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WHAT DOES IT MEAN TO BE RICH ANYMORE?

For the past two decades, I have belonged to the ranks of the 1 percent – presumably the richest people in America. Truly, I never felt that rich, and it brought me no particular pride – perhaps, instead, a touch of guilt thinking about the other 99 percent. Things have changed in the last twenty years or so, however, with the arrival of newer “ultra-rich” (the 0.1percent). Two classics articles have led me to reflect on this new development:

– “Money and Class in America” (Lewis H. Lapham, based on his book with the same title published by Grove Press in 1988).

– “The Rich – How They’re Different…Than They Used to Be” (Michael Lewis in “The New York Times Magazine” on 11/19/1995).

I have no desire to rehash here the ongoing argument about the huge and growing wealth gap between rich and poor in the United States, where the top 1% alone possess more wealth than the bottom 50%, while the least wealthy 40% of households own less than 5% of the wealth (Wikipedia). Many of the latter would be unable to financially survive for more than a few weeks on their accumulated savings, but such huge wealth gaps have existed for centuries in most countries.

What interests me at the moment is how people who would have considered themselves rich only a few years ago now feel relegated to the status of the mere middle class — and how they feel about this. I know a lady in Europe who inherited a “liquid” fortune of $16 million in the mid-1970s. At the time, she was reportedly considered one of the richest women in her country. More recently, she was worth substantially more than $1 billion, yet the world now seems crowded by a new wave of multi-billionaires – a few of them rapidly approaching the trillion dollars. A billion simply is not what it used to be.

While it always is dangerous to generalize, but in his classic book, Lapham makes some interesting remarks on the differences between the owners of old fortunes and the new rich. For new money, he says, “cash has been acquired recently enough to retain an element of magical surprise, and nobody has reason to believe that it won’t endlessly replenish itself.” Thus, the nearly cliché phenomenon of the free-spending new rich.

On the other hand, as Lapham points out, “knowing more or less who they are, the equestrian classes in England or France don’t feel obliged to purchase the patents of their existence… Old money quite naturally prefers to construe its privileges as matters of divine right.” But, “dependent on magic they don’t know how to replenish, they feel themselves threatened by enemies of infinite numbers: thieves, journalists, tax agents, terrorists, unscrupulous merchants, communists, and secret societies.” Elsewhere he says, “Foolish heirs sometimes squander a few millions on schemes advanced by promoters who persuade them that the djinn still lives. More prudent heirs know better, but their credulity still subjects them to the petty tyranny of their servants – lawyers …doctors, etc.” (This list can be usefully updated by adding investment managers and consultants.)

But society has changed since the 1980s: increasingly, people are defined less by their assets than by their activity — which is the new measure of one’s success. In a 1995 article in the New York Times Magazine, Michael Lewis points out that “just as new money once sought to obscure itself with the trappings of ancienne noblesse, new money was now shifting its focus to achievement.”

Forbes Magazine, which has compiled a list of the world’s richest people for more than 30 years, found 140 billionaires in 1987, including 96 outside of the U.S. Now there are 2,668 of them in the world, 724 of in the USA alone. Their number and the sizes of their fortunes have increased exponentially over the last two decades.

One factor has been the stock market, where wealth has progressed much faster, although obviously less regularly than salaries. But that progression still has been much slower (and less sudden) than other finance-related sources of wealth such as mergers and acquisitions, innovation-related IPOs (initial public offerings), etc. The European lady, which I mentioned earlier, did better than the leading stock market indexes yet failed to reach the fast-spreading multi-billion-dollar mark of the new 0.1 percent.

Michael Lewis observes in his article that the old money esthetics depended on the belief that membership in its class is a gift beyond achievement. This implied that old-money status is out of the reach of the middle class. But, in a society where achievement is increasingly the measure of one’s worth, esthetics appears increasingly irrelevant.

My observation is that younger generations of old-money families are beginning to model themselves after the new rich: they spend more freely – although differently than their parents – and at least some of them are working hard and long hours toward professional achievement. In fact, this has not been ignored by employers, as starting salaries in finance, law, and high-tech (where options are an integral portion of compensation) have increasingly become the field of intense competition – at times reaching six figures for inexperienced entrants.

While these trends are not universal, I find them encouraging. But, more than 30 years ago, Lewis Lapham already worried that: “Money always implies the promise of magic, but the effect is much magnified when, as now, people have lost faith in everything else.”

François Sicart – June 24, 2022

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