Generational Wealth Explained
A closer look at the strategies of Israel Thorndike
Release Date: July 21, 2024
While researching generational wealth, I came across something called the three-generations of wealth curse. It’s expressed in different ways, but the common saying in the US is “Shirtsleeves to shirtsleeves in three generations”, meaning if one generation makes vast amounts of money, that money will be gone before their grandchildren have the chance to pass it on.
Turns out, like a lot of old sayings, this one has some truth in it.
According to one 2003 study, 60-percent of generational wealth is lost by the second generation, and a whopping 90-percent by the third. And, somewhat surprisingly, most of that loss isn’t due to taxes or lack of financial planning, but rather because of poor family dynamics. 1
So, how did Mary Martha’s family and other wealthy Boston families like hers manage to avoid the curse?
Well, some didn’t of course – in fact, a case could be made that the Parker family fell into that category, but those who were successful employed a complex web of legal, financial, educational, and social strategies that, like their money, was passed down from generation to generation.
A great example of how this all worked can be seen in the generational wealth of Mary Martha’s maternal great-grandfather, Israel Thorndike.
Born into humble circumstances in 1755, by the time he died in 1832, Israel was one of the five wealthiest men in America. He was so financially successful, in fact, that he became the subject of a proverb: “If Thorndike were to put a pebble on a shingle and send it out to sea, it would return in the shape of a dollar.” 2
Israel’s wealth was managed and transferred so well that it was still intact and growing when Mary Martha passed away in 1943, more than a century and three generations later.
Here’s how he did it.
1. He invested in businesses, real estate, and other ventures that provided steady income and appreciated over time.
Beginning as early as 1772 and continuing for two decades, Israel and his business partner, Moses Brown, purchased bigger and faster ships, trading and shipping American consumer goods – things like dried fish, soap, candles, flour, gin and lumber – for sugar, rum, molasses and coffee from the West Indies under the banner of Brown & Thorndike. When the partnership ended in 1793, Israel entered the lucrative China trade where he continued to expand both his wealth and reputation.
In 1786, Israel and several other former privateers and mariners formed the Beverly Cotton Manufactory with the plan to establish one of America’s first cotton mills. Although the novel venture did eventually turn raw cotton into yarn, the processes required to do so were inefficient and unprofitable, and Beverly Cotton Manufactory was sold for a loss in 1798.
Fifteen years later, however, Israel invested in another manufacturing upstart, this one the Boston Manufacturing Company. And, it was a wild success, becoming America’s first successful textile mill and ushering in the Industrial Revolution. Established in 1813, the company remained in operation until 1930, and spawned a new line of lucrative businesses for Israel and the other investors, collectively known as the Boston Associates.
2. He maintained close-knit social networks.
Throughout his life, Israel cultivated relationships with other powerful, wealthy and influential men who could and would help one another become more successful across the board, socially, politically, financially. They turned to one another for advice, favors, influence and opportunity.
For example, Israel knew most of the investors in the Beverly Cotton Manufactory because they’d all been privateers together during the Revolutionary War, making fortunes while supporting a cause they believed in. In addition, Israel and three of the privateers, John, Andrew and George Cabot, had grown up in Beverly, MA.
In 1790, when Alexander Hamilton and Thomas Jefferson were battling it out over what America’s banking future should look like, Israel, a staunch Federalist at the time, stood up on Alexander’s side, and was later rewarded by being put on the board of Boston’s Bank of the United States.
Two years later, Israel received a series of letters from then Senator George Cabot, which included some concerns he had about the federal banking system. George asked Israel to forward his letters and concerns to another friend, Judge John Lowell, who, as an attorney, had litigated hundreds of privateer claims before the Admiralty Court.
And, in 1813 when shipping magnate Francis Cabot Lowell, the judge’s son, was looking for investors in the new Boston Manufacturing Company, he presented the opportunity to a family friend, former privateer and fellow shipping magnate who was also active in the China trade, Boston Brahmin Israel Thorndike.
3. He consolidated wealth and social standing through marriage.
Israel was married three times. His first wife was Mercy Trask, whom he married in 1777. Mercy was the sister of Elizabeth Trask, who was married to Moses Brown. Moses had been Israel’s partner in the shipping and trade business since 1772.
Mercy died in 1783, and the next year, Israel married Anna Dodge. Anna was the daughter of Captain George Dodge, a successful merchant who, like Israel, traded out of both Beverly and Salem, MA. The two men would become partners in various shipping ventures to the East and West Indies, earning boatloads of money. Anna’s sisters, Lydia and Hannah, were married to Andrew and John Cabot respectively. Three years later, Israel, Andrew, John and their brother, George, became partners in the Beverly Cotton Manufactory.
Anna passed away in 1817, and in 1818, 63-year-old Israel married 38-year-old Sarah Dana. Sarah’s father was a Yale-educated minister, and her half-brother, Daniel Dana, became President of Dartmouth College in 1820.
4. He transferred wealth through wills and trusts.
Like other Boston bluebloods who successfully eluded the three-generations of wealth curse, Israel left a lengthy will which laid out exactly how he wanted his assets and estate divided, and to whom.
Here’s a brief example involving a piece of property Israel wanted to leave to his 42-year-old son, Andrew and his heirs as recorded in his original will:
“All the debt and claim and demand which I have against George D’Wolf, formerly of Bristol in the state of Rhode Island, and now a resident of the island of Cuba which the said George mortgaged to me to secure my debt due to him.”
However, Israel later added a codicil to his will which included this detail:
“I give to my son. Andrew, in lieu and instead of the Cuba estate or plantation, and debt of George D’Wolf, given to him in my said will, and in addition to what I have therein given him, besides said estate or plantation and debt of George D’Wolf, forty thousand dollars, of which one half, or twenty thousand dollars, is to be placed by my executors with the Massachusetts Hospital Life Insurance Company, in such a manner that my said son shall receive the interest and income thereof during his life, and, at his decease, the principal shall be paid to his lawful heirs; the other half, or twenty thousand dollars, is to be paid to my said son for his own use and to his own disposal.” 3
Established in 1818 by and for Boston’s wealthiest residents, The Massachusetts Hospital Life Insurance Company (MHLIC) wasn’t just an insurance company, it was a financial institution that specialized in trust funds, wealth management and investment opportunities.
When Israel and others established trusts with MHLIC, the company invested those funds in real estate, infrastructure and other profitable businesses, and then managed the proceeds, providing a steady income stream for future generations and making sure family money stayed in the family – in other words creating generational wealth.
5. He invested in education.
Although Israel never completed his formal education – by some accounts he became a cooper at the tender age of 12 – he made sure his children and the children of those in his personal employ were educated. While his daughters had private tutors, Israel’s sons attended prestigious boarding schools including Phillips Academy, Andover, and Phillips Exeter Academy, and went on to attend Harvard. Records also indicate Israel provided tutors for the daughters of his servants and shipmasters, as well.
In addition to supporting the educational goals of the next generation, Israel also supported educational institutions themselves, including Harvard. In 1818, he purchased a private collection of maps and books related to America, and then donated it to Harvard, establishing the university’s map collection. Later Israel donated other collections and items to Harvard, including portraits of both him and Mercy.
6. He made cultural and philanthropic donations.
It might seem counterintuitive to give money and valuables away to others to preserve generational wealth, but it was an important part of Israel’s strategy, and a sure way to elevate his reputation and visibility as a community leader and cultured benefactor. It was also a great way to network with other like-minded Boston Brahmins.
One of the cultural donations Israel made was a collection of pamphlets that today makes up the Israel Thorndike Pamphlet Collection at the Library of Congress. It contains a rather eclectic mix of items, everything from plays, sermons and personal letters to court records, manuals and commentaries, including a speech given in Boston by Theodore Lyman, Jr. on July 4, 1820.
Unimaginatively titled, “An Oration Pronounced on the Fourth of July, 1822, at the Request of the Inhabitants of the City of Boston, in Commemoration of the Anniversary of National Independence”, the speech is a moving reminder of the need for and role of an educated and engaged citizenry in the great American experiment.
Here’s a bit of Theodore’s speech:
“Our republican constitutions and laws are not upheld by the influence of hereditary rank; to assist in their preservation is made the duty and the privilege of all classes, of either sex, and every age. Let us consider that it is in the power of each of us to contribute something to the derangement or harmony of our political machine; that we are all parts of one stupendous whole.
“Whatever then be our condition, whether it be ours to defend or to enlighten our fellow citizens; whether we be the ministers of health, of justice, or of religion; whether ours be the labour, which supplies all the comforts and ornaments of life, or the capital, by which that labour is stimulated and sustained, may we feel that there is no sphere of action so humble or retired, which is not embraced by the all surrounding orb of social duty; that our talents should all be ultimately directed to the best good of a country, which dispenses equal rights to every one, and recognizes no claims to superior honors, but those of superior usefulness.
“May it be the endeavour of each citizen to render himself worthy of the happiness, which he enjoys under impartial care; and may it be her prerogative, when the bigoted admirers of external splendor shall sneer at her republican simplicity, and ask where her ornament are, to answer, like Cornelia, by pointing to her children.” 4
Israel Thorndike died March 8, 1832 at the age of 77. He was laid to rest at Mount Auburn Cemetery in Cambridge, MA.
Copyright 2024 Lori Olson White
What are your thoughts about this Boston Brahman blueprint for wealth? Do you think it still works or is it outdated and obsolete? Are there pieces you might try?
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Endnotes
1 Roy Williams and Vic Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, Robert Reed Publishing, 2010.
2 Timothy H. Kistner, Federalist Tycoon: The Life and Times of Israel Thorndike, University Press of America, Lanham, MD, 2015. P. 32.
3 Charles Allen, Reports of Cases argued and Determined in the Supreme judicial court of Massachusetts. Volume V, Little, Brown and Company, Boston, MA, 1863, p. 257.
4 Harris, T. M., African Society, Theological Pamphlet Collection, Israel Thorndike Pamphlet Collection, Thomas Waterman Pamphlet Collection & Daniel Murray Pamphlet Collection. (1822) A discourse delivered before the African Society in Boston, 15th of July, on the anniversary celebration of the abolition of the slave trade. Boston: Printed by Phelps and Farnham. [Pdf] Retrieved from the Library of Congress, https://www.loc.gov/item/11025880/.A