How the Rich REALLY Get All That Money

The rationale for the Rich having eversomuch more than the rest of us is frequently two-fold, (1) the rich make their money starting and building businesses and thus producing jobs; and, (2) the rich use their money as venture capital to grow these businesses.

This is a myth. Probably manufactured by some PR flack.

Actually, ONLY 3.6% of the taxpayers in the highest brackets were entrepreneurs making their money in enterprise. And even among this very small group only 1 out of a 1000 entrepreneurs come from the moneied aristocracy, 999 of every 1000 entrepreneurs originate in the middle-classes. In the main, the rich aren’t makers, they are takers. So do the parasitical rich, who themselves aren’t entrepreneurs, invest their money in job-creation? No, less than 10% of rich folk money gets put into venture capital or angel-investing. The lion’s (or pig’s) share is plunked down into low-risk soft investments, into financial playthings and not working capital.

SOURCES:

— Edward Wolff, “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007” (March 2010) Monograph

— “Where the rich are keeping their money”, Marketwatch (June 24, 2011), Wall Street Journal

— “The Anatomy of an Entrepreneur”, Kaufman Foundation Report (July 2009)

Follow Up

A reader chided us for our ignorance of how Capitalism works, he wrote that when the wealthy plunk down their cash into financial platyhings they are financing new enterprise and creating jobs.

Yes, this is the story, this is the hype but it is not the reality. “Soft investments” are not made into new enterprise, they are made into existing business and low-risk activities. Building something new is risky, it takes guts as well as money. Soft investments include corporate bonds for longstanding industry that has already reached its peak and plateaued and which are not generating new hires. Soft investments include buying sure things, for example, buying up factories in the U.S. and then dismantling them while shedding workers. The American economy was once huge and now in its decline there is a large business making money selling off what earlier entrepreneurs had built. The Capitalists of today are the equivalent of vultures feasting on the carcasses of a once healthy economy.

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