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What's the Mindset Diffe...
What's the mindset difference between a Boeing CEO and a Lord? That difference is an underexplored aspect of modernity: perceptions of wealth The fight between agrarian and industrial wealth is known, but far more interesting is the income v. capital appreciation upheaval🧵👇
For most of modern history, wealth was measured in terms of the income generated by an estate rather than the capital value of the estate itself This is excellently shown in Jane Austen's Pride and Prejudice: Mr. Darcy is never described in terms of the value of his acres and home. Rather, he's considered notably wealthy because his estate is "worth" 10,000 pounds a year, meaning that's how much it generated in income
Admittedly, there's something of an exception in that acres were counted and noted So the Percy family was notable in the well over 100,000 acres it owned, and George Washington was known for his thousands of productive and tens of thousands of speculative acres But, speculation in America aside, the acres were noted because they were generally income-producing rather than because of their capital value
That changed sometime in the 20th century One issue was that the Agricultural Depression and vast grain fields of the American prairie meant less income was generated by agricultural acres, so the sale of them became necessary in many cases The bigger one was more general. As I spoke about with BackTheBunny in this week's episode of The Old World, the combination of liquidity, rising asset values, and corporate ability to produce far greater returns for investors by reinvesting in corporate growth than returning wealth to shareholders mean that retained earnings became a better strategy for success than returning cash via dividends When paired with equities becoming the preferred asset class to bonds or land, this meant that wealth became measured in terms of asset value: the people who mattered largely held equities, and their equities rose in value rather than produced dividends
This is a big change because of what it means for society, as those in the wealth elite who are in charge change dramatically, and led to the rise of constant, dramatic political change and mass bureaucracy (View Tweet)
Take the landed elite, or gentry + aristocracy, that ruled England for centuries. Because its wealth was in the land, and the income generated from that was stable, what it wanted was continuing, prudent investment in the country's prosperity and stability paired with that So, while adventures abroad (empire) might happen, and even be a good thing, domestically what generally matters is that conditions are broadly the same tomorrow as they were yesterday, and government is kept out of one's life Low taxes, little bureacuracy (the colonial office characterized this period), and not overly much political change characterized this period. The gentlemen ruled, and they largely did the ruling themselves
Related to this is that those in charge, because their wealth and the wealth of their descendants comes from continued stability and productivity, care about the country itself and are committed to it So, at least amongst the ones who lived as they ought to have, the focus on income-generation from land (and to a somewhat lesser extent dividend stocks like the East India Company, mines, and railroads) meant they cared at least somewhat about those in their sphere of control There are two good examples of this, both of which I have spoken about before. The first is that of the Fitzwilliams. They owned some of England's largest and most productive mines, and ended up working them themselves rather than renting the coal mines out. In doing so, they cared a great deal about worker safety and became the gold standard in worker safety and protection, and generally treating people well. Their workers, as a result, generally loved them and were willing to support them into the 1950s, with mine nationalization and the destruction of Wentworth The second is the cottage building of the Dukes of Bedford. Given their poverty, most industrial laborers lived in horribly squalid little huts well into the 19th century. There were two ways to alleviate this. One was the traditional way: having the laborers live with the farmer on whose farm they worked, and eat off his table. This remained common in most northern areas. The other way, one embarked upon by the Duke of Bedford, was to spend a small fortune building stone cottages for the workers that were healthy and rented to them for a nominal fee. This didn't solve the problem, but it did help it and showed that those involved cared, at least to some extent
No situation is perfect, and not all the lords or gentry cared But, the way assets were seen and valued tied owners to the land and its continued ability to generate income, rather than one-off price increases, meant those with wealth and power knew and were to some extent connected to those under them meant that noblesse oblige remained alive into the 20th century
But the change made things very different Whereas the income focus brought with it small taxes and government, stability of wealth and the political situation, and noblesse oblige, the capital value focus has brought with it all the opposites
The best example of this is modern, corporate America What responsibilities does a CEO have? To increase the stock value while he is there Often, this means utter coldness in dealing with employees and customers, a focus on quarterly results rather than long-term success, and poor decision making in the long term to temporarily boost profit margins and make the asset value go up
Boeing is a great example of this. It brought in the spreadsheet eggheads to slash costs, and that meant getting rid of its engineering focus and instead becoming a financial manipulation company that pieces together parts from a bevy of subcontractors Now its planes are falling out of the air and the company obviously doesn't care about the crashes other than insofar as it leads to fines and stock price decreases
The same is true of the other areas where the old order had more of a role Take farming: because the estates had to be passed on, lords (or their agents) kept up on best practices and forbade their tenants from repeatedly growing soil-destroying crops without rejuvenating the soil with regenerative practices (rotating crops and pasture). That meant lower rents, but was the only way to make it work over the long term Our corporate farmers don't do that. Instead, farming is (with exceptions like the great guys untappedgrowth or ClarksonsFarm1 ) a purely extractive process in which companies try to squeeze as many crops of high yield corn or soybeans out of the soil, regardless of how much topsoil is lost or nutrients are extracted
The other issue is a more practical one: if wealth is only measured in capital gains, rather than income generated, that's unstable and impermanent If the way to extract value from stock holdings is to sell, that means, eventually, those holdings are extinguished. This might not be true in the medium term for the bigger fortunes, but it does hold true eventually. If you have to sell (or borrow against it and your kids sell, for tax planning), then it's eventually gone. It's impermanent and self-deleting That's quite in contrast to the old ways. The benefit of a landed estate was that it indefinitely produced reliable cash flows, and thus can remain in family hands and not gradually disappear over time, so long as the farming is done well. That relative permanence and stability means not just that planning is easier than assuming capital gains, but that one can be tied to tradition through familial holding and passing on of assets. If they have to be sold, they will be, faster or sooner depending on the fecklessness of the children, and eventually it's gone
That creates the broad, large issue: what tie have we to the past and present? If civilization flourishes when old men plant trees in the shade of which they will never grow old, then it fades and crumbles when the CEO slashes immature hardwoods to boost quarterly earnings Sadly, the present system of caring about impermanent assets that must be sold means the latter outcome is far more likely That is catastrophic. As I have talked about with JohannKurtz, the only old families still surviving in England are the ones who remained landed rather than selling. The plutocratic families, and those who sold large amounts of land for stock, are now mostly gone. All those connections to the past, to tradition, to the country, are dead. The landed ones preserve that, and are much more conservative So, if you want those ties that bind and lead to continual caring and thoughts about tradition and preserving the country, you need the stability and the passing on of wealth tied to the land. That can't be done when it must be sold
This is all a huge problem; it has replaced an elite in America, England, and elsewhere that generally cares about the long-term success of their communities and country with a managerial/bureaucratic set that cares only about boosting earnings and control over the short period in which they're in control Hence the selling off our our industry and shipping it to China in the name of short-term profits, the demolition of Boeing for a few years of EPS boosts, and the near-total destruction of the world's difficult-to-replace topsoil in the name of producing endocrine-disrupting, glyphosate-doused corn and soy as possible
There are many societal changes behind those destructive forces But one of the interesting, one that I have only seen BackTheBunny write about, is that of the shift from focusing on dividends/income (sustainable) to endless capital gain growth (impermanent and unsustainable)
If this interested you, here's what BackTheBunny and I had to say about it: https://t.co/44h1CMjRyY (View Tweet)