David R. Henderson  

Richer than Rockefeller?

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I gave a talk late yesterday afternoon at the branch of the Osher Lifelong Learning Institute operated by California State University, Monterey Bay. Thanks to Michele Crompton and her very competent aide, Leslie.

The topic was Economic Inequality: Popular Misconceptions and Important Facts. It was an only slightly tweaked version of this talk I gave at Baylor University last year.

Drawing on work by Brad DeLong and Donald Boudreaux, I addressed the issue of how much better off we are than people a century ago were. (Parenthetically, the piece by DeLong, titled "Cornucopia: The Pace of Economic Growth in the Twentieth Century," is my favorite piece of his work. I tried to get Brad to do a shorter version of it for my Concise Encyclopedia but he declined.)

In that part of the talk, I said something like what I said at a talk at UNC Wilmington:

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.

I wasn't going to write this up, because I've already written it up. By the way, the discussion at the link just noted is one of the best discussions we've had on EconLog, both in civility and in content. My favorite comment--and I had to choose from many, including those that disagreed with me--was this one from frequent commenter Jon Murphy:

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.


Jon Murphy's conclusion caused me to change my view. Who am I to say we're richer than Rockefeller? I'm richer than Rockefeller. You may not be.

So, given that I've already posted, what caused me to write it up? Here's what. When I googled "Richer than Rockefeller," this piece by Barry Ritholz came up. In it, Ritholz debunks or, more accurately, thinks he debunks, this piece by Don Boudreaux.

What's his argument? Here are the two key paragraphs:

There are any number of ways to expose the fallacy of this claim, but I really want to focus on one of them: the role of luck in personal success or failure.

Wealth, as we have observed before, is a relative concept. We measure our economic well being by looking at our peers, not at different eras in time or geographies far away from us. The second point is that we can measure wealth in a variety of ways that are not simply based on income or financial assets: health, education, leisure time, lifespan and personal security.


See what he did? "Wealth, as we have observed before, is a relative concept. We measure our economic well being by looking at our peers, not at different eras in time or geographies far away from us."

Says who? Says Ritholz. For him, I gather, wealth is a relative concept. It is so for many people, as the discussion on my earlier post brought out. Interestingly, the people for whom it's a relative concept seem to be less than a majority of the population. But, as Jon Murphy noted in the quote above, values are subjective. That's Pillar of Economic Wisdom Number 7.

Notice what else Ritholz did. By insisting that "We measure our economic well being by looking at our peers," he dismissed the whole exercise.

Now maybe Ritholz could have made his point by emphasizing "leisure time, lifespan and personal security." But he didn't really pursue that. Re personal security, by the way, although it's clearly the case that many people today probably have less personal security than Rockefeller had, I'm pretty sure I have more. And it's precisely because Rockefeller had so much more wealth than those around him. Just as the wealthy Henry Clay Frick was almost murdered by Emma Goldman's lover, Alexander Berkman, in part because of his wealth, so Rockefeller had many enemies and probably among them were those who wanted to murder him. I'm guessing that Rockefeller, therefore, surrounded himself by security guards. I, by contrast, am not wealthy by many people's standards (although I am by my standards--growing up on the cold Canadian prairies, I didn't think I would ever own a really nice house in coastal California or that my wife and I would have two nice cars and be able to fly a couple of times a year to wherever we want.) So I'm pretty sure that there aren't people out there plotting to kill me.


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COMMENTS (19 to date)
zeke5123 writes:

The other interesting point is that while he rejects the notion that wealth is objective, he claims that wealth is subjective based around measurement X (i.e., relative peer group) instead of Y (i.e., historical comparison). It is far from obvious why one measurement is superior to the other. I might say, on one hand, I am more or less wealthy compared to my friends. I might also say that I am much wealthier compared to my grandparents.

People use both comparisons. Why is only one valid?

RohanV writes:

Perhaps a bit off-topic, but you use this example a lot. I've always wondered when you consider the inflection point to be.

1. It's worse to be the richest person in 1850 than a poor person in 2018.
2. It's better to be the richest person in 2018 than a poor person in 2018.
3. Therefore, at some point X between 1850 and 2018 the richest person in X equals a poor person in 2018.

What year do you think that is and why? What's the factor that puts the next year over the top?

Cliff writes:

What a truly awful column by Ritzhold. The whole thing is a non-sequitur. Boudreaux is wrong because he doesn't take into account the role of luck in life success? The two things do not relate in any way.

Thaomas writes:

The really huge "advantage" of Rockefeller over someone who is comfortably well off as Dr. Henderson describes himself is the opportunity to give significant resources to worthy causes. Founding the Rockefeller Foundation -- significant in scientific research in the early 2oth Century -- is arguably "worth" the risk of living without antibiotics.

Philo writes:

Ritholtz does not even try to convince me that I am not better off than John D. Rockefeller: he just dismisses the comparison as uninteresting. But then, with whom *should* I compare myself? He doesn't say so explicitly, but his tone suggests that I ought to compare myself with contemporary people who are near me geographically. And should I feel good about being better off than my inferiors while feeling bad (angry, envious, embarrassed) about being worse off than my superiors? Not really, for Ritholtz attributes my position in the hierarchy primarily to luck. I might have thought that my superiority was due to good actions I had taken and my inferiority to bad ones, and tried to derive from these comparisons lessons for future action; but Ritholtz will have none of that. Accordingly, the lesson must be that there is no reason for me to care--to feel any particular emotions--about how my well-being compares with that of even my peers. Well, then, Ritholtz should deliver this lesson not to Don Boudreaux but to the people to whom Boudreaux was responding--people who raise a hue and cry about "inequality" and "stagnation."

Chris writes:

I agree that many measures of standard of living between a poor person today and Rockefeller put the poor person at an advantage but I think a huge one is financial and social security. Rockefeller could live secure in the knowledge that he could afford the best on offer in that day, could take risks and make mistakes without risking his personal or family wellbeing or even status and that his children would get the best on offer as well and be prepared to reap the benefits of technological advancement. As someone else noted, he was also able to reach beyond personal satisfactions and contribute in a meaningful and lasting way to the future in a way he chose.

Poor people in his day and poor people today have the same lack of security or access in all of those things.

I can’t say whether or not that makes Rockefeller objectively better off, but those things do matter greatly to personal wellbeing. I can easily reach my family by video at any time; Rockefeller could build libraries across America. It’s hard to really quantify which is better

Ak Mike writes:

Certainly all subjective, but there are obviously many measures by which Rockefeller was better off than you (or me). I dismiss the dangerousness criterion; that has nothing to do with a change in standard of living, prominent people today also have bodyguards.

Clearly we're better off with better medical care, but Rockefeller did live to be 90, which most of us probably won't do. Video games and TV don't really interest me much, and I think are a poor trade off for the fact that Rockefeller could have a real string quartet play in his parlor every night; was surrounded by great art, could travel in a private yacht and a private rail car, had servants to attend him; did not have to cook, wash, clean or any other menial chore (and we all have to do some of that). He could have the most interesting and powerful people in the country over to dinner whenever he wanted. You may prefer video games to all that, I suppose - it's all subjective.

David R Henderson writes:

@zeke5123,
People use both comparisons. Why is only one valid?
Good point.
RohanV,
Perhaps a bit off-topic, but you use this example a lot. I've always wondered when you consider the inflection point to be.
What you’re wondering about is not an inflection point. I notice virtually everyone using that term wrong today.
What year do you think that is and why? What's the factor that puts the next year over the top?
Very good question. I don’t know the answer. For me, I would bet sometime in the 1960s.
@Cliff,
What a truly awful column by Ritzhold. The whole thing is a non-sequitur. Boudreaux is wrong because he doesn't take into account the role of luck in life success? The two things do not relate in any way.
Well said.
@Thaomas,
The really huge "advantage" of Rockefeller over someone who is comfortably well off as Dr. Henderson describes himself is the opportunity to give significant resources to worthy causes. Founding the Rockefeller Foundation -- significant in scientific research in the early 2oth Century -- is arguably "worth" the risk of living without antibiotics.
Well said. It also, though, depends on your frame. The social gain from the Rockefeller Foundation is huge. It’s not clear what value Rockefeller put on it, though. After all, he had to leave it to someone.

David R Henderson writes:

@Philo,
Well said. My gut feel is that Ritholz took Boudreaux’s argument so unseriously that he didn’t worry about those kinds of things.
@Chris,
I agree that many measures of standard of living between a poor person today and Rockefeller put the poor person at an advantage but I think a huge one is financial and social security. Rockefeller could live secure in the knowledge that he could afford the best on offer in that day, could take risks and make mistakes without risking his personal or family wellbeing or even status and that his children would get the best on offer as well and be prepared to reap the benefits of technological advancement.
You had me with your first sentence. Cue Jerry Maguire. Then you lost me. You wrote, "Rockefeller could live secure in the knowledge that he could afford the best on offer in that day.” Note what you said. “On offer.” Think about that.
@Ak Mike,
I dismiss the dangerousness criterion; that has nothing to do with a change in standard of living, prominent people today also have bodyguards.
You shouldn’t. I was asking whether you are richer than Rockefeller. Are you a prominent person?
Video games and TV don't really interest me much, and I think are a poor trade off for the fact that Rockefeller could have a real string quartet play in his parlor every night
That reinforces your first point that it’s subjective, which is what I emphasized. I would give up a string quarter in my parlor any day for what I can see on TV.
was surrounded by great art, could travel in a private yacht and a private rail car, had servants to attend him
Great art: I’m not into it. Travel in a private yacht: that one I’ll give you. Private rail car: No way. I’ll take commercial airlines any day.
did not have to cook, wash, clean or any other menial chore (and we all have to do some of that).
That one I’ll give you. But even there, I have entities to cook, wash, and clean too: microwaves, great takeout, dishwasher, and washer and dryer. And I am at the point, finally, where I can afford a part time housemaid: my wife doesn’t want one.

JK Brown writes:

"I have entities to cook, wash, and clean too: microwaves, great takeout, dishwasher, and washer and dryer."

Not to mention, you have far more variety of foods and can quickly reheat outside of regular meal hours. Returning home late in the evening Rockefeller had to make due with what the cooks left on the dying wood stove, assuming he didn't wish to rouse the staff and wait for an hour(s) for preparation.


Looking for a passage giving an example above in 'The Big Change: America Transforms Itself 1900-1950', I came across the observation below on the economics knowledge of the wealthiest men of Rockefeller's time.

We should note that in these discussions of wealth, no one seem to broach the education/knowledge held by even the most modest of means today. It's almost like the heralded college education is not a factor in wealth considerations.


In 1899 there died in New York a man who, though he had never made much of a study of economics and had a curiously immature mind, may have had a more pervasive influence on the thinking of American businessmen at the turn of the century than all the professors of economics put together. This man's name was Horatio Alger, Jr.

[snip]

And, to sum up: "In short, the way to wealth, if you desire it, is as plain as the way to market. It depends chiefly on two words, industry and frugality."

There was no denying that the Alger thesis had a certain magnificent validity. Look at John D. Rockefeller, who had begun as a $4-a-week clerk in a commission merchant's house in Cleveland, and by the beginning of the twentieth century was becoming the richest man in the world. Look at Andrew Carnegie, who had begun at thirteen as a $1.20-a-week bobbin boy in a Pittsburgh cotton mill, and had become the greatest of steel manufacturers. Look at Edward H. Harriman, who had begun as a broker's office boy at $5 a week, and was building a railroad empire. And as for thrift, look at the great banker, George Fisher Baker, who not only had begun his career as a clerk, but during his early married life had imposed upon himself and his wife the discipline of living on half their income and saving the other half. These were only a few of the examples which proved the formula for success: begin with nothing, apply yourself, save your pennies, trade shrewdly, and you will be rewarded with wealth, power, and acclaim. To which the natural corollary was: poor people are poor because they are the victims of their own laziness, stupidity, or profligacy.

Naturally it was pleasant for successful businessmen to believe that these were, in fact, the first principles of economics. But, one might ask, hadn't they learned in the classroom that economics is just a little more complex than that?

To this question there are two answers. The first is that mighty few of the tycoons of 1900 had ever studied economics. Take, for instance, eight of the most successful of all: John D. Rockefeller, Carnegie, Harriman, and Baker, whom we have just mentioned; and also J. Pierpont Morgan, William Rockefeller, James Stillman, and H. H. Rogers. Of these eight, only Morgan had had anything approaching what we today would call a college education; he had spent two years at the University of Göttingen in Germany, where he had pretty certainly not studied anything that we would now classify as economics. And it is doubtful if even in the prime of life many of these men, or of their innumerable rivals and imitators, had much truck with economic science, or thought of professors of economics as anything but absurdly impractical theorists. A man who had come up in the world liked to describe himself as a graduate of the School of Hard Knocks. Education was all right in its way, and you sent your son to college if you could, if only because it was a good place to make useful contacts with the right people; but these college professors knew nothing about business, which was a battlefield for hard-shelled fighters. And anyhow the principles laid down by Ben Franklin, and somewhat foolishly simplified for boys by Horatio Alger, were fundamentally sound.

Note in the last couple of sentences, this book from 1952 uses the signaling model for higher education.

Mark writes:

Chris,

You're still assuming that comparison with one's contemporaries matters more than comparison with one's predecessors.

"Poor people in his day and poor people today have the same lack of security or access in all of those things."
They really don't. Poor people today can be more secure in knowing they'll get good quality healthcare, live to a ripe old age, not be victims of violence, etc. than Rockefeller in his time. Many of the things people are insecure about today simply didn't exist at all back then, and that's the only reason they weren't a source of insecurity; many things about which even Rockefeller wouldn't been uncertain of being able to procure can be taken for granted today.

In short, the contention is that a given material standard of living is more guaranteed to a poor person today than a rich person 100 years ago.

Yes, there's still financial insecurity among the poor today, but that's a truism. There will always be economic insecurity. Poor people today are insecure about whether they'll be able to procure for their children >$100,000 worth of higher education, which a hundred years ago was an enormous luxury good most people didn't worry about because they knew their kids wouldn't get it. Poor people today worry about being able to afford a good standard of living in retirement without having to still work and be dependent o social security. Poor people back then didn't worry as much about that because they knew they'd probably work until they died; and if they did become indigent, the care their family provided them until they did die was arguable vastly inferior to what even poor people in state institutions get today.

Some day, when/if most people can afford yachts and the cure for pancreatic cancer, poorer people will be insecure about their ability to afford such things (in other words, they'll have the insecurities that I assume afflict rich people today). That's doesn't really make them comparable to people insecure about whether they'd have enough food to eat or whether their kids would die of smallpox in terms of well-being.

Weir writes:

Car loans are quickly paid off. Quicker than ever. Student loans are the opposite. Home loans also take more working hours. Rent is up too. Maybe with subsidies the politicians could make cars more expensive, and bring the cost of a car into line with the other big purchases people make.

The cost of health insurance is a big one too, because of the restrictions on the supply side and the subsidies on the demand side. And the politicians have plans for making electricity more expensive, of course, without maintaining the former quality of service. So "green energy" translates into intermittent energy and "sustainable energy" means less reliable. Politicians love wind turbines more than they like people's refrigerators staying on.

So yes, most things are less expensive now because most things are produced within an open, competitive market economy. But the most expensive things are caught up in government's fatal, vampiric embrace. And those things are massively more expensive.

Robert Frank has a number for how long it takes the median earner to buy the median home: "It's now approximately 100 hours a month, up from only 42 hours in 1970." That's a big deal.

john hare writes:

@Wier,
Yes it takes more hours for the median buyer to get the median house today, but perhaps you should look at the difference in the house itself. The median new house today is larger and has many features unavailable in 1970. A big part of the problem locally is that it would be illegal to build a house to 1970 standards even before getting to the deed restrictions

Some of the arguments seem to be of the nature that something desperate must be done about the unfortunate half of the children that are below average.

Thaomas writes:

While all this is interesting in helping up think clearly about what is valuable about modern life, it's irrelevant for most issues in public policy.

Suppose we could agree that even the poorest person in the US (or in the world!) today were "better off than Rockefeller. Would that be an argument for not transferring income to them? Not that I can see. The question would still be how much do we value the additional consumption or investment that the transfer will enable vrs the consumption or investment that someone else will have to give up to make the transfer (assuming the transfer is not Pareto-improving).

Seth writes:

From the 2nd paragraph of Boudreaux's article:

"So here’s a question that I’ve asked in one form or another on earlier occasions, but that is so probing that I ask it again: What is the minimum amount of money that you would demand in exchange for your going back to live even as John D. Rockefeller lived in 1916?"

Answering this question elicits the subjective value Murphy brings up.

I would be interested to know Ritholtz's answer.

The only part of Ritholtz's piece that comes close to debunking Boudreaux's argument is:

"...if we do indulge in one of these time-travel thought experiments, we must acknowledge that time is bi-directional. Thus, the richer-than-Rockefeller argument implies that the wealthiest people today should be willing to switch places with a poor person a century or two in the future, when presumably we will all live longer, healthier, happier lives with technology we can't even imagine today -- and on and on. It is a most dubious proposition."

I'm not as convinced as Ritholtz that it's dubious, especially if the advances are known. Then we can simply ask Boudreaux's probing question again.

Jan Narveson writes:

A point: back in Rockefeller's day, you could buy a Cezanne or a Renoir, certainly a Van Gogh, and perhaps even a Rembrandt, for comparative peanuts (I didn't check, but $25,000 is probably way too high).
Try that now!

This does reinforce the point about the subjectivity of wealth. No doubt many people don't care enough about art so that the above would matter. Now, if we could have asked Rockefeller how much he'd like to have had a nice contemporary car, that would have helped ...

john hare writes:

It is an interesting thought about what 1916 Rockefeller would have paid for a 2018 SUV.

Mark Bahner writes:

Hi,

I've written parts of this before, but consider Samuel Clemens (aka Mark Twain):

1) His younger brother Henry died at age 20, after suffering for 8 days from burns from a boiler explosion. Boilers today virtually never explode. And the burn treatments available today probably would have saved Henry Clemens even if a boiler did explode.

2) Twain's only son died at age 1 year and 19 months from diptheria. No one dies from diptheria in the U.S.

3) Twain's eldest daughter Olivia Susan (Susy) was the writer. She attended Bryn Mawr, but dropped out. One of the potential reasons was that both her grandmothers died that fall. (How many people in the U.S. today lose both grandmothers by age 18-19?)

Susy was in the U.S. while her parents were touring Europe. (Twain was at one time a very wealthy man, but lost most of his money through failed investments.) She contracted a fever that turned into spinal meningitis. She died at her mother's family's home before her parents could get back from Europe.

People do die from spinal meningitis even today. But she would have been treated in a hospital today. And it's possible to travel from Europe to the U.S. in less than 24 hours today.

4) Twain's youngest daughter Jean had epilepsy. She was taking a bath December 24th, 1909, and apparently had a seizure and drowned. Like Susy's death from spinal meningitis, this tragedy could happen today. But we have medicines for epilepsy...and most people take showers.

So Samuel Clemens lost not one, not two, but three children, and a younger brother aged 20. For part of his life, Clemens was a very wealthy man. (If you're ever in Hartford, his house is pretty wonderful.) But I have no doubt at all that he would have traded all his money to have his brother and three children...all of whom probably would not have died if they'd been alive today.

David R Henderson writes:

@Jan Narveson, john hare, and Mark Bahner,
Well done, all. Thanks.
@Mark Bahner,
Fascinating stories. I hadn’t known most of it.

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