Arnold Kling  

Why Inherited Wealth is Less Important

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Bryan asks,


we're a lot less focused on inheritance than we used to be. Why would that be?

The Kurzweilian answer is that rapid technological change has made inheritance--apart from "inherited" human capital--less valuable. Which would be more valuable to Bryan's children--all his physical possessions, all his financial assets, or a large investment in their human capital?

Probably 90 percent of his physical possessions will be obsolete by the time his children reach 21. Even Bryan's financial assets probably would not make his children feel particularly wealthy compared with what their human capital will be able to earn in the advanced economy of tomorrow.

I am so confident that the next generation is going to be wealthy by today's standards that I am known for saying that all I ask of my children is that they survive the teenage years without getting seriously injured, pregnant, or addicted to drugs. Beyond that, I am pretty sure that things will take care of themselves.


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CATEGORIES: Growth: Consequences



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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/384
The author at Bayesian Investor Blog in a related article titled http://www.bayesianinvestor.com/blog/index.php/2005/10/26/94/ writes:
    Several posts on EconLog recently have assumed that human capital will be sufficient for their children to prosper in a Kurzweilian future. That is a very risky assumption. Human capital has historically been a good investment largely because there ha... [Tracked on October 26, 2005 1:27 PM]
COMMENTS (6 to date)
anon writes:

Very interesting post! As a relatively young person myself I hope that your prediction is correct. Don Boudreaux wrote a post with a similar thought on Cafehayek a while back, talking about how his grandfather and father lived compared to him, the opportunities he's had that they did't, and making a prediction that his son will have an even better life than he does. It's very interesting to think about the technological advances that the future holds.

I would think that for the vast majority of kids, your assertion holds true. However, I'd venture that as the wealth of the parent increases that taking the money instead of the education becomes a relatively better bet. The child of someone who makes a median income and won't have much to pass on is undoubtedly better off taking an investment in their human capital(although we'd have to define what that investment is to be precise; would such a parent perhaps be able to provide their child with a college education from a state school?). However, Bill Gates child would be better off to take the money and run. I'm sure his child will have every educational opportunity in the world but their chances of amassing an equal fortune to Dad are slim, imo. I'm sure Bryan Caplan isn't in Gates' league of wealth but he can't be a pauper. We'd have to know what he's worth to determine what would be a better choice for his children. At a certain level of wealth I'd take the money over the education if I had to make the choice.

Kurzweil is the guy that's trying to live forever, right? His writing is very interesting to read but I'm not quite as optomistic as he is about the benefits that technology is going to bring. It seems like there's more rent seeking behavior than innovation in technology, especially the biotech areas that Kurzweil likes so much. Don't get me wrong, I'm sure we'll see amazing stuff in our lifetimes. I just question whether it will be as good as Kurzweil thinks/hopes, and what will be relatively accessible to a person of average means.

Robert writes:

Today, a male suitor can usually make a successful display of personal prosperity through the probable future earnings his education gives him. The resident physician, although buried in debt, is not at a disadvantage in the marriage market on this account, though he possibly may be on account of his work schedule. Yesteryear's plutocratic Englishwoman was more risk averse, and demanded to see actual rather than merely probable financial security. (Around 1705, Edmond Halley reasoned that to maintain a steady population, the average family needed to bring four children to adulthood, because on average only half the adult population succeeds in reproducing.)

If men had children later in life than they do today, and died sooner than they do today, then it stands to reason that a man of the 18th or 19th century might expect his father to perish at exactly that time in his life when he himself was hoping to start a family, and receiving or not receiving an inheritance could mean success or failure in his efforts.

Today, between people living longer and one having to wait until both parents die to inherit (rather than a son waiting for his father alone to die), inheriting from one's parents might pad one's own retirement, or maybe even contribute to the education of one's children, but inheritance is unlikely to come in time to aid one's reproductive success. Hence, scrabbling after inheritance is less useful.

dearieme writes:

The BIG inheritance that I have given my daughter is having arranged that she was born a citizen of a First World country. Any cash I leave her will be far outweighed by that.

Ronnie Horesh writes:
Probably 90 percent of his physical possessions will be obsolete by the time his children reach 21.

I'm surprised you don't mention real estate. In the countries I know about (UK and New Zealand) it is increasingly difficult for ordinary working people who do not inherit, to think about buying a house. I think inheritance is actually becoming more significant (whether or not the media cover it), in that there is a danger of a divide between two classes, or castes: the property-owners who inherit and bequeath property; and the no-hopers who, however hard they work, will never be able to own property.

PJens writes:

To the list of things to aviod in adolecance, I would add jail/prison. I also think that estate planning has progressed in recent years. Those that have much to pass on have good advice on how to do it.

Bill writes:

I'm not so sanguine about the future. That "singularity" that may make us wealthy can just as easily kill us all. It's kind of like a matter singularity, an object of immense power and destructive capability.

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