The Language of Wealth // Variant Perception #3
Why the most dramatic wealth redistribution of the 20th century couldn't stop the elite
One of the best signals I have for finding real, valuable signal among the noise is when I can connect patterns and learnings from disparate sources. When I see a parable later backed up by academic research without any reference to the original story. Or when leading experts in different fields begin coming to similar conclusions.
A topic that I’m curious about and taking time to study is wealth, the creation of it, and our societies opinions towards it. Wealth has become a polarizing topic, so I’d like to understand the mechanics of it better. And I’d like to begin recognizing more of these conjoining patterns.
I came across a tweet the other day about a research paper studying income inequality changes during the communist takeover of China. For background, Mao’s takeover of China in the mid-20th century is considered to be one of the most brutal, sadistic, and evil genocides in known human history. Upwards of 45 million Chinese were killed by execution, famine, hard labor, suicide, and torture. Mao completely reshaped Chinese culture, law, and values on what seemed like a personal whim.
All in the name of equality. And, Mao was successful. In the chart below, you can see the closing of the gap from elite to non-elite families.
Elite families’ personal income went from 20% higher to 5% lower in one generation because of the policies enacted by Mao. When measured using the Gini coefficient (a global measurement of wealth distribution) where zero represents perfect income equality and 1 represents the most amount of inequality, the Gini coefficient pre-revolution was 0.5 and then went to under 0.1 right afterwards.
During this time, wealthy families had their land taken, they were banned from schools, and they were actively discriminated against in the name of equity (sound like any other new schools of anti-[BLANK] thinking?).
This event, as horrible and tragic as it is, is a great case study to see the cause and effects of wealth creation. With China resetting the playing field to even (actually the formerly wealthy were at a -5% disadvantage) we get to study the results and outcomes.
The result? When you look at the image above, you’ll see that within a generation the formerly wealthy once again reclaimed their lead with a gap of 11% higher incomes. Today, China has a Gini coefficient of 0.47 almost right back at the same levels of pre-revolution times.
Even after what can objectively be called an extreme reset of incomes, capital, property, and social access did a wealth gap return.
The paper concludes the two main contributors of the former elites regaining their wealth were maintaining family values and the survival of their social networks.
Growing up in an entrepreneurial family I can 100% see how both of these factors contribute to the wealth of the former elite bouncing back even after such a violent and dramatic redistribution. The conversations my family had had, the values I was taught, the people we met, and the expectations placed on me all reflect in how I see the world today and how I operate in that world.
Building and creating wealth is a skill. There’s a language to it. There are behavior patterns to it. There are values to it.
Those that value contribution, discipline, ingenuity, grit, and risk-taking are going to be more likely to build wealth than those that do not.
Of course, wealth is also passed down from family to family. But, as we see from this example, even when all the wealth was confiscated and the wealthy were cast out of society did the income gap in China return.
This reminds me of the saying “we become the average of the five people we spend the most time with.” Human beings absorb and share language and behavior patterns with each other. This includes the language and behavior of wealth.
One of the most fascinating findings in the paper was that an elite who had a parent die early in their life removed the income premium found among their peers who did not have a parent die.
This removes the possibility of wealth accumulation being a genetic component of intelligence and reinforces the idea that value creation comes from building the skills and language of wealth.
I don’t mention any of this to discredit the effect that our institutions have on allowing the wealthy to maintain and protect their wealth at the expense of others. Exclusive social networks held together through the purposeful exclusion of others comes to mind (and is the greatest opportunity for expanding wealth creation IMO).
Yet, conversations around wealth and equality today center around slicing our existing pie up and moving those slices onto a different side of the same tray instead of baking more pies.
Increasing our wealth as a society correlates with more happiness, healthier lives, longer lifespan, less violence, and a cleaner planet. The more people we can lift out of poverty through empowering them to create value (rather than redistribution of resources) the better society we create.
Not even during one of the most revolutionary upheavals of society, one specifically aimed at increasing equity, and redistributing wealth no less, could dismantle the process of intergenerational wealth creation.
Inequality will always exist. It doesn’t go away by taking from some to give to others. Actually, most times during history wealth equality meant everyone getting poorer.
Creating a more open society where we expose everyone to the language and values of wealth creation can create more equality through the growing of the pie.
Some questions to leave you with:
— What other words do you associate with the word wealth?
— Do you desire to be wealthy?
— How does your family talk about wealth?
-Jared