John D. Rockfeller, the founder of Standard Oil, had a net worth of $1.4 billion

Question

John D. Rockfeller, the founder of Standard Oil, had a net worth of $1.4 billion dollars when he died in 1937. Jeff Bezos has estimated net worth of $150 billion dollars today.

a) Using the fact that the CPI in 1937 was 14.4 and the CPI today is 250.1, compare the net worth of Rockfeller and Bezos.

b) The US economy had a nominal GDP in 1937 of $93 billion and has a nominal GDP today of roughly $20,000 billion. Whose net worth is larger compared to the size of economy that the lived or live in?

c) Which is the most relevant approach (a) or (b) to compare net worth across Rockfeller and Bezos?

Explanation / Answer

a) CPI in 1937 was 14.4 and CPI today is 250.1. Therefore the value of money in 1937 was 250.1/14.4 = 17.368 times the value today.

So, the wealth of Rockefeller in 1937 is equivalent to $1.4 billion * 17.368 = $24.315 billion

So, the net worth of Bezos in terms of today's purchasing power is 150/24.315 = 6.169 times the net worth of Rockefeller.

b) Nominal GDP of the US in 1937 is $ 93 billion and GDP today is $20,000 billion

Net worth of Rockefeller as a proportion of the size of the economy during his time is 1.4/ 93 = 0.015

Net worth of Bezos as a proportion of the size of economy today = 150/20000 = 0.0075

So, as a proportion of the size of the economy of their time, Rockefeller's wealth is double that of Bezos.

c) The first approach compares the net worth of the two based on how much goods and services can be purchased with Rockeffeler's wealth during his time compared to how much can be purchased with Bezos wealth today. The second approach compares the wealth of the two with reference to the income levels (or general living standard) during their time.

So, the first approach is more relevant if you want to see how much goods and services each could purchase during their time. However, the basket of goods and services available and the economic conditions have changed over time and it makes more sense to compare the position of Rockefeller and Bezos relative to the economy of their times. This will tell us how rich they are compared to the people who lived in their time. Therefore, the second approach seems to give a better picture than the first.

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