The Rich Actually Are Different

With the long-weekend rapidly approaching, ConvergEx's Nick Colas takes a trip to the Hamptons, but through a time warp back to the Great Depression.  Examining the social registers (colloquially called the “Blue Book”) from 1927 and 1940, he finds that “The great and the good” of the day had real trouble holding their status during the social upheavals of the late 1920s and 1930s.  Only 32% of the families appearing in the Blue Book in 1927 were still there in 1940.  The ratio was even worse, at 29%, for the ultra-elite who belonged to the Meadow Club in Southampton.  It’s too early to tell what the last few volatile years will do to the upper crust of East Coast society, of course.  Or what may still be in store.  But when the hedgie in the Bentley cuts you off on Route 27 this weekend, take some solace in knowing he may not be there in a few years.


Via ConvergEx's Nick Colas:

F.Scott Fitzgerald is known for the phrase “The rich are different from you and me.”  The full quote, from a 1925 short story, actually goes like this:

“Let me tell you about the very rich.  They are different from you and me.  They possess and enjoy early, and it does something to them, makes them soft when we are hard, and cynical when we are trustful, in a way that, unless you were born rich, it is very difficult to understand.  They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves.  Even when they enter deep into our world or sink below us, they still think that they are better than we are.  They are different.”

Ernest Hemingway had a famous retort to “The rich are different” in his story “The Snows of Kilimanjaro”: “Yes, they have more money.  But that was not humorous to Scott.  He thought they were a special and glamorous race and when he found they weren’t it wrecked him as much as any other thing that wrecked him.”  Yes, these two great American writers were friends.  Sort of.

I think about this exchange regularly, given the extremely high levels of personal wealth generation the world has seen over the last 30 years.  Hedge fund billionaires in the US.  Russian oligarchs in Moscow.  Super wealthy Indian businessmen snapping up nine figure houses in London.  And China…  Even Chairman Mao’s granddaughter, Kong Dongmei, is reportedly worth over $500 million.  And the list goes on…

Specifically, I wonder how long wealth actually stays with an individual and their descendants.  There’s an old saying which posits that three generations is pretty much the maximum: one to make it, one to start to spend it, and the third to finish it off.  There are obvious exceptions to this rule, of course, such as the in United Kingdom, where land ownership has kept the country’s titled elite deep in the money for hundreds of years.  But in economies where wealth is measured in financial assets rather than 100,000 acres of Scottish highlands or 50 blocks of London waterfront, how long does wealth concentrate before divorce, death, squabbling children and bad advice disperse it back into society?

Since we are hard on the Memorial Day weekend, let’s travel out to the Hamptons for a few answers to the Fitzgerald/Hemingway debate.  Don’t worry – you won’t get stuck in traffic or have to encounter the great unwashed on the train.  We’re doing this in style since we are hunting some big game here.  This is our approach:

  • I have on my desk two Hamptons “Blue Books” for the years 1927 and 1940.  These were the social registers of the day (and still in existence today), with inclusion on the list restricted to only the most well connected and affluent of the time.  They list the “Cottagers” for towns such as East Hampton, Southampton, Bridgehampton and nearby villagers.  The term is a bit of a conceit – some of these ‘Cottages’ still exist and run to 10,000 square feet and 5+ acres of land around them.
  • In addition, the Blue Books list the officers and members of some of the prominent clubs in the areas, including the Meadow Club (lawn tennis, with more grass courts than Wimbledon) and Maidstone (golf, famous for once not allowing then-President Bill Clinton to disrupt father-son day by playing a round).
  • The selection process for who made it into the Blue Book was – and continues to be – entirely arbitrary.  Between the wars – the first book was published in 1922 – the choices fell to a social secretary named Marta Linderskold who lived in Southampton and made her living arranging charity events and publishing the book.  The cost in 1927 was $2.50 (about $33 today) and local shops, orchestras, and other vendors to the affluent took out ads as well.
  • Keep in mind that spending the summer in the Hamptons in the 1920s and 1930s wasn’t the same program as today.  You had a “Cottage” because you didn’t need to work and could spend your entire summer there.  The Long Island Railroad took 2 ½ hours to get to Southampton from Penn Station and the Long Island Expressway through Suffolk County wouldn’t be completed until the 1960s.

So how many families listed in the 1927 Blue Book for the Hamptons managed to hang on through the 1929 stock market crash, the Great Depression, and the 1937 downturn and still spend the summer “Out East” in 1940?  The answer here:

  • In 1927, Miss Linderskold saw fit to include a total of 459 families in the Blue Book for the towns of Southampton and East Hampton, the two largest “Summer Colony” communities.  In 1940, there were about the same number: 461 families between the two towns, although much more skewed to Southampton than in the earlier listing.  A tour through the list is essentially a “Who’s who” of the East Coast establishment.  Founders of major brokerage firms, titans of industry, noted artists and architects.
  • Looking at the listed names individually, there is significant turnover between the two summers of 1927 and 1940.  In Southampton, only 100 of the original 250 families listed in 1927 still had their names in the book in 1940.  In East Hampton, the numbers are even worse: only 47 of the 209 families included in 1927 were still listed in 1940.
  • If you are looking for the uber-elite of this already rarified circle, the Meadow Club in Southampton listed its members in the Blue Book in both years.  Of the 133 members listed on the rolls in 1927, only 39 remained in 1940 – about 29%.  And the total membership had declined to 100.

The upshot of all this is pretty straightforward: even with all the wealth and privilege afforded the New York elite during the Roaring 20s, it was not enough to ensure their continued social position during the Great Depression.  I doubt they were all paupers by the time 1940 rolled around, of course.  But the financial wealth they accumulated wasn’t enough to withstand the stock market crash and still maintain their social standing.  All the “Big’ names remained in good standing, of course – the Mellons, Carnegies, du Ponts, et al.  But the next rung down, who thought they had it made in 1927…  Their fall from grace must have seemed a long way indeed.

To put some perspective on the Depression and high society, let’s close out with Miss Linderskold, the loyal social secretary who assembled the Blue Books we’ve been reviewing.  A 1937 edition of Vogue magazine hailed her as “A right hand to some of America’s most famous hosts and hostesses” and mentioned that her family came from Swedish nobility.  In 1939, however, she lost her home in Southampton to foreclosure.  She died in 1956 at the age of 70.

I wonder what she would have said about the Fitzgerald/Hemingway debate.  She might have said “Yes, the wealthy are different. Every year there are different wealthy people.”