. Even if they should get rich by accident — such as taking options on dot.com shares in lieu of a tip when delivering a pizza — it is not likely that the wealth will endure.

What’s more, Aristotle tells us that, driven by the lust for wealth, “unjust people do unjust things.” They hope for something for nothing, in other words. Could it be that — at some point — the pursuit of this easy money destroys wealth?

Anyway…that is question I address in this letter.

It is a commonly-noticed fact of life is that when people who lack an understanding of money, or “cultural capital,” get rich, they do not hang onto their wealth for long. People who win the lottery, or sports heroes who suddenly get rich — are often broke a few years later.

I was pondering these ideas when the train — the Thalys from Koln to Paris — stopped in Brussels. A tall, thin man came into the car. He had very dark hair and dark skin…and was unshaven. He might have been a rug merchant or a drug dealer. But his face was pleasant, so whatever he did, he did it with a smile.

But what was striking about him was that he wore a bright green suit. I had not realized they could get fabric to emit that much light without some source of power. The suit positively glowed, like a lava lamp from the 1960s, or a Jimi Hendrix poster lit by a black light.

Hmmm…I thought…this is not at all like the “classique” look that you see in the 16th arrondissement in Paris. Elizabeth has mastered the “classiqe” look. It is simple. Elegant, without being over-dressed. It is a look that changes only slightly and subtly with time. Thus, it is perfect for the aspiring genteel pauper — since a good suit can be worn for a very long time without looking out of fashion.

And thus, it is also the exact opposite of the neon suit in front of me. “Poor fellow,” I thought to myself, “he won’t be able to wear that suit for long. It won’t be in style.”

Silly me. The suit never was in style. If he would wear it now, he might wear it forever. He might be buried in it, with the same pleasant smile on his lips…and a suffused chartreuse glow in his casket forever.

One of the books I have been studying makes the point that the rich do get richer — not necessarily because they pursue wealth — but because they surround themselves with “classique” things. Their houses and furnishings tend to be antique, for example.

“In general,” writes Michel Pincon in his study of France’s “Grandes Fortunes,” the things you buy lose their value and eventually become obsolete. But the houses of the rich families, as well as their contents, tend to rise in value over the long run.”

This is not merely because they began as expensive objects, or were purchased with resale value in mind — far from it — but also because they were chosen carefully. They are “classique.”

Among the wisdom of the ancients is the realization that living well requires judgment, not just information. Judgment takes time, and attention to detail. Not everything is true. Not everything is beautiful. A bright green suit may be fun to wear — but it unlikely to hold its value or be cherished, as say a Renoir is cherished, by future generations.

In France, before the Revolution, the aristocracy had abandoned their ancestral homes in the countryside and taken up life as effete rentiers in Versailles. Thus, they were cut off from their base of power by the monarch, and later often lost both their lands and their heads.

Today, the “old money” families tend to stick close to their land — despite massive discouragement, in the form of taxes and regulation. Land is often the foundation of their wealth and social positions. They also hold paintings, jewelry, books and furniture — all of which were chosen with the same attention to lasting value.

Mr. Pincon refers to these assets as a form of “symbolic” capital. He believes they serve a purpose beyond that of ordinary financial assets. They tend to focus attention on the principles of classicism — the search for real truth and beauty.

According to Aristotle, it is this desire for the finer things, including a finer understanding of what is really important…virtue and dignity, courage and fidelity…which characterizes a true aristocracy. It is not merely the presence of money, nor the desire for it.

Wealth in America today means only one thing — money. Everyone believes he can become rich — just by getting the right tip at the right time. Or perhaps starting up a new dot.com company and getting it to the IPO stage.

I have heard that the TV show, “Who Wants to Be a Millionaire” is hugely popular. People think that they can get rich just by winning the lottery or answering a few questions on a TV show. They believe that money is the key to being wealthy, and that they can get it with minimal exertion.

Money may be easy to come by, but real wealth takes a lot more effort. It requires different forms of capital — including cultural, social, and maybe even symbolic, capital.

And it takes a trained eye — capable of spotting things of lasting value.

Regards,

Bill Bonner

Paris, France March 24, 2000

*** Okay…I give up. I admit it — I have no idea what is going on in the financial markets.

*** But it is fascinating, isn’t it? Certainly not dull — not now…with stocks up 10% one day — and down 10% the next. If you could only make sense out of it…

*** Of course, it’s specifically because you can’t make sense out of it…or know in advance whether something will go up or down…that you need to invest your money on some other basis.

*** I do not claim to be a good investor. In fact, I’m not an investor, in the popular sense, at all. I just buy things that I like, that I think I understand, at prices that are historically, relatively or absolutely cheap. I look for publishing businesses, for example, because I’ve been in the publishing business for more than two decades and I think I know something about it. So, I believe I should have an advantage — I should be able to recognize good companies at low prices. And I buy companies that are not publicly traded — because they tend to be much cheaper. But even with 20 years of experience — I miss the mark as often as I hit it.

*** But back to the markets — two very significant things seem to be happening.

*** First, after nearly two years in a bear market …the average stock is now going up, rather than down. Is the bear market over? There were 1,834 advances yesterday, against 1,158 declines. There were 99 new highs and only 37 new lows. This is one way the broad market can converge with the leading indexes. But it’s not the way I expected.

*** Instead, I expected the Dow to keep going down — until it caught up with the broad market, as reflected in the Advance/Decline ratio.

*** Could the bear market in the great majority of stocks be over? Could they now be climbing a wall of worry? It’s too early to see a pattern. We just have a few days of strong Advance/Decline bullishness. It could be a feint, a fluke, a fake out.

*** The other significant thing is that bond yields and the gold price are falling. Long bond yields fell to 5.91% yesterday. Gold fell to $285. Hmmm…how could this happen when the stock market is signaling a major expansion…oil is at $27…housing costs are rising steeply…the money supply is expanding at double-digit rates…and the Fed is raising rates?

*** Well, I don’t know. There’s so much “noise” in the system — so much information — that is hard to make sense of it. We are overwhelmed by apparently contradictory data. But higher bonds and lower gold are signals of recession and deflation.

*** So, who you gonna believe? Stocks…or bonds and gold?

*** The big story is still the struggle between the March Madness that has gripped the markets…and the Fed’s feeble attempt to bring about a soft landing. The markets are just not cooperating. Instead of gliding downwards…they act as if someone keeps turning on the booster rockets. This is a very dangerous situation. The Fed cannot ignore it. It may even feel the need for a surprise rate hike of 50 basis points.

*** The maniac markets are fighting the Fed. So far, the maniacs are winning.

*** The Dow rose 253 points yesterday. It’s now back over 11,000 for the first time since Jan. 3. The S&P rose 26 — to a new record.

*** The Nasdaq rose 75 points. The Nasdaq 100 rose 63 – – also to a new record.

*** Most Internet stocks were down a bit…including Amazon, “the biggest living dead in the history of public markets,” which was down $3.

*** GE was up $9. So was MSFT.

*** Bush is no gentleman. But any man who earns the hatred of the trial lawyers lobby can’t be all bad. The trial lawyers have made billions of dollars shaking down the tobacco companies and other unpopular targets. Now, they’re investing their loot in Democratic politicians who promise to keep the game alive.

*** Nor is Jeff Bezos, Amazon’s CEO and founder, beyond the pale of admiration. Unlike so many stress-driven executives, he is said to get 8 hours of sleep a night. Smart man.

*** “Germany Agrees Nazi Victims Compensation” says the semi-literate headline in the “Financial Times.” I’ve gotten so many complaints on the subject of “repentance” that I feel I should clarify: It is one thing to apologize and make restitution to the victims of injustice. But it is quite another thing to judge groups of people for crimes committed by others a very long time ago. In fact, it seems so preposterously hollow and puerile to try to place blame for, say, The Crusades or the crucifixion of Christ, or even the exploitation of Irish day laborers, that I cannot take the subject seriously. In any case, the statute of limitations has run…and, as I tried to point out, we might need our reserves of moral courage for more current problems.