The Mystery of the Vanishing Fortunes: Where Did All That Historic Wealth Go?#

Let’s talk about money, specifically, old money. Like, really old money. You’ve heard of John D. Rockefeller, right? This guy was the richest American ever. He was also the very first person in the world to hit the billion-dollar mark, founding the exclusive “three-comma club”.

Now, “1 billion dollars” back near the end of his life might not sound like much compared to today’s tech billionaires. But get this: at that time, the entire annual GDP of the USA was only 39.1 billion dollars. That means his personal fortune was a whopping 3% of America’s GDP!

If you adjust that for inflation to 2020 money, ol’ John D.’s fortune would be about 450 billion dollars. That’s more than Elon Musk, Bill Gates, and Jeff Bezos combined today. Seriously, that’s a massive pile of cash.

So, where is all that money now? John D. himself died almost a century ago. You’d think a fortune that big would set up future generations indefinitely, right? But just like most historic magnates – from Carnegie to the Medicis – their fortunes have pretty much faded into obscurity. Sure, you might see their names on buildings (buildings they don’t even own anymore, mind you!), but the money itself seems… gone.

The Common Explanation (and Why It’s Not the Whole Story)#

You might think the answer is simple: the money gets split among the children, then the grandchildren, then the great-grandchildren, and so on, until it’s spread so thin it becomes irrelevant. And while that’s part of it, it’s definitely not the whole truth. The real reasons these financial empires decline can actually teach us a lot about how wealth works across generations.

Yes, generally, wealthy folks with more than one kid do split their money pretty evenly among them. Exceptions exist, but that’s the standard deal. Our friend John D. Rockefeller had 5 children. Even his astronomical fortune got split up relatively quickly just among his kids, and that’s before counting the big charitable contributions written into his will.

Now, that one-fifth share still made his children unbelievably wealthy, no doubt. But if you adjust their wealth for inflation, they wouldn’t even top the Forbes list today. They’d just barely make the top ten (the poor things!).

This splitting process only ramps up over time. Today, there are over 70 direct Rockefeller heirs. And honestly, that’s not even a particularly old dynasty compared to families like the Medicis or Rothschilds, who now have thousands of direct heirs.

But here’s the kicker: this splitting shouldn’t really cause the fortune to disappear entirely. Sure, people make more people, but money, generally, makes more money a lot faster than people reproduce.

The Paradox: Money Should Grow Faster Than Heirs Multiply#

Let’s look at old man Rockefeller again. He lived to be almost 100 and passed his money down to children who were pretty old themselves. Tragically, two of his children had already passed away by the time he died, which actually changes the math a bit. It also makes for a good example, because most global billionaires today average around 3 children.

When a fortune gets divided, it’s usually not handed out as straight cash. It’s almost entirely held within family trusts that manage a wide variety of assets. (If you’re interested in how to set one of these up, maybe check out that video they mentioned about getting rich).

The key thing about assets is they tend to appreciate. Stuff like shares in huge oil companies and a big portfolio of high-profile real estate would have done really well in the years after John D. died in 1937. Between his death and 1960, when his son John Rockefeller Junior died 23 years later, the S&P 500 was up 1,000% even after inflation.

This means that if John’s children just broadly invested in American markets (which they did) and lived on less than the modern equivalent of a billion dollars a year (which they also did), they should have been many times wealthier when they died than when they first got their inheritance.

Even the “prolific respawn rate” of the Rockefeller family shouldn’t have been able to outrun pretty basic market returns. And this doesn’t even consider the perks these kids got, like access to highly profitable directorships, political appointments, and world-class educations that helped them earn significant incomes on their own.

To put it simply: if you took the Rockefeller fortune, worth about 1 billion dollars in 1937, and just kept it broadly invested according to market returns until today, that fortune would have exploded to over 4.2 trillion dollars.

If that wealth were then split evenly among the estimated 25 direct living beneficiaries today, each one of them should theoretically be one of the richest people in the world. And remember, they were primarily invested in oil, which actually outperformed the general market until recently.

This logic should apply even more to older (and arguably wealthier) families like the Medicis and Rothschilds, who’ve had much longer for their wealth to compound. But obviously, it hasn’t happened that way.

So, what is the real reason? Where did all that money actually go?

The Four Main Reasons Fortunes Fade#

According to the text, there are four key factors:

1. It Got Given Away:

   • Rockefeller Sr. gave a good chunk of his fortune away during his lifetime.
   • He gave an even larger chunk away after his death.
   • These donations funded major institutions like schools, museums, national parks, and a huge list of other charitable projects.
   • His surviving children continued this, each giving away close to half of their own fortunes.
   • This meant the money wasn’t being reinvested for growth; it was mostly just maintained at its original value before being given away.
   • Many of Rockefeller’s grandchildren ended up being worth around 3 billion dollars. While that’s a huge amount today, it shows the family wealth was largely only keeping up with inflation, with the rest going to charity and political projects. Remember, $3 billion today buys *a lot less* than$1 billion did a hundred years ago.

2. It Got Taken From Them:

   • Various things chipped away at the funds over time.
   • This includes estate and capital gains taxes.
   • Divorce settlements have also taken a bite out of family wealth.

3. It Got Too Hard to Keep Tabs On:

   • The family, for understandable reasons, isn’t exactly bragging about their fortunes to magazines like Forbes anymore.
   • The wealth is now highly diversified and spread across multiple family offices managing potentially thousands of trusts.
   • Because of this, there’s really no public record of who owns what within the family unless they choose to tell you, which they won’t.
   • For people like Bill Gates or Jeff Bezos, it’s relatively easy to estimate their wealth because it’s mostly tied up in publicly traded companies, high-profile business ventures, and known properties.
   • But for people like David Rockefeller or David Rothschild, there’s no comprehensive list of everything they own and owe.
   • This is probably for the best; you wouldn’t want those kinds of details about your finances public, and they deserve that same expectation of privacy, even if they are much, much wealthier. How much wealthier? Well, they aren’t saying.

4. Investing Hasn’t Always Been This Profitable:

   • This is a major point, and apparently the main reason for this video!
   • The kind of incredibly lucrative investing growth we’ve seen has really only been a reality for the past 150 years or so.
   • Think about the Medicis. They rose to power around the 12th century, right at the start of the Renaissance. Art and science boomed, but the economy in Europe didn’t actually grow much at all.
   • Even by generous estimates, the wealth of Europe barely increased between the Middle Ages and the start of the Industrial Revolution.
   • Most people were content to live pretty much the same life as their parents and grandparents. The whole idea of constant technical innovation and capital investments wasn’t really a thing.
   • Because of this, the idea that “money makes money” by being invested in a growing market simply doesn’t hold true for fortunes that existed before the mid-1800s.
   • This means that back then, humans making more humans did spread the family fortune without the chance for the money itself to grow fast enough to keep up.
   • There’s even a possibility that the past few decades of constant compounding growth in our finite world might be more of an anomaly than something we should take for granted.

Can Modern Fortunes Last Longer?#

Okay, so what if you are an aspiring financial monarch today who wants to build a dynasty that lasts forever? Curiously, institutions exist specifically for this!

For a significant fee, wealth management companies will structure family fortunes so they can potentially remain intact almost indefinitely.

• They help write wills and suggest investment strategies focused on long-term, sustained growth.
• They take a very hands-on approach to educating younger generations, making sure they are prepared to properly manage the fortune when it’s their turn.
• They normally recommend a structure where the majority of the wealth is passed down to a single child rather than being split evenly and diluted. For maximum historical vibes, maybe make it the eldest son, like a modern monarchy!

This kind of structure is much more feasible today thanks to a robust financial system and a world driven by innovation. However, it’s also become pretty unpopular lately.

Things like The Giving Pledge have seen many of the world’s richest people agree to give away a majority of their fortunes to charity when they die. These two goals – preserving the dynasty’s wealth and giving it all away – are clearly not compatible. So, it looks like once again, giving money away might save us from being beholden to the 17th generation of Bezos overlords. What a shame… (He says with humor).

A Note on Charity#

Now, these rich folks giving away their life’s work to charities probably want to make sure that money is used for good causes, especially since they won’t be around to check.

This might not be as simple as you think. Some charities, like one explored in a previous video, operate more to enrich the people running them than to actually benefit humanity.

If you’re interested in that, you can check out that video. And if you enjoyed learning about how money works like this, consider liking and subscribing to keep exploring these topics!