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Rockefeller Really Was Way Richer Than You Are

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Today's discussion involves a visit to the here-we-go-again files. The website Cafe Hayek, in a post titled "Most Ordinary Americans in 2016 Are Richer Than Was John D. Rockefeller in 1916," asks a seemingly simple question: What is the minimum amount of money that you would demand in exchange for going back to live as John D. Rockefeller did in 1916?

The obvious point here is that we are doing better than the richest man of a century ago. Yet there's a subtext (which becomes pretty clear by looking at the comments on the post): That all of this talk about wealth and income inequality -- an important theme in this year's presidential election -- can and should be ignored. After all, as some have noted, even many of the poorest Americans own a smartphone today, whereas a century ago not even the wealthiest person on Earth had one.

I have addressed the logical failings of this kind of comparative exercise before (see this and this). For one thing, if you are going to make a temporal argument, you must recognize that time is two-sided. Yes, it is true, the average American in so many ways is better off than the rich were 100 years ago. However, by that same logic, everyone today -- rich, poor and middle-class -- is much worse off than the poor of 100 years from now. It's easy to consider what the folks will say about long-dead us in 2116: "Imagine -- they were mortal, gave birth, bred animals to be killed and eaten, drove their own cars. How primitive!"

Comparing folks of different economic strata across the ages ignores a simple fact: Wealth is relative to your peers, both in time and geography. The entire futility of keeping up with the Jones is a direct reflection of this truth. Everything from signaling theory to status symbols teaches us that this is so. We have evolved from a world in which physical strength and survival skills were attractive to a mate -- they reflect the probability of protecting and raising offspring -- to one in which economic signals are paramount. It is what Thorstein Veblen termed “evolutionary economics.” If you want to attract a mate, Veblen observed, you still need to demonstrate an ability to raise your progeny. The greater that ability appears -- often directly related to the size of one's income -- the better and higher number of mating opportunities you will have.

While that’s an interesting theory of how to measure wealth, I much prefer the thesis proffered by H.L. Mencken: "Wealth - any income that is at least one hundred dollars more a year than the income of one's wife's sister's husband." It may have been said half in jest, but it survived all these years because we recognize that it is true.

The Cafe Hayek column does make a valid point: A 1916 American billionaire may have owned multiple homes, had servants and traveled the world, but he didn't have access to many modern technological innovations, including modern medical care, entertainment, air travel and air conditioning.

In that respect, the column serves a purpose in pointing out that human progress is relentless and, thanks to technology, advancing at an accelerating pace. So it's probable that advances 100 years from now may outpace what we have seen in the past 100.

Maybe the biggest technological changes are behind us, as some have claimed. I have another theory about progress, as I argued in an earlier post: “Today, one of the biggest impediments is simple ignorance and slavish devotion to ideologies. Whether it’s irresponsible opponents of childhood vaccination or the global-warming denialists, the single most threatening force to human progress is relentless stupidity.”

The forces gathered in resistance to progress are as formidable, maybe more so than at any time in many years. Let’s hope voters understand this in the 2016 election.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Barry Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net