David R. Henderson  

Richer than Rockefeller?

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Truly Notable and Quotable... He Had Me at Page One...

This is the longest time I've gone without posting, other than when I'm on vacation at my cottage in Canada in August. I was traveling and my computer was being repaired after I got back.

I gave a talk at UNC Wilmington on Monday night. The talk was titled "Seven Myths about Free Markets." One of the myths is that with free markets, the rich get richer and the poor get poorer. I pointed out that it's half right: the reality is that with free markets, the rich get richer and the poor get richer.

I then walked them through, Don Boudreaux and Brad DeLong style, the number of labor hours a worker would have to work to buy various things now vs. 1975 (Boudreaux and his Sears catalog) and vs. 1895 (Brad DeLong and his 1895 Montgomery Ward catalog.)

I then asked them who the richest man in America was a century ago. One person yelled out "Andrew Carnegie." "Too long ago," I said. A few other people yelled out "Rockefeller." "Right," I said.

Then I said:

Think about what you have that Rockefeller didn't. He couldn't watch TV, play video games, surf the Internet, or send e-mail. During the summer, he didn't have air conditioning. For most of his life, he couldn't travel by airplane. He didn't even have a 1G cell phone. [Here I held up my cell phone.] And here's the big one. If he got sick, he couldn't use many medicines, including penicillin. [This is adapted from Greg Mankiw's economics textbook.]

To drive that last point home, I noted that while Calvin Coolidge was president, his son, after developing a blister while playing tennis, died, and that would be extremely unlikely to happen today because now virtually every American has access to antibiotics.

Then I said:

So imagine that you could choose to be you today or John D. Rockefeller a century ago. Raise your hand if you would prefer to be Rockefeller.

In an audience of about 350 people, about 35 raised their hands. Then I said:
Raise your hand if you would prefer to be you today.

Over 200 people raised their hands. There were probably about 60 or 70 non-voters. I told them that when we got to Q&A, I might ask people who voted to be Rockefeller what their reasoning was.

We got to Q&A and I remembered to ask. I first asked a young black man at the front of the room why he had voted to "be Rockefeller." He said that if he were, he would get the respect of his family and of people around him.

I then asked a young white man further back and he said that he would have the best of everything. Just to clarify, I said, "You mean that you would have the best of everything then even though most of it is lousy compared to today, right?" "Yes," he said, laughing.

I found these responses interesting, which is why I'm sharing them. In the comments I get on Econlog when I write about inequality, there are always a few people who emphasize that relative situation is more important than absolute situation, and here were two people who agreed.


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COMMENTS (28 to date)
mico writes:

A lot of people (probably more than so answered, but then you primed them to answer otherwise) are really interested in maximising zero-sum status rather than objective living standards.

This probably has sound evolutionary justification related to mating patterns or whatever.

It's clearly a greatly underestimated factor in what drives societies to adopt certain policies.

Daniel Kuehn writes:

The first one is a little more nuanced than just a relative values thing. He doesn't seem particularly concerned that he gets more respect than the guy down the street does. He just values respect, period. I assume he'd like it just as much if everyone got a lot of respect, the point was Rockefeller got respect and admiration and that's clearly something of value that perhaps he didn't feel like he had. I liked that answer much better than the second one.

When you identified the first speaker's race I thought it might go somewhere different. One big reason why you might see a differential between how black people rate past white lives and how white people rate past white lives is of course your treatment and status in American society, independent of any income/consumption metrics. How that all nets out is a different question, of course and probably varies by situation in the black community.

Daniel Kuehn writes:

mico - yep. And then that of course raises some very tough questions for us as economists. We have only modestly accounted for these issues in our characterization of human behavior, but we've got our own normative views about it that come - rightly or wrongly - from how we have done positive economics.

Is that good? Should we care? If we should care, should we care as economists per se or as fellow members of society?

ConnGator writes:

Daniel, great comment. I thought the same thing about the first speaker: he was not interested in economic progress, or rich vs. poor as much as race relations.

If I were in his shoes I would probably answer the same way.

Tom West writes:

Asking the 'winners' of the markets whether they'd prefer to be a bigger winner 100 years ago is going to produce a fairly predictable result.

However, if the main point is that the growth generated by free markets is worth the "cost" of inequality, wouldn't a fairer question be:

Would you trade your current "2 x 2014 household median income" upbringing now for living the rest of your life on a "1/4 x 2114 household median income" 100 high-growth years from now? Your absolute lifestyle will almost certainly be better than you have now.

(1/4 2014 household median income = ~$13K)

Or if you were forced to trade, would you prefer to trade it for "3/4 x 2114 household median income" 100 low-growth years from now, so your absolute lifestyle might be worse than it is now?

(1/4 2014 household median income = ~$39K)

If the respondents started thinking about how people and society treat people at those relative income levels, I suspect the answer might not be so lopsided.

Ak Mike writes:

I think you are dramatically underselling Rockefeller's standard of living. Besides the power he had from his wealth (founding universities, having the ear of the president whenever he wanted) he never had to waste time shopping, cleaning, preparing food, hanging up clothing, etc, which you have to do. He didn't have a TV (a crappy form of entertainment) but whenever he wanted he could have a live string quartet, a play, and for dinner conversation any night he could have the cleverist, most knowledgeable and most sophisticated people in the countery. He may not have been able to fly to his home in North Carolina, but he got to travel in a private rail car in extreme luxury. He had, or could have had, old masters hanging on the walls of his home.

Really the only thing you mention that really strikes me as a clear advantage you and I have over him is modern medical care, and since he lived to be ninety, even that is subject to some doubt.

Swimmy writes:

An econ professor in undergrad (~2004) gave us the same thought experiment, and in a class of 25+, I was the only person who preferred to be me today. The ratio at your speech was much different, but the thought that relative status matters more is definitely not rare.

Jon Murphy writes:

I think the biggest lesson here is that value is subjective.

Even though people, even the poorest, are generally better off economically than the wealthiest of yesteryear, some would still prefer to be worse off but enjoy some non-physical benefits.

I totally get the "respect" answer. That makes 100% sense.

Jay writes:

I think if any one of these 35 people really thought about it and listed the things they couldn't have back then, they'd change their mind for sure. Some people just like to be the one's they disagree, sure the first guy values respect but does he value it so much that he'd be willing to die at 35 of the flu or not have phones/Internet? Of course not.

Andrew_FL writes:

To be Rockefeller might be a sensible answer if you happen to possess the skills and knowledge to invent everything he couldn't have had, and assume you'd retain that knowledge when transformed into Rockefeller.

If you're in a position to give radio to the Romans, so to speak, it might be worthwhile even if you don't get to be the richest person in that time period. For the simple reason that accelerating technological development would vastly improve the lives of everyone who lived between then and now.

Probably not many people were thinking like that but it's something I'd consider, at least.

Besides which if the question is "be yourself today or Rockefeller with Rockefeller's mind and personality in the past" I don't see how I could be expected to answer anything other than "be me today" since the choice to not be me is a choice to experience ego death.

Nick writes:

I don't know if you can take people's self reported preferences at face value.

Mico has a interesting point - "This probably has sound evolutionary justification related to mating patterns or whatever." Did you mention that if you were a Rockefeller, your children would go on to become titans of industry and powerful politicians? And maybe if you asked those people when they were 50, and saw how their children were doing, they might answer differently?

It's not just about the level of entertainment, comfort, or even health care. Passing on genes is a powerful driver of human happiness regardless of what people say. And it might be worth living with lower absolute living standards to have a better chance at that.

Tom West writes:

Some people just like to be the one's they disagree, sure the first guy values respect but does he value it so much that he'd be willing to die at 35 of the flu or not have phones/Internet? Of course not.

I strongly suspect that "of course not" is the sort of answer that comes from people (like me) who have always had respect, and literally can't imagine life without it.

This is especially true when severe lack of respect may well mean denied most opportunities for success, to say nothing of being eliminated altogether for being at the wrong place at the wrong time.

Ak Mike writes:

Jay - Conversely, I bet none of the 200 people really thought about the things Rockefeller had that they don't. I agree the standard of living of a regular person a century ago was dog-do compared to your standard, but the super rich of then is a very different matter. It is a lot easier to imagine how bad it would be not to have an iPhone, than how good it would be to have servants to handle all the boring parts of your life.

E. Harding writes:

I think one of the biggest reasons I'd prefer to be Rockefeller is financial security. I might have access to a far larger variety of stuff that Rockefeller never had, but much of that can be substituted.

_NL writes:

The lack of emphasis on David's air conditioning point stuns me. Are you all from Northern California? Most places in North America spend a couple months at least being gross and humid.

Ak Mike - I think it's reasonable to for some people to have the preference that social standing and certain intangibles are worth more than electronics and antibiotics. But when you say that Rockefeller had access to servants and so forth, you overlook that untold millions of household servants have been replaced by appliances and even those appliances are often operated by service providers.

I also don't accept that television (especially if that includes internet and streaming entertainment) are crappy. Television penetration has been incredibly widespread around the world, among those who can afford it. The expressed preferences of the world strongly disagree with your disdain for television.

mico writes:

"Mico has a interesting point - "This probably has sound evolutionary justification related to mating patterns or whatever." Did you mention that if you were a Rockefeller, your children would go on to become titans of industry and powerful politicians? And maybe if you asked those people when they were 50, and saw how their children were doing, they might answer differently?"

Actually it doesn't really work any more. Rockefeller had the financial resources to have thousands of children with hundreds of women. In some times and places, that would have been what would have happened. Genghis Khan is the famous example but I am sure there were many others. But in fact Rockefeller's evolutionary fitness was barely greater than that of a contemporary lower middle class man and probably lower than that of a contemporary small farmer who owned his own land.

Now suppose that peoples' personalities are at least partially genetically determined. There is growing evidence for this. People who care a lot about zero-sum status will tend to do better in chaotic societies with polygamy, where winning status competitions is necessary to reproduce. People who think more in absolute terms and don't compare themselves to others will do better in stable societies with monogamy, where status battles become very dangerous and winning them doesn't much increase the chances of being able to reproduce.

Could this mediate a genetic preference for valuing GDPPC over GINI? Could it explain why societies in which people have been settled for a long time have generally been more willing and able to adopt market institutions than those in which settlement is comparatively recent?

Nick writes:

@mico
"Survival of the fittest" doesn't simply mean who can have the most babies, rather, it is a two dimensional scale with both quantity and quality as important factors. Otherwise a small group of 10,000 bipedal hominids would never have taken over the world. What he lacks in quantity, Rockefeller definitely makes up for in quality.

Rockefeller's evolutionary fitness is much better than the typical person who lived during his day, because his children, and his children's children, have better chances of evolutionary success than the average person. And that doesn't even include the the number of fancy granite structures and near-immortal foundations that have his name on it that give him a form of immortality that the midwestern farmer of his day certainly doesn't have.

Fralupo writes:

I have a feeling that unless Rockefeller spent a lot of time outside of New York (he had a mansion in RI, right?) then the air your students breathe would be cleaner than what he breathed.

John hare writes:

@AK
Have you considered the problem that having servants presents. Lack of privacy, for starters. They have to be managed for another. Access to the best and brightest sounds good, until you realize that any moderately informed person today knows more than the best back then on any subject of interest.

FredR writes:
A lot of people (probably more than so answered, but then you primed them to answer otherwise) are really interested in maximising zero-sum status rather than objective living standards.

People want to be the best they can. Since best is a relative term, it will be defined in comparison to other people around you. There's nothing dumb or immoral about that.

Ak Mike writes:

Thanks for your responses, _NL and John. I'm sorry, but servants are just way better than appliances. I've got lots of appliances, but my wife and I still have to spend time loading and unloading the dishwasher, cleaning the kitchen, cleaning the bathroom, loading and unloading the washer and the dryer, shopping, driving, etc. If you are Rockefeller you have an extremely competent manager to run the servants.

TV is certainly better than staring out the window, and has certain advantages even over reading a book, but it's not as good as live entertainment. Huge advance for the commoners, not such a big deal for the ultra elite.

Completely disagree, John, that "any moderately informed person today knows more than the best back then. . ." You should take a look some time at college entrance exams from 1900. I think only the best today come close to being as well informed as a typical educated person back then.

Cyril Morong writes:

I wonder if another question you could ask would be if a person would rather be in the bottom 20% of incomes today vs. 100 years ago or some other number of years

mico writes:

Nick: Evolutionary fitness does mean fitness to reproduce, and that alone. It does not mean a normative idea of improvement in capability or quality of life. It is quite possible that a less advanced form of life can outcompete a more advanced form in this game (e.g. the common cold is barely animate and still pretty successful).

It's quite right that there are more factors involved than just number of children. The health and likelihood of those children to reproduce can also be important. But Rockefeller's children had no particular advantage here. They, like Rockefeller, will have lived in upper middle class monogamous relationships and had only a handful of children. His children might have been more likely to survive to reproduce than those of a small farmer, but he probably will have had fewer of them.

In settled monogamous societies, reproductive fitness just doesn't scale with income.

John hare writes:

AK, I think we must agree to disagree on servants.

Think of your two favorite subjects. Can you believe that you personally may have more information on those subjects thAn the best of back then? If not, then you can get it in minutes.

Jaime L. Manzano writes:

...and what do the present "Rockefellers" do with their riches after consuming all they can? What most people do, namely, save and invest. In the end, they have to give it away to the government, or survivors, including the foundations they create that give them a sense of immortality.

Mark Bahner writes:
...the point was Rockefeller got respect and admiration...

Which just goes to show that very few people know their U.S. history. From PBS (who do know their history):

"John D. Rockefeller was the world's first billionaire and the most hated man in America."

Mark Bahner writes:
To drive that last point home, I noted that while Calvin Coolidge was president, his son, after developing a blister while playing tennis, died, and that would be extremely unlikely to happen today because now virtually every American has access to antibiotics.

Don't forget my oft-repeated old story. :-)

Mark Twain lost his brother, his sister-in-law, and three of his four children under circumstances in which they almost certainly wouldn't have died in the 21st century:

Mark Twain...it's hard to laugh

I have no doubt he would have given up his wonderful house in Hartford to prevent even one of those deaths:


The Clemens House in Hartford

Jesse Curtis writes:

I think it is very interesting that the majority of students chose to have their current wealth over living as Rockefeller. I feel that they didn’t think over how wealthy Rockefeller was in the time period that he lived. Rockefeller was one of the most powerful people in the country during his life. He had a hand in government, establishing universities, and most of all the oil.

I think the students failed to realize that if they lived during the time Rockefeller lived, they would know nothing of the luxuries they have today. As mentioned in the article there wouldn’t be air conditioning, cell phones, social media, etc., etc. Endless luxuries that we see today weren’t even imagined then. The luxury people found then would be considered equal to the luxury we have today. If I was able to live as Rockefeller then or live as I am today, I see it as the clear choice of Rockefeller.

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