The Astor formula, and what Rothschild and Rockefeller added

An immigrant arrives in New York in 1784 with almost nothing. Sixty-four years later he is the richest man in America. Three generations on, his descendants barely have to do anything and the fortune still quadruples, quintuples. Then in the fourth generation it begins to break apart.

I read about the Astors to answer a specific question: how does a family turn one large score into cash flow across several generations? The answer has two halves. The first is a very simple formula for getting rich. The second is the thing the Astors did not have, and Rothschild and Rockefeller did.

The three-step formula

If I had to compress the whole Astor fortune into one line, I would write it this way.

It sounds obvious. The difficulty is that each step has its own condition, and most people get one step right and the next one wrong.

Step 1: a cash machine that will not last

John Jacob Astor was born in Walldorf, Germany. He came to New York and began trading furs: buying beaver pelts cheaply from trappers and indigenous people, selling them in London for far more. In 1808 he founded the American Fur Company and came to dominate the trade in America. He then opened a route to Canton, carrying furs and ginseng out and tea and silk back.

There is a dark side to state plainly. In 1816 he bought roughly ten tonnes of opium from Turkey and shipped it to China, although China had banned it. I do not raise this to judge a man who lived two hundred years ago. I raise it because it shows the nature of step one: high margins usually come from a large spread, few competitors, and sometimes a grey area.

What I find most instructive is how he left step one. Beavers were hunted out. In Europe, silk hats replaced beaver. In 1834, while the fur business was still worth something, he sold it. He did not try to save a dying industry. He treated it correctly: a machine for generating cash so he could move elsewhere.

Step 2: buy what appreciates by itself, and buy cheaply

The money from furs and tea went into land north of New York's settled area. At the time it was farmland. Astor's reasoning was simple: Manhattan is an island, the population is still rising, and the city can only spread in one direction.

He bought at the edge, before the city arrived. And he bought hardest when others had to sell: in the 1837 crisis many went bankrupt while he had cash. After the crisis came a huge wave of immigration into New York. The newcomers needed somewhere to live. His land rose without his doing anything more.

The key words here are "by itself". The value came from the city growing, not from the owner's talent. The owner only had to pick the right direction, buy cheaply enough, and not borrow so much that he was forced to sell midway.

Step 3: never sell, only lease

This is what separated Astor from an ordinary land trader. He rarely sold. He leased land long term, typically 21 years. The tenant paid annual rent and, if they wanted a building, paid to build it themselves. At expiry he renewed at a far higher rent, or bought the building back at an appraised price, usually below its real worth.

The three steps fit together beautifully. Furs earn a lot but will die, so the money must move to something more durable. Land is durable, but selling it forfeits the later appreciation, so it must be held. Holding land requires cash flow to live on and buy more, so it must be leased. The rent then buys more land.

The result is a machine that does not need a talented owner. It only needs an owner who does not break it.

Three generations on one formula

The numbers show how strong the machine was:

William Sr. was called "the landlord of New York". He was not an innovator. He did exactly one thing: keep buying land, borrow little, almost never sell. His son did the same. Two generations of discipline, and the fortune quadrupled and quintupled.

The Astors did think about preserving wealth. In 1834 John Jacob created a family trust of about 125 lots west of midtown Manhattan. He left most of the estate to one son rather than dividing it evenly. Those two moves kept the fortune intact through the first two handovers.

Then it broke apart

By the third generation the family split into branches that disliked each other. William Waldorf Astor moved to England in 1891, and that branch later received a peerage. In New York two cousins competed through hotels: the Waldorf rose in 1893, the Astoria right beside it in 1897. The two hotels later merged into the Waldorf-Astoria; the family did not.

In 1912 John Jacob Astor IV died on the Titanic. In 1919 John Jacob's last grandchild died and the 1834 trust expired. The land in it was divided among more than a dozen descendants at once. Over the same period America introduced federal income tax (1913) and federal estate tax (1916). A fortune that only knew how to hold and collect rent was hit hardest.

Vincent Astor gradually sold land and poured money into a foundation. His widow, Brooke Astor, used it for New York until it closed in 1997. In 2009 her son was convicted of exploiting her assets in her frailty. The American branch of the Astors is no longer a financial power.

I think the root cause was not tax, nor extravagance. Those two only accelerated a process already begun. The root causes were:

• The trust had an expiry date. When it ended, the assets were divided among many people at once, with nothing holding them together.
• Nobody repeated step one. After John Jacob, nobody in the family created a new cash machine. They became rent collectors. When land stopped rising as fast as in the nineteenth century, there was nothing to compensate.

Two other families solved exactly those two problems.

Rothschild: nobody may withdraw capital

Mayer Amschel Rothschild started in Frankfurt's Jewish quarter, trading rare coins then acting as financial agent to the Prince of Hesse-Kassel. His cash machine was banking: lending to governments, issuing bonds, moving money between countries.

The first difference from Astor: the Rothschilds never abandoned step one. More than two hundred years later they still control a bank bearing their name. They also bought self-appreciating assets (estates, art, the Mouton vineyards in 1853 and Lafite in 1868), but that was secondary.

The second difference is structure. In 1810, Mayer and three sons signed a partnership agreement. The capital was a common pool: the sons shared profits but could not withdraw capital separately. Five sons were sent to five cities: Frankfurt, Vienna, London, Naples, Paris. That was both a business network and a form of diversification: if one country convulsed, the other branches still stood.

His 1812 will was explicit: daughters, sons-in-law and their descendants had no share in the firm's capital and could not sue for it. Daughters received money but not control. Later generations frequently married cousins. So the capital did not flow to other families, and the national branches stayed bound together.

That structure had a price. The males-only rule meant the Naples branch closed in 1863 and Frankfurt in 1901, partly for lack of a suitable male heir. The Vienna branch was seized by the Nazis in 1938. The Paris bank was nationalised in 1981. But because it was a network, the whole system did not die at once. The Paris branch rebuilt from scratch, and in 2012 the English and French branches merged into Rothschild & Co.

The modern version of the 1810 agreement is a holding company called Rothschild & Co Concordia. All of Concordia's shareholders are family members. In 2023, Concordia and allies held 95.65% of Rothschild & Co and took the bank off the Paris exchange. Family on top, money machine below, and nobody may take their share and sell it to an outsider.

Rockefeller: take the income, do not touch the principal

John D. Rockefeller's cash machine was Standard Oil. In 1911 the US Supreme Court forced the company to split into 34 companies. The breakup made him richer still, as the subsidiaries' shares rose sharply afterwards.

The man who built the structure was his son, John D. Rockefeller Jr. In 1934 and 1952 he moved assets into trusts for his wife, children and grandchildren. The 1934 trust held most of the fortune and only terminates when the fourth generation dies. Beneficiaries receive income but cannot take the principal out. The trust is managed by Chase, with a trust committee overseeing it.

Compared with Astor's 1834 trust, both are trusts, but they differ in two ways: a far longer term, and professional management rather than dependence on whether a family member happens to be capable.

The second layer is the family office. From 1933 it sat on the 56th floor of 30 Rockefeller Plaza, hence Room 5600. It handles investments, tax, legal, philanthropy, and members' personal affairs. Non-family professionals were given real operating authority.

The third layer is what the Astors most lacked: a way to do step one again. In 1969 the family founded Venrock, a venture capital fund. Venrock invested early in Intel and Apple. So when oil was no longer a new industry, the family still had a ticket into the high-margin industries of the next generation. They also turned their skill at managing their own money into a fee-charging business, Rockefeller & Co.

And one small detail I love. JDR Jr. gave his children pocket money but required them to record every expenditure in a ledger and checked it periodically. Legal structure keeps the money. Habits keep the people.

To be fair: each individual Rockefeller's wealth today is far smaller than in JDR Sr.'s time. The family has more than two hundred members, and much of the original fortune has gone to philanthropy. But after six generations they still have a shared system. Each person receives less, in exchange for the whole system not shattering.

The three families side by side

Looking at that table, two rows decide everything: "anti-fragmentation" and "repeat step one". The Astors were weak at both.

The QuietVC lesson

In the same years the Astors were at their height, Hetty Green was also building wealth in New York through cash, bonds and property. She was famously frugal, but she understood something many rich contemporaries did not: wealth must be protected by structure, and the structure must be built before it is needed.

The Astor formula still works. I see it around me every day: capable business people using what they earn to buy land and rental property, and then holding. But the Astor story reminds me that the formula only answers how to get rich. It does not answer how to stay rich.

Put together, a durable wealth system needs Astor's three steps plus the two layers Rothschild and Rockefeller added:

1. Lock the principal. Separate the right to income from the right to sell the principal, and do not let the structure have a sudden expiry date like the 1834 trust. Vietnam has no American-style trust; the nearest equivalent is usually a family holding company with articles and a shareholders' agreement restricting outside sales. I have written about how families like Arnault and Murdoch build this layer in the piece on voting rights after divorce.
2. Always have a way to do step one again. Keep part of the capital for new industries, and raise successors who know how to create a new machine, not only collect rent.

One more thing about the margin of safety. Astor and his son borrowed little, so they went through the 1837 crisis and later ones as buyers, not sellers. The formula "buy assets that appreciate by themselves" only works if you are not forced to sell at the lowest price. Land appreciates by itself; debt does not wait.

The Astors taught me how to get rich. Rothschild and Rockefeller taught me how to keep it. Three steps are enough for one or two generations. To run five or six, you need both other layers.

Sources: New-York Historical Society; HISTORY.com; Britannica (Astor family); The Rothschild Archive; Adam Kuper, "Fraternity and endogamy: The House of Rothschild"; Rothschild & Co Concordia announcement (September 2023); Rockefeller Archive Center. Wealth figures are nominal at the time and estimates only.

Silent discipline. Compound value.