In defense of inherited wealth

Wealthy and idle young people bother us. In the abstract, we resent these little princelings and suspect them to be deficient in the will to succeed and innovate. My colleague John Aziz made a dramatic form of this argument recently, saying that inherited wealth is the mechanism of feudalism, and, well, did you know that the Middle Ages were very low growth years compared to the Industrial Revolution? When the market loses the children of the talented to a pampered upbringing, we lose their wealth-spreading innovative talent.

Essentially, Aziz has argued that we would all be wealthier if Chelsea Clinton were not handing out the money of her wealthy friends to the poor from a charitable foundation, but rather that if she returned, bloodshot-eyed and desperate, to the financial sector, she could innovate something. Let's raise the death tax and force Chelsea into a hedge fund. That'll solve inequality!

Inheritance isn't bringing us back to the Middle Ages, at least not by itself. In fact, one could argue that it wasn't really the mechanism of inherited wealth that ruined the economy of the Middle Ages but the lack of this mechanism. Princelings benefited from inheriting power and wealth, but few others did. The slow, fitful trend of the Middle Ages in Western Europe was to increasing claims of trusteeship — in other words, ownership that could be passed on — by tenants and peasant workers.

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The evolution of "unfree tenancy" in England was from a system in which a lord could eject tenant families at any time for any reason. Gradually "the custom" of the manor came to have legal force, and to favor the type of trustee rights that we associate with ownership, including passing the tenancy onto children.

Similarly, the rise of merchant classes and other forms of wealth creation apart from landed estates could be said to have expanded inheritance beyond primogeniture, in which inherited wealth passes to the first son. The old system was founded on the eternal demands of keeping estates as whole as possible, but new forms of wealth meant that parents could work to create more secure and prosperous futures for all their heirs.

Primogeniture certainly concentrates wealth. Partible inheritance disperses it, and over generations it can dwindle into nothing at all. The desire to at least rise to the level of one's parents inspires some heirs to invest and try to build wealth themselves. Yes, some fools with money drink themselves to near death, as in an Evelyn Waugh novel. But books like Angela's Ashes show us that even the poor can do that.

The legal norm and reality of inheritance was actually at its strongest during the earliest period of the Industrial Revolution, in the space between the establishment of governable nation states, but before the massive "death duties" imposed by Edwardian England. Inheritance may have been an obstacle to a state mechanism for redistributing wealth in society, but they were not at all a hindrance to producing it.

It is easy to pretend we are appalled by the idleness that inherited wealth breeds in its beneficiaries, but why not look to the industry it inspires in the parental generation? We imagine that we can take away the economic component of family life and leave the emotional bonds therein undisturbed or even improved. That is a fantasy.

People get immense satisfaction out of their work when they know they can pass on the fruit of it to people they love, with whom they have blood kinship and bonds of memory. This is not just the case for John D. Rockefeller or Steve Jobs, but even middle-class savers. How much productivity comes from this motive? We should all fear finding out.

Abolishing or strictly curtailing inheritance will create incentives to consume more of your wages in this life, rather than invest them for a future. It will perversely increase spending on "inheritance-like consumption," such as education or other networking opportunities for children. It will also drain the meaning out of unpleasant toiling. When you work, budget, sacrifice, and save with the intent of passing on the fruit of that labor, you can imagine your children being able to start their lives free of debt, with better educational opportunities, or more leisure than you yourself had.

Imagine instead that Harry Reid or Ted Cruz will disburse all the surplus wealth you produce in your life. Are you inclined to work harder? Your comfort in this is the 1/120,000,000th of a say that your franchise grants you in steering the executive branch.

Abolishing inheritance also robs children of the meaning of their parent's work on their behalf. Children will tolerate less economic productivity from a father who works just for the private meaning it provides him in his life, if there is no connection to the child's own long-term interest. Especially in industrial and post-industrial economies, a system of private property and inheritance can align the private interests of a family with the public interest in having a productive, innovative work force.

My colleague cites economic historian Thomas Piketty to correlate the influence of inheritance with slow growth and unequal societies. But one of the interesting wrinkles in Piketty's magnum opus is the way that he fingers declining birth rates as a driver of inequality. In fact, it is a return to a system that increasingly resembles primogeniture; the problem isn't inheritance, but the dearth of heirs.

But the worst irony is that it is precisely the abolition of inheritance that would be a step backward into the early Middle Ages. What else is a 100 percent death tax but the handing over of surplus wealth to the discretion of the local sovereign? One who aspires to power and the control of money will simply go into politics or its related industries. Perhaps, those with special skill can become military contractors, formerly known as "knights."

Certainly, if we find the Clinton Foundation's work so offensive and unproductive, we can come up with legal ways to make Chelsea Clinton into a drudge at Bridgewater Capital. But let's not turn ourselves back into unfree tenants on Washington's estate while doing it.