Dylan Ratigan Talking Buffet

I was 24 years old when Warren Buffett invited me to sit next to him at a minor league baseball game in Omaha, Nebraska.

It was the late 1990s and the Omaha Royals were playing at Rosenblatt Stadium during Berkshire Hathaway’s annual meeting weekend. Buffett sat to my right; people came up one after another. Autographs, pictures, handshakes. In between, I peppered him with questions. Buffett was already one of the richest men in the world, however what interested me wasn’t his wealth. It was how he thought about capitalism.

Buffett believed the most important consideration was that capital should find good people. Give trustworthy people control of good businesses and resources. Let them work. Let them create real value over long periods of time. The product didn’t have to change the world, it could be Coca-Cola, it could be See’s Candy. What mattered was whether the people running the company could be trusted to allocate capital intelligently.

Then we started talking about the estate tax. I thought I understood it. I didn’t. 

Buffett didn’t describe the estate tax as a punishment for rich people.

He didn’t even principally describe it as a way for the government to raise money. He described it as critical part of the machinery of capitalism. 

Capital must circulate to ensure society adapts and grows. Europe had spent centuries building aristocracies in which enormous pools of wealth passed from one generation of a family to another and the continent had stagnated. America was built in direct rejection of this idea.

Buffett argued that America must be different. The people who created great fortunes had demonstrated an ability to allocate capital. (Monopoly and regulatory capture were not so prevalent at that time to make money.) The children of the rich had demonstrated only that they had chosen their parents well.

He gave me an analogy I never forgot. Imagine choosing the next Olympic team from the children of the current gold medalists. Maybe the fastest man’s son is fast, maybe his daughter is faster. But there is no reason to believe either is the fastest person in America….so why would we assume that the child of a brilliant capital allocator is also the person best qualified to allocate billions of dollars? Especially when this allocation is a critical function? Buffett’s argument was not against wealth. It was against an aristocracy that freezes the flow of capital to productive use. Break up enough dynastic capital and the money has to compete again. (This also assumes a trustworthy government that doesn’t squander our tax money on war and fraudulent government contracts.) The freed-up money finds the young entrepreneur, the engineer, the immigrant. The kid nobody has heard of with an idea nobody understands yet. The hungry people. 

That conversation changed how I understood the estate tax.

I stopped seeing it simply as a debate about taxation. I began seeing it as a debate about who gets the next chance. Warren Buffett has spent his life arguing that capitalism works best when capital follows ability rather than bloodline. 

He has also arranged for the overwhelming majority of his personal fortune to be given away rather than simply inherited by his children. But now, at the end of one of the greatest careers in American capitalism, his son Howard is succeeding him as chairman of Berkshire Hathaway. There is an important distinction. Howard Buffett isn’t taking over Warren’s job running the company. Greg Abel is CEO. Howard’s role is different. Still, the symbolism is impossible to miss. The man who taught me that America should not choose its next economic leaders from the children of its previous winners—has chosen his son to guard the institution he built. Maybe there is no contradiction, just something endearingly human. But the larger principle he taught me that night remains more important than the irony. 

Healthy capitalism needs circulation, of money, of ownership, of opportunity, of power. When capital stops circulating, capitalism begins hardening into something else. The people who inherit the money keep the money usually with limited productive use. Children inherit the money, then they inherit the institutions and eventually they inherit the power. 

That isn’t capitalism finding the best and brightest. That’s the very aristocracy America was created to reject. 

I was 24 years old when Warren Buffett taught me the difference.

I never forgot it.poly and regulatory capture were not so prevalent tha