Tuesday, June 19, 2007

The Secret of Perpetual Wealth

Rich families seldom stay rich: "Shirtsleeves to shirtsleeves in three generations." Taxes, ill-advised speculations, spendthrift heirs — all take their toll. What's more, Oliver Wendell Holmes pointed out back in 1860, "it is in the nature of large fortunes to diminish rapidly when subdivided and distributed .

 . . . "[A great fortune] splits into four handsome properties; each of these into four good inheritances; these, again, into scanty competences for four ancient maidens . . . ." 

 Holmes acknowledges one exception: a group whose fortunes seemed never to diminish. A "harmless, inoffensive, untitled aristocracy" he calls them: The Boston Brahmins. But although Holmes babbles on about good breeding and such, he never discloses their secret. What "special means" did these Brahmin families employ to remain permanently in the upper crust? Surely there was more to it than going to Harvard. 

 There was. The "secret" was so open it became embedded in New England folklore, remembered (though seldom practiced) well into the 20th century. 

 Ready to learn the secret of perpetual wealth? Return with us now to those golden days of yesteryear. Boston, before the Civil War. Out from Harvard Yard strides a brand new graduate . . . . 

 Meet Waldo 
Waldo, the new grad, has only one regret. His mother did not live to see him get his diploma. With her untimely death Waldo has become beneficiary of a family trust fund. He recently received his first year's income, $3,000. (Perhaps $80,000 or more in today's dollars.) What's Waldo going to do with all that money? What any right-thinking new college grad would do: Spend it! 

 Off goes Waldo on a grand tour of Europe: London, Edinburgh, Paris, Rome . . . . We catch up with him in Florence. Ah, Firenze!

Strolling from the Ponte Vecchio toward the Pitti Palace, Waldo is startled to see a familiar figure advancing toward him — his aunt Josepha, with a teenage girl in tow.

 "Land sakes!" his aunt exclaims. "Look, Emily, it's my favorite nephew. "Waldo, you remember my goddaughter, don't you?" 

 Waldo doesn't. But he will never forget her. Emily is the comeliest, sunniest, most enchanting creature Waldo has ever laid eyes upon.
 
* * *
Waldo returns to Boston determined to get serious. He rents cheap lodgings near Beacon Hill, finds a job and resolves to woo and one day wed the enchanting Emily. 

 Waldo lives on his scant earnings. His trust income he saves. All of it! No income tax in those days. In a few years, interest on the accumulating income payments augments Waldo's earnings sufficiently for him to start wooing Emily in earnest. 

 We're happy to report that Waldo does get the girl. But here we'll leave his personal life to focus on his finances: Waldo continues to bank his trust income checks, year after year. By the time he attends his 25th Harvard reunion, his accumulated trust income has grown into a personal fortune equal to his trust principal. You could say he has cloned his wealth. So now you know the secret of perpetual wealth. The Boston Brahmins, it was said, were so frugal they lived on the income from their income.
* * *
They sure don't make Trust Fund Babies like they used to.

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