Contrary to the conventional view that wealth gets made and spent in three generations, recent studies suggest wealthy family dynasties are much more enduring, lasting in some cases over many hundreds of years.
A recent study by two economists at the Bank of Italy has found that the top earners among the current taxpayers in Florence were found to have already been at the top of the socioeconomic ladder back in the same city as far back as the 1400s. The research contradicts the conventional view that wealth tends to get wiped out within three generations of it being made – often expressed as the adage: from shirtsleeves to shirtsleeves in three generations. In fact, in the case of Florence, wealth appears to have stayed with the same families six centuries later, despite the huge political, demographic, and economic upheavals between the two dates.
The researchers compared tax records of residents of Florence in 1427 with those of residents in 2011 to come up with their findings. “The top earners among the current taxpayers were already at the top of the socioeconomic ladder six centuries ago – they were lawyers or members of the wool, silk, and shoemaker guilds; their earnings and wealth were always above the median,” said the report.
The authors reckon that their results probably are mirrored in other advanced Western European countries. To measure mobility economists look at intergenerational elasticity, which is the correlation between paternal status and a son’s adult status.The higher the elasticity, the lower the mobility, with one being no mobility and zero being perfect mobility. And, as the report points out, Italy’s current elasticity is almost 0.5, the same as in the UK and the US.
The importance of inheritance right at the top of Europe’s wealth pyramid has been highlighted by another recent study. According to the Peterson Institute for International Economics, more than 20% of Europe’s inherited fortunes were four or more generations old, compared with less than 10% in the US.
So there appears to be mounting evidence that the three generations concept of wealth is looking less and less credible as a way of understanding the longevity of wealth.