While they have breakfast together, Percy tells John a bit about his family history.
Percy's grandfather – his father's father – was Colonel Fitz-Norman Culpepper Washington. He was a direct descendent of both George Washington and Lord Baltimore.
When the Civil War ended, Colonel Washington, then 25-years-old, left his plantation to his younger brother and set out West. He took with him two-dozen slaves who worshipped him.
After a month in Montana, the Colonel loses his way while he is out riding. Finding himself very hungry indeed, he tries to shoot a squirrel for dinner. The squirrel gets away, but drops the acorn it was carrying.
The acorn turns out to be not an acorn, but rather an enormous flawless diamond. Colonel makes his way back to his camp, gathers his men, and brings them back to the mountainside to start digging near where he encountered the squirrel and the giant diamond.
To protect himself, he tells his slaves that he discovered an enormous rhinestone mine. None of them knows the difference.
Of course he quickly discovers that the mountain is not a diamond mine; rather, it is itself one gigantic diamond. He takes a few bags of stones chiseled off the sides and travels back East to sell them off. He has to keep the larger ones hidden, because they practically cause riots when seen by the public.
By the time Colonel Fitz-Norman Culpepper Washington gets back to Montana, the rumor mill is wild with stories of a new diamond mine – it's just that no one knows where it is.
Fitz-Norman takes a moment to think. He's in a pickle. He is the richest man who has ever lived, but if anyone ever finds the diamond mountain, diamonds will lose all their value (because the gem will no longer be a rare or scarce commodity). He realizes that the most important thing he has to do is keep the mountain hidden.
So Fitz-Norman brings his brother out to Montana and keeps him in charge of the slaves. Meanwhile, he tells all his slaves that the South beat the North in a post-war resurgence and that slavery is legal. They believe him.
With his brother holding down the fort, Fitz-Norman is free to travel the world selling his diamonds. He sells them to various royalty in Europe, but is always afraid for his life as he does so (lest someone kill him for the valuable gems he's carrying with him).
Things go on like this. Eventually, Fitz-Norman marries and has a son. Then he is "compelled [by] a series of unfortunate complications to murder his brother, whose unfortunate habit of drinking himself into an indiscreet stupor had several times endangered their safety" (4.11). Fortunately, "very few other murders stained these happy tears of progress and expansion" (4.11).
When Fitz-Norman died, his son, Braddock Tarleton Washington, Percy's father, continued the work of his father. He converted all the wealth into the most expensive element in the world – radium – so that a billion dollars could be efficiently stored in a tiny cigar box.
Three years after his father's death, Braddock decides that they have enough wealth to last, roughly speaking, forever. He seals up the mine and sets his sights on forever concealing the diamond mountain.