For some, handling fortunes is a family affair

IT’S a commonplace assumption of modern capitalism that most families outgrow the businesses they start. You get one up and running and after a generation or two, you have to call in the professional managers.

In his new book, “Dynasties,” historian and economist David S. Landes argues that this truism isn’t necessarily so. Families hold onto their firms a lot longer than you might suspect. And, for capitalism, it’s a good thing too.

Landes sees in family cohesion a vital glue in the building of a business enterprise, and he sketches the history of some of the more successful dynasties -- the Rothschilds, the Fords, the Morgans, the Peugeots, the Agnellis, the Rockefellers, among others -- to make his case.

In the process, Landes offers some interesting tales: Typhus struck a hard blow at France’s Peugeot family in the early 1800s, when it was a leading textile maker. The Jewish Rothschild family flourished in the older closed societies of Europe rather than in the more open climate of the United States. And in 1915, a 36-year-old John D. Rockefeller Jr. had to beg his father for a loan of more than $1 million (the equivalent of about $20 million today) to acquire the best of J.P. Morgan’s collection of Asian porcelains.

“I have never squandered money on horses, yachts, automobiles or other foolish extravagances,” he wrote, pleading his case to his notoriously parsimonious father. “A fondness for these porcelains is my only hobby -- the only thing on which I have cared to spend money. I have found their study a great recreation and diversion, and I have become very fond of them. This hobby, while a costly one, is quiet and unostentatious and not sensational.” Rockefeller senior was so impressed that he offered to make a gift of the money. An overwhelmed Junior wrote back, “I am fully conscious of the fact that I am in no sense worthy of such munificence on your part. Nothing that I have ever done or could do will make me worthy.”

The book has an uneven quality, as if it has started out to be something else. Nevertheless, Landes summons up enough evidence to make his central point: Loyalty devoted to a common purpose is a prime mover in the dynamics of capitalism. And the ties of family can be the strongest of bonds.

That is not always sufficient, however, as evidenced by the fact that Henry Ford’s great-grandson turned to an outsider for help in running his troubled ancestral firm this month, even as Landes’ book was published.

Banking, the author argues plausibly, may be most compatible with family enterprise. In banking, personal ties count heavily, sometimes more than technical skill. Among the banking families he cites are the Rothschilds, the Morgans and the Barings of Britain, who handled the financing of the United States’ Louisiana Purchase from France.

The Rockefellers illustrate a particular type of family enterprise in Landes’ exploration of more than 300 years of very rich and powerful dynasties. Rockefeller’s children and grandchildren profited from the path he led through the oil business in its infancy, but, although oil kept them rich, they did not enlarge their involvement in the business, instead spreading their interests to art, public philanthropy and politics. Like the Rockefellers, the Guggenheims mined wealth from the Earth and poured it into good works. So did the French American oil family, the Schlumbergers.

What all the founders of business dynasties had in common was tenacity. Landes uses the Toyoda (Toyota) family of Japan to make the point that choosing a goal and sticking to it through good times and bad is a habit that serves a capitalist enterprise well.

Like the Peugeot family, the Toyodas made their name and fortune initially in textiles in the latter half of the 19th century. It was the sight of modern machines at an industrial exposition in Tokyo in 1890 that prompted founder Sakichi Toyoda to invent and build more efficient power looms, setting the company’s course into the next century.

But scarcely a capitalist then or now would deny the part that luck, and little moxie, plays in creating and building a successful business.

Anthony Day is a former editor of The Times editorial pages.