The New Sting of Death: On Limiting Inheritance


LITTLE pamphlets on where and how to incorporate are sent annually to lawyers likely to be interested in such matters. They tell the special advantages of the corporation statutes of Arizona or Delaware or New Jersey, as the case may be, and the special and inexpensive facilities which the pamphleteers are able to afford to their patrons desiring corporate charters.

The time is coming, and perhaps soon, when pamphlets of a similar character, but in a new field, will be issued on where and how to die. The preparation for death has ceased to be a field in which the spiritual adviser alone needs to be consulted. Inheritance taxation, while as old as the hills and used to finance the Roman legions, is with us, in its practical aspects, a very recent affair. A fat law textbook before me on this subject tells me that forty-nine of our sovereign States and the Federal Government itself now levy taxes on the shroud, and that their exactions in the past decade have increased from about twenty-seven million to two hundred million dollars.

Mitigating this new sting of death is, therefore, a relatively new and interesting, though perhaps not especially elevating, function of a profession whose tax-law problems have increased a thousandfold in a decade.

The pamphlet on where and how to die, the salubrious climate, the mild and inoffensive inheritance-tax laws, the trust company and deposit-box facilities, the expert advice on the good securities which old men ought not to own, is perhaps inevitable.

This paper is not intended to trespass upon the field of the pamphlet yet to come. I do not intend to discuss here the growing intricacies of inheritance taxation, its very frequent inequalities, and the injustices and duplications of tax impositions. I wish rather to consider the principle of inheritance itself, and particularly in relation to human incentives as affected by the trend of recent taxation.

One of the great primary incentives to labor and to thrift is the prospect of being able to leave the savings of a lifetime to the family when the breadwinner passes on; and to continue support and protection after death.

In its normal expression, this incentive is wholly salutary and socially useful. It will therefore be a shock to the layman, perhaps, to know that what he has always considered as a right — the power to make a will or to have his property pass to his next of kin if he leaves no will — has no constitutional protection whatever. The lawmakers not only may tax his estate, but may go much further. ‘The right to take property by devise or descent is a creature of the law and not a natural right — a privilege; and, therefore, the authority which confers it may impose conditions upon it,’ says the United States Supreme Court. As far as the heir is concerned it is always an open season with no game laws to protect him, and any modifications deemed desirable in the principle of inheritance are matters peculiarly free from constitutional obstacles. Inheritance is the Achilles’ heel of Capitalism.


Two considerations seem to me to make a broad reconsideration of the principle of inheritance desirable. The first of these reasons is the relatively increased speed with which, under modern conditions, large fortunes can be assembled, and the increase in number and amount of such fortunes. In previous generations, the amassing of a fortune was a slow and difficult task. It was more likely to be the work of two or three generations of a family, instead of the creation of a single member of it in his own lifetime. Our now familiar instrumentalities for quickening the processes of accumulation did not then exist. Even the humble typewriter celebrated this past year only its fiftieth anniversary. A business man, even of exceptional energy, in active life, prior to the Civil War, could scarcely do in a week what can be done now easily in a day. The possibilities of accumulation by a man of first-rate acquisitive capacities are, therefore, greater to-day than ever before, and it is natural that large fortunes should increase both in number and in size.

This is no place for the elaboration of statistical data, but a very short examination of the extent of deposits and investments of trust estates would show this rapid increase in the sums now held under what might be called mortmain control — a control moreover facilitated by highly organized, efficient, intelligent management — by trust companies, which are themselves of comparatively recent growth.

Another reason why inheritance needs consideration lies in the greatly increased number of trusts and trust estates, created as a means of evading, not inheritance-tax laws, but the laws governing income taxes. Due to those processes of evasion, there has been an artificial increase in estates which ultimately will become subjects of inheritance.

The process is this: our income-tax laws place upon persons of large earning capacities taxes which are, to a greater or less degree, out of proportion to taxes levied upon incomes generally and at higher rates. We are thoroughly infected with the idea that the main burden of taxes should be placed upon the rich — meaning thereby the recipients of large incomes. We are, for example, the only important country in which the burden of taxes falls more heavily upon earned income than upon income derived from investments. We base these super-taxes wholly upon the size of these large incomes, quite irrespective of whether the recipients of these incomes, as an incident to their accumulation, are making social contributions which are of public benefit and which deserve to be encouraged rather than penalized.

This is not the place to discuss the methods of evasion which these laws tend to generate. Most of us every week see one or more cartoons showing the rich man evading his taxes by buying tax-free bonds, the cartoon generally picturing him as a particularly wicked and conscienceless person, cunningly evading his public duty of helping support the rest of us. This is, however, only part of the story.

Last winter, a friend who had just returned from Florida analyzed for my benefit a new and interesting class of our fellow citizens whom he described as ‘income-tax golfers.’

‘I saw down at Miami,’ he said by way of example, ‘our old friend Stone, cheerlessly cutting large divots and playing a game incredibly bad. He never will learn how to play golf or any other game; but when an expert accountant told him that he had to earn forty dollars for Uncle Sam before he could have ten dollars for himself, he concluded to take up golf. He has cashed in at fifty-four, made three trust funds — one for his wife and one for each of his children — and lets the trust company look after them. He spends about a month a year on business and says he nets almost as much as he did when he was working nine hours a day and was the acknowledged leader of his industry.’

Trust funds of this kind are increasing enormously. They represent what might be called artificial extensions of inheritance in advance of death. They are created largely for the golfer’s reasons. Most of these trusts, to be sure, probably have a power of revocation in them in case the party creating them should conclude to terminate them. To what extent they mitigate income taxes, or evade inheritance taxes, is not the question. The fact that they exist and the reasons for their existence, are, I think, important.


We are confronted to-day with a scries of problems, surrounding and including this problem of inheritance, on which the new psychologists might be of considerable help to us if our lawmakers would permit anything so remote to influence their lucubrations on tax problems. Presented to the psychologists, the matters which perplex us could be stated about as follows: —

‘We do not like the tendency toward great fortunes and the concentration of wealth. While some of our advisers assure us that the “concentration of credits” is of negligible importance, we do not think so and never will think so and there is no use talking about it.

‘We particularly dislike the pampered children of the rich. We do not care to contemplate a state of society in which, while our children are earning their own living in the best way they can, — by their own efforts, — the offspring of the golden spoon will be buying and spending and living to establish in America the luxury standards of Nineveh and Babylon, coupled with the moral standards of Gomorrah, pictured and advertised in our popular fashion and society magazines.

' We have been told that this too is a matter of negligible importance. We again assert that, to us it is important. Gross inequalities of wealth by mere accident of birth are peculiarly displeasing to us.

‘On the other hand, we want the productive brains and ability of our best men and women continuously and productively employed. While we do not make the confession with much enthusiasm, we are forced to admit that we must rely on brains as the main source of tax money and material progress. We admit that we seem to be approaching a time when we may conclude that it is bad business for us as a people to continue a process by which we relax the energies and initiative or — still worse—make an artificial leisure class out of the men who ought to be captains of industry. We have lectured them upon their selfishness in taking their money out of common stocks and risks and industry and putting it into the millions of tax-free bonds of States, cities, and jerkwater hamlets. They have taken our lectures much as Sindbad would have received such views from the Old Man who sat on his shoulders.’

Secretary of the Treasury Mellon has recently told us that we are losing money in taxes by this heretofore popular process of super-taxes on large incomes and the evasion through taxexempt bond purchases which this system has stimulated. If it be true, as we are told, that our income-tax revenue for the past five years has been on the average some four hundred million dollars less, owing to legal evasion of this kind, we nevertheless realize that this is the minor part of the loss. The major loss is diversion of energy, ability, foresight, and enterprise from American production business into 3-per-cent, tax-free stagnation, and the transformation of driving-power into golf.

The success of any form of organized society must depend very largely on having its system of law, and particularly its system of taxation, consistent with the normal motives and incentives which govern the individual. Its stability and its progress must depend directly and entirely, in their material aspect, upon the vitalization and extension in the individual citizen of the motives which express themselves in a willingness to work. When these motives have been undermined or destroyed, collapse inevitably follows. Russia collapsed. We shall not collapse, but we have an uneasy consciousness that we are distinctly slowing down what the economist calls ‘ability.’

To return to the psychologist to whom we have presented, in a very rambling fashion, these problems: if he should eschew his technical terminology and speak the common language, would he not say something like this as a diagnosis of our troubles: —

‘Given a reasonable amount of sadly wanted legislation to prevent rascals from getting rich by rascality, the undue limitation of incentive put upon men competent to create and organize wealth is a mistake. The danger feared of the undue accumulation of fortunes in hands which do not earn them can be avoided without these undesirable limitations upon initiative and enterprise.

‘ The mistake in our policy in the past on both of these matters has been largely due to a misconception concerning incentives. This mistake has arisen from an erroneous estimate of what constitutes the basis of the desire for accumulating wealth.

‘Most of us who work and whose money-making capacities are limited must admit, if we do not idealize ourselves too much, that we are actuated, in the main, by two controlling motives: the desire for things in themselves; and the desire for security for ourselves and our families.

‘Most of us never get beyond the direct range of these motives. In other words, we never acquire enough money to satisfy our rather moderate demands, as we see them, for either comfort or security. We fail, therefore, wholly to visualize a point in the process of accumulation — because we do not reach it ourselves: a point at which both these motives may become exhausted; where what the engineers call ‘the saturation point’ has been reached, and beyond which point a rich man, if he continue an acquisitive career, does so without thinking and simply as a matter of habit — or for wholly different motives than the search for either security or well-being.’


I shall not attempt here to outline a complete thesis on why rich men work, however interesting such a study might be for the Sunday Supplement. I am convinced, however, of this: that the desire to leave wife and children in financial security has been fully satisfied and has ceased to be a motive for further labor, in the case of the average man of great business or financial ability, long before the amount accumulated has reached proportions where its passing into inheritance would be in any sense a public danger.

In other words, a distinct limitation upon the amount which any man should be allowed to leave to his wife or family, by will or by intestacy, could be made without losing to industry the capacities of a single captain worth while. Whatever other reasons there might be for not doing it, a fear of desertion by industrial leaders would not be one.

It is not true that any large part of the popular support of the demagogue in his demand for super-taxes on the incomes of the great moneymakers is due to hostility to the captain of industry, or to any antagonism to his having millions under his control in industrial use.

We instinctively rebel against his having the disposition of these enormous funds when he ceases to be a captain and becomes a clod of the same substance as the tramp in the potter’s field. Henry Ford, our richest industrialist, enjoys a most extraordinary popularity. Our sentiment toward his son Edsel, however, may quite conceivably be a wholly different matter.

The lot of the true captain of industry might be made a great deal happier if this inheritance matter were settled to everybody’s satisfaction, so that we felt we could let him alone a little more while he is alive.

The spirit back of the taxation of which the great industrial and financial leaders complain, is an entirely sound one. The trouble comes in its application. It was long ago regarded as one of the distinguishing features of the policy of our country to prevent the accumulation of large estates in particular families and the development of either a landed or a moneyed aristocracy of the European type through inheritance. It may be interesting to quote what De Tocqueville said about this matter a hundred years ago: —

I am surprised [he said] that ancient and modern jurists have not attributed to their laws [governing inheritance] a greater influence on human affairs, for they exercise an incredible influence upon the social state of the people, a steady and uniform operation affecting, as it were, generations yet unborn. Through their means man acquires a kind of preternatural power over the future lot of his fellow creatures. When the legislator has once regulated the law of inheritance, he may rest from his labor. The machine once put in motion will go on for ages and advance, as if self-regulated, toward a point indicated beforehand. When framed in a particular manner, this law unites, draws together and vests property and power in a few hands — it causes aristocracy, so to speak, to spring out of the ground. If formed on opposite principles, as in the United States, its action is still more rapid, it divides, distributes and disperses both property and power. Whichever be the tendency, it goes on of its own force, grinding to powder every obstacle in its way.

What De Tocqueville would say on this subject, if he were to return to America now, would doubtless be interesting. Some of his comments would perhaps be these: —

That the tendency to disperse and distribute in America, which he had noted with approval, has not continued as he anticipated, and that legislation to effectuate such distribution has not come as one might have expected.

That our failure to legislate has been due mainly to the extraordinary expression in the United States of a voluntary trusteeship, manifested in the testamentary dispositions of so many men of great wealth.

This has become the accepted American tradition. It exists in no other country as in ours. It is probably true that these conspicuous gifts to public use by a considerable number of exceedingly rich testators have effected a delay in the consideration of inheritance as a whole. Inheritance taxation, as at present practised, has no social principle behind it, other than mere revenue-getting. To a considerable extent it represents a penalty on thrift in its application to modest fortunes. In its higher taxes upon the great estates, it accomplishes no serious distributive purpose. The Federal statute is inconceivably stupid, unjust, and harsh in its application.

How backward we have been on this inheritance question is fairly illustrated by the fact that we still maintain, in many of our states, law’s limiting gifts to public purposes by will; so that in New York, for example, a widower with an insane daughter and ten million dollars to dispose of cannot bequeath more than one-half to institutions for education, charity or benevolence. To make the absurdity still more perfect, it may be added that he does not have to leave anything to the daughter. The existence of the daughter, however, makes void any testamentary gift to public charitable use in excess of one half of his estate.

In the recent interesting volume of letters of the late Secretary Franklin D. Lane, I find the following, which seems to summarize the problem we are nowconsidering. He says: —

The last century was devoted to steaming up in production. This century, it appears to me, will devote itself more definitely to distribution. They (the people) will certainly find that they get most when they preserve the captain of industry; but may it not be that his imagination and foresight may be commanded by society at a lower share of the gross than he has heretofore received, or in exchange for something of a different, perhaps of a sentimental, nature?


What makes this inheritance question timely is that we are considering the terms and conditions under which we are to avail ourselves best of the services of our captains of industry. The inheritance matter is one of these terms. I quite realize that the subject of the limitation of inheritance is not without difficulties and dangers, I nevertheless believe that, on the whole, society would be improved by a solution which satisfied our traditional American objections to the undue accumulation of wealth in hands which did not earn it. An alluring collateral advantage from such a solution might be found, perhaps, in an entirely new direction: namely, an improved distribution.

We complain that the best brains in America are constantly diverted to money-getting pursuits; that our political and public life generally does not receive a proper quota of firstclass minds. Too many men of great imagination and constructive capacity continue as a mere matter of habit to-day an acquisitive game which has ceased to interest them. They continue the process of accumulation long beyond the period when accumulation means anything to them and then spend a few days or weeks in drafting a will which turns over the process of distribution to new hands. The distributive process is nowhere nearly so well done as the accumulative process.

What would happen if this same man, in his own lifetime, and not at old age but in the prime of his powers, were confronted with laws that effectively prevented his leaving by will more than a certain amount to his wife and children, or subject to such other limitations as the law might fix? Might not the senselessness of further accumulation, with such a prospect, have the result of diverting to distribution the energies and trained capacities of the fortune-maker himself? Would not society, on the whole, be better off if this thing happened?

The elder Rockefeller is unique in two respects, the first of which alone seems to have been appreciated. That he was an acquisitive genius and made an enormous fortune, we all know.

The other matter is this: at a definite date in his own life, he ceased devoting his energies to further accumulations and turned them to developing a highly organized process of distribution, endeavoring to find distributive investments whose public value would justify the expenditure of millions of his previous accumulations. He probably began this process too late in life, but the resolute separation of his life into acquisitive and distributive periods and the character and quality of his distributive methods are the conspicuous facts of the latter period of his extraordinary career.

Comparatively few great moneyaccumulators have followed this example, and none except Mr. Carnegie on anything like the same scale. What effect might a definite limitation on inheritance have — so far as family connections are concerned — upon increasing the number of men of like type in the same process? Might we not, in a measure, by law, retain in new occupations of a distributive character men who are taking on the golf leisure at a time when they should be distributing their own fortunes themselves and enjoying a new game as they do it?

I quite realize that all ways of evading such limitations could not be closed. Such difficulties have not prevented legislation on other topics, the income tax itself being a conspicuous example. One quite obvious method of evasion, I believe, would be less serious in practice than perhaps many might anticipate — the distribution to children or wife in the donor’s own lifetime. To make such distribution by will is to-day, of course, quite common, but I indulge the surmise that the prospect of having to see in his own lifetime the folly of his heirs would in itself act as a wholesome deterrent to many of such unwise gifts. Other methods of distribution, based less upon mere kinship and more upon a recognition of assistance rendered by his comrades-in-arms in the cooperative work of fortune-making would have, I think, more influence on the captain of industry if the present testamentary convention were broken.

Before the Prohibition Amendment, there were two prosperous and popular cafés in lower New York, both of which were profusely adorned with collections of pictures, constituting a rather higher type than the average standard of bar-room art. The original proprietor of these interesting places, before passing on to wherever saloon-keepers are supposed to go, left them by will to his bartenders, to whose genial and efficient skill these places owed their extensive popularity. A good example in a naughty world might well be followed in a world less subject to constitutional limitations.

I am inclined to think that the suggestion of limitation of inheritance, however difficult in detail might be the methods of its accomplishment, would find relatively little opposition where perhaps opposition might at first be expected: namely, from the captains of industry who make the great fortunes, with the distribution of which we are now concerned. I read a few days ago in my morning paper an interview which seemed to confirm these views. It was with a very rich man, a true and typical American captain of industry, who, having started life as a poor boy in a country town, finds himself at sixtyfive, possessed of a fortune of many millions, engaged in a great industrial enterprise which he has founded and which bears his name. His wife is dead; he is childless; he is following the great American tradition of trusteeship, and has dedicated this fortune to an industrial school and the education and maintenance of orphan boys.

‘Suppose you had two or three sons, would you still feel the business should go to the boys?’ asked the interviewer.

‘Well,’ said Mr. Hershey, ‘my wife and I decided that we ought to do this. She has gone on and did not live to see the plan completed. It was hers and mine. If we had had two or three sons, we might have felt differently. No man can answer that; but I think I should have given them what they needed and turned the rest over to the boys. Too much money is an evil influence for a boy. I am certain I should have felt that way about my own. Money spoils more men than it makes. The inheritance of a great fortune is a bad thing. Let us not place any curbs on the creation of fortunes; but we should limit their inheritance, I believe.’

These sentiments express, in simple words, a wholesome, old-fashioned, American philosophy. The unlimited right of inheritance forms no necessary part of the price which America must pay to obtain in full measure from her leaders in industry that quality and character of service on which not only her present but her future prosperity must so largely depend.