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One of our granddaughters visited us recently. I found it very interesting that with all of the available technology and streaming services, my granddaughter’s favorite “Technology” was reading traditional stories while using my childhood Viewmaster 3D viewer and reels.
Readers unfamiliar with the Viewmaster can view the blog artwork to see my Viewmaster, reels, and associated stories. A disc was placed into the Viewmaster viewer, the corresponding story was read, and the person using the viewer was periodically prompted to advance the disc to correspond with certain points in the story.
For example, in the story of Snow White, the person with the Viewmaster sees a 3D depiction of the Seven Dwarfs’ cottage when that point is reached.
The Viewmaster produces no sound and doesn’t have a built-in lighting system. To see the 3-D image, someone has to look towards a light source and manually advance the reel when prompted.
This has become my granddaughter’s favorite way to enjoy Disney and other childhood stories.
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Her passion for old technology started me thinking about whether the current concepts in wealth accumulation are significantly better than historical approaches.
Is the historical Viewmaster style of traditional wealth accumulation with no frills or technology still valid, or have traditional wealth accumulation concepts been replaced and negated by more modern approaches?
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Throughout history, various civilizations and individuals have adopted specific strategies to build wealth. Here are some key historical approaches to consider:
Investing in Appreciating Assets:
- Historically, agricultural property, fertile land, and tools allowed individuals to generate income from crops and livestock. Land was considered such a valuable asset that many historical societies perpetuated land ownership through a process known as primogeniture. In Victorian England, the eldest son typically inherited the entirety of his father’s estate, particularly if it was land or property. The practice of primogeniture meant the firstborn son inherited the main or entire estate. If the eldest son died without children, the next eldest male would inherit, and so on. However, if there were no sons, the daughters would inherit, and the estate would be divided among them. Real estate is still a significant pathway to wealth. Acquiring land or properties in strategic locations offer opportunities for rental income and resale profits. Most high-net-worth individuals and corporations have large real estate holdings. So, holding and properly utilizing real estate is still a valuable wealth accumulation method that follows the historical approach. How these real estate holdings generate income has changed dramatically, but the basic concept of owning real estate as a method of wealth accumulation has not changed.
- Art and collectibles were also used to accumulate wealth, representing valuable assets that could appreciate over time. According to ARTSY the largest historical art collections were held by Royalty and rulers: Kings and emperors frequently amassed vast collections of artwork and artifacts to display their power and prestige. These collections often included items obtained through conquest or commissioned to enhance their palaces and residences. Wealthy families and aristocrats: In various periods, like the Italian Renaissance, noble families and affluent individuals accumulated extensive art collections, often as a way to enhance their social status and demonstrate their erudition. This included antique sculptures, commissioned pieces, and elaborate decorations. Many high-net-worth individuals still collect artwork for its beauty and ability to appreciate over time.
Trade and Commerce:
- Historically, participating in long-distance trade networks allowed individuals to gain access to valuable commodities and lucrative trade routes. Gold and Silver: Since ancient times gold and silver have been used for currency, jewelry, and as a symbol of wealth and power. Gold was used as currency in the early Roman Republic and throughout history as a basis for trade. Copper: Copper was one of the first processed metals. In the Roman Republic, copper held significant value, and copper lumps were used as money. Various Spices (pepper, cinnamon, cloves, nutmeg, etc.): Traded along routes like the Silk Road, spices were valuable due to their rarity and difficulty to grow in most regions. Originally used to preserve food or mask tastes, they gained importance for medicinal, ritual, and culinary purposes, leading to immense demand. Saffron: A highly prized spice, saffron was valued for its color and possible medicinal properties. Producing saffron was a labor-intensive process, requiring large numbers of flowers for a small amount of the spice. Silk: Known as the namesake of the Silk Road, silk from China was highly valued for its quality, beauty, and durability. Silk was used for clothing, religious banners, and even as currency in some areas. Cotton: Cotton became a significant global commodity. Wool and linen: Wool and Linen were also valuable for their practicality and versatility in creating clothing and textiles. Dyes (purple, red): Certain dyes, particularly purple from the Murex snail, were extremely rare and expensive, acknowledging wealth and status. Salt: Essential for food preservation and human health, salt was a vital commodity traded along ancient routes. Tea: Along with other Chinese luxury goods like porcelain and silk, tea was highly desired in the West and played a key role in the opium trade. Opium: Opium, mainly produced in India, became a highly profitable commodity, particularly for British traders who exchanged it for Chinese goods, leading to widespread addiction and conflict. Furs: Furs from animals like foxes and sables were luxurious goods traded along northern routes like the “fur road,” used for clothing and as status symbols. It’s interesting to note how Commodities Trading has changed over time. Although gold and silver are still used as a store of value and a medium of exchange, most money in precious metals is now generated by Currency Arbitrage. Currency arbitrage is a process used to profit from price differences of the same asset across global markets. I’m sure there are still traders who make money selling spices and other commodities. With modern Global Assistance trading platforms, the ability to generate huge profits from the sale of these commodities has decreased. Even the drug trade has changed with movement from plant-based drugs like heroin and marijuana towards synthetic drugs like fentanyl. While fentanyl is a major concern, methamphetamine and cocaine are also trafficked across the border in significant quantities.
- Funding or partnering with merchants could lead to significant profits from successful ventures. While the spice trade and its associated profits have declined, global partnerships and trade have exploded. Most major US corporations are globally diversified, and significant corporate profits are now generated worldwide.
Strategic Planning and Management:
- Taxes and tax avoidance have occurred throughout history. Historically, taxes were levied in many forms. Land ownership was commonly taxed based on size. Citizens were also taxed on personal property. Churches enacted tithing. Towns and villages also assessed tolls on goods, or tolls on roads and bridges. Governments could also enact a flat poll tax on individual citizens, and engage in tax farming where the ability to collect taxes was auctioned off to the highest bidder. Modern-day taxes are levied by governments and are usually represented by some combination of income tax, self-employment tax, property tax, corporate tax, or capital gains tax. Historical tax avoidance consisted primarily of underreporting property or assets. A 1696 “Window” tax in Wales was enacted to tax homeowners by enacting new property taxes. Homeowners avoided the tax by blocking off windows, and the tax was eventually repealed. Roof taxes caused citizens and businesses to remove or destroy roofs to avoid taxes. Minimizing taxable income and maximizing unrealized income (wealth appreciation without a cash flow) is a common strategy among the wealthy.
- Long-term investing, focused on sustainable growth rather than quick wins, has been a key principle for successful wealth builders like Warren Buffett. In the early American/Colonial era, wealth was accumulated via land ownership, agriculture, and trade. In earlier periods, land ownership was crucial, particularly for those in agrarian societies. As the Industrial Revolution took hold, access to capital became increasingly important, allowing families to invest in manufacturing and other industries. Later, the ability to provide services and manage finances also played a significant role in wealth accumulation. Additionally, some families amassed wealth through shrewd investments in private businesses and real estate.
- Diversifying assets helps to minimize risk and unlock multiple growth opportunities. Ancient Mesopotamian merchants spread their risks across business partnerships to manage the inherent uncertainties of trade. Ancient Forms of Diversification: The ancient Babylonian Talmud advised a form of portfolio diversification by suggesting dividing assets into thirds: business (working capital), liquid assets (gold), and land. Studies of Parisian and British investors in the late 19th and early 20th centuries reveal that wealthier individuals held more diversified portfolios, spread across different asset classes, countries, and sectors. Beyond Stocks and Bonds: Wealthy individuals have historically invested in assets beyond traditional stocks and bonds, including real estate, commodities (like gold), and private markets. The Evolution of Diversification: Modern Portfolio Theory (MPT): While the intuition behind diversification existed for centuries (like the proverb “don’t put all your eggs in one basket”), Harry Markowitz’s work in the 1950s provided a scientific framework for managing risk through diversification with his Modern Portfolio Theory. MPT showed that diversification can reduce risk without necessarily sacrificing returns. Diversification as Risk Management: Diversification is a fundamental concept in modern portfolio theory and a key strategy for managing risk and optimizing returns, especially in today’s dynamic global economy.
Developing Skills and Knowledge:
Throughout history, wealth accumulation has often been linked to a combination of resources and the ability to leverage knowledge and specialized skills. In ancient times, this manifested in various ways:
Leveraging Specialized Skills: Craftsmanship: Individuals with highly valued skills, such as master blacksmiths or masons, could demand more money for their services and potentially accumulate considerable wealth.
Trade and Commerce: Expertise in navigating trade routes, understanding market dynamics, and managing goods across distances was crucial for wealth building. Merchants with the knowledge to identify profitable goods and manage logistics could become wealthy by participating in long-distance trade networks.
Agriculture and Land Management: Knowing how to cultivate fertile land, manage livestock, and optimize agricultural production was a key source of wealth in ancient times. Investing in these areas, coupled with the necessary skills, could provide a consistent income and surplus goods for trade.
The Embodied Knowledge:
Creating Value: Skills represent embodied knowledge. When someone crafts an object like a chair, they are embedding their knowledge and skills into it, creating value that others can benefit from without having to acquire the same knowledge themselves. This knowledge is embodied through goods and services and is a fundamental way to build wealth.
Strategic Investment and Knowledge: Knowledge created opportunities to profit from new trade routes, new trade commodities, and supply shortages.
Identifying Opportunities: Like spotting the railroad boom in later times, ancient individuals who could recognize emerging trends and invest strategically, particularly in areas like agriculture and trade, could build wealth.
Learning from the Wise: Learning from individuals knowledgeable about money and wealth accumulation was important and highlighted the value of apprenticeship, mentorship, and continuous learning in financial success.
Applying Principles: Adhering to fundamental principles of wealth building, such as investing in things that grow over time and reinvesting profits, was crucial for long-term accumulation.
Investing in education and lifelong learning: Exemplified currently by Bill Gates, is seen as crucial for staying relevant and adaptable in a changing world.
Learning specialized trades through apprenticeships: Apprenticeships provided pathways to financial stability with minimal educational debt.
Focusing on Core Strengths and Innovation:
- Staying focused on a core mission, like Mark Zuckerberg’s approach with Facebook, can lead to exponential growth.
- Embracing fearless innovation and constantly evolving is essential to remain competitive. Elon Musk and Jeff Bezos are classic examples of modern businessmen who parlayed these principles into massive financial empires.
Building Strong Relationships:
- Strategic partnerships can provide access to shared resources, expertise, and a wider network.
Building and Owning Businesses:
Building sustainable local businesses was a common strategy utilized in past generations.
Today, this translates to creating businesses, side projects, or investing in stocks and other assets that generate passive income.
Living Below Your Means:
Frugality and budgeting are crucial for cultivating wealth.
It’s essential to reduce expenses and make your money work effectively. These two principles are still the best path to financial success. But, many young entrepreneurs lack the patience to gradually build long-term wealth. They are more focused on a shorter timeframe and are willing to accept extreme risk to amass extreme wealth in a much shorter period.
Learning from Mistakes:
- Recognize that setbacks are growth opportunities, and avoid repeating the same errors.
Thinking Long-Term: Historical: Patience is key to building wealth. Understand that it’s a slow process that takes time. Modern: With the advent of dot-com businesses, private equity, and a huge market for startups, wealth can be created in a much shorter timeframe. Many young entrepreneurs discount the idea that patience is key and that building wealth takes many years.
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Final Thoughts
What are the takeaways from all this historical information?
- Many historical forms of wealth accumulation are still valid today. Don’t Amazon and Walmart control modern “Trade Routes”? Google and Facebook provide information that others find useful, just like historical entrepreneurs.
- Land ownership and real estate ownership provided a major path to historical wealth accumulation, and continue to provide a pathway to financial independence today.
- Art and collectibles are also still used today as a store of wealth and as a form of wealth accumulation. Higher net worth individuals collect art to enjoy and for its potential for appreciation.
- People who can look beyond the crowd, have mastered special skills, and have access to knowledge and investments unavailable to most people, are positioned to profit from their specialized skill sets.
- It’s interesting that historical wealth accumulation involved managing taxes and expenses, slow steady growth while avoiding losses, and asset diversification. All these principles are still valid and used today to help investors manage portfolios and grow wealth.
- Just like my Viewmaster viewer, being old does not negate usefulness. Being old does not mean that things become irrelevant. Many of these ancient principles are still used today, and the wisdom behind these principles is still valid.
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