MeasuringWorth

As an economic historian and a political junky (I have buttons I wore during the 1952 Presidential campaign) I am always a bit frustrated when people are blaming or giving credit to an incumbent president for the state of the economy.  While sometimes it is true, the causes of the movement of the economy are more complicate than the activates of one agent.  It is the same as measuring relative worth.

I have written an essay titled  The Relative Performance of the Economy under the Presidents of the United States from 1900 to 2020.  What I do is compare the performance of several aggregate economic variables over the different administrations. The goal of this new essay on our site is to help the reader better understand how the economy performed during each of the presidential terms from 1900 to 2020.

QUESTION: In the MeasuringWorth website, in what category would land prices fall? Just doing the Commodity real value exchange doesn’t seem to factor in the skyrocketing New York City real estate prices in the 19th century, which is my concern.

ANSWER: As we try to explain, questions of relative worth depend on the context. If you were talking about land prices today, what would you be comparing them to? Would it be the cost of a bundle of consumer goods?  Probably not, so the same would apply to the 19th century as you suggest.

Those who I know that own or are looking to own in NYC these days think about two things, what the total monthly mortgage, tax, etc. payment will be (very dependent on interest rates), and the share that payment is of their income.

There are other ways of looking at the question that might use other indexes.  You can check out our tutorials.

QUESTION: In 1896 the McKinley presidential campaign spent at least $3.5 million. In 2016, Trump and Clinton spent about 2.4 billion. What calculation would you use–purchasing power, size of economy–to determine which was the most expensive campaign?

ANSWER:  To start with, the $3.5 million was only what the campaign raised. One of McKinley’s biographies quoted in Wikipedia reports that by including fundraising by state and local committees,  “Estimates of what Republicans may have raised in total have ranged as high as $16.5 million.” As an aside, J.D. Rockefeller himself donated $25,000, a relative income value of about $7 million today.

McKinley ran the campaign from his front porch in Canton, Ohio; he did not go to rallies or take whistle-stop train trips. Much of the money was spent on printing pamphlets and hiring hundreds of stump speakers to campaign on his behalf. We can think of all these stump speakers as the 1896 version of today’s TV ads. (At least then you could choose not to go hear them instead of having them in your living room 24 hours a day.)

The relative value of $3.5 million today using the CPI index is $108 million; for $16.5 million, it is $509 million. If campaigns then and now spent most of their money on printing, then that would be a reasonable measure, although looking at relative printing costs would be better. Printing, however, is a very small cost of campaigns today.

Today’s campaigns pay millions for ads on TV and social media as well as rallies and personal appearances. I am going to guess that TV ad rates are proportional to the cost of producing them and that cost is proportional to the skilled wage. In 1896, the campaign was spending large amounts hiring stump speakers and their cost would also be proportional to the skilled wage. So if we look at the relative values of $3.5 million and $16.5 million using the production worker compensation index, we get totals of $877 million and $4.7 billion, respectively.

We do not know how state and local Republican committees spent their funds; it could have been support for McKinley or candidates for other offices. In any event, we have that the McKinley presidential campaign raised close to a relative worth today of nearly $5 billion for the 1896 election.

QUESTION: I’m trying to determine the actual value of 6 000 000 CAD$ of public debt in 1941. Since you have references for only US, UK, Australia and Spain, I figured relative output/economic cost for any of those nations does not work since it’s not relative to Canadian GDP. What do you suggest?

ANSWER: If the relevant data isn’t on MeasuringWorth, one has to look elsewhere, in this case Statistics Canada and the Historical Statistics of Canada, both of which are online.  For example, if one looks at GNP at market prices, the ratio of that figure in 2018 to 1941 is roughly 200.  Assuming the $6 mil Canadian public debt is a nominal figure, that compares to $1,200 million Canadian today.  But, more to the point, if users identifies the measure(s) to use, then they need to find the relevant statistics for the chosen years and do the calculation themselves.

QUESTION:  I wish to compare the relative value of several large donations made to American universities between 1829 and 2015. Most of these were bequests and the funds were used for both operating expenses as well as the construction of new facilities. There is no indication of the relative “split” and clearly it will vary with the individual circumstances of the receiving institution. If it cannot be determined what the bequest was used for — which is the case here — what criteria should be used to determine the best method to use?

ANSWER:  You supplied several examples; let’s concentrate on just three:

1829. James Smithson to found the Smithsonian Institution gave $500,000 in 1829.
1830. Stephen Girard bequeathed $2,000,000 to a number of education causes in 1831.
1831. John Hopkins gift of $7,000,000 in 1873 was used to found a University bearing his name.

A price index would not be very useful since the commodities bought then and now are so different.  If we knew how much of each was used for construction costs, then using one of the wage series might provide a useful comparator.

Because the gifted funds were used to purchase both consumer and producer (capital) goods, the two choices I would recommend are 1) the income value (using the relative GDP per capita) and 2) the economy share (relative share of GDP).  The first is a more general measure of how the gifts compare to the average earnings of the day. The second shows their relative value to the economy at the time.

For Smithson, the relative value in 2018 for each of those two values is $420 million and $11 billion.

For Girard, they are $1.6 billion and $39 billion.

For Hopkins, they are $2.1 billion and $16.2 billion.

By comparison, Michael Bloomberg has given $3.3 billion to John Hopkins over the years; the Bill and Melinda Gates’ foundation is worth around $50 billion.

Hello. We are a newspaper based in Barcelona, Spain, founded in 1881. We are writing an article about the wealthiest people in history, inspired by an article in Bloomberg Businessweek on May 21st citing your site. I would like follow up that pieces with a few questions to help us with our article. Thank you in advance.

QUESTION  1,  Is the ratio of wealth to GDP the best way of comparing fortunes through history? Which are the main alternatives?

ANSWER.  It is the most often used and has the advantage of not having to deal with the mix of output.  (There were no antibiotics available to the richest person on earth before they were invented.)  By using the share of GDP index you are comparing what we call the “economic power” of the individual.  That power can be used in the market to control the use of resources.  Of course absolute monarchs have this power and do not have to use the market, so in some sense the size of their wealth is not as important as their power to expropriate.

QUESTION 2.  Can we consider John D. Rockefeller as the wealthiest person in history? Some rankings cite Genghis Khan, for example. Do you consider this kind of rankings as accurate? Can we really compare wealth through history or we have to limit it to its context?

ANSWER: It is useful in comparing two private individuals that have a large amount of wealth in a market economy and cannot expropriate for comparison over time.  Using a wage or income index could also be instructive. We seem fascinated at how much more CEOs make today as a proportion of their workers.  It could easily be of interest in the past.

As for Genghis Khan, he was an absolute ruler, he did not need monetary wealth to command resources, so I do not see an easy way to compare him with Rockefeller.  Perhaps with Alexander the Great?  And then there is Gaius Appuleius Diocles, the Roman chariot racer who was regarded as the richest athlete in history and perhaps the richest person in the Roman Empire.  How do we compare him?

QUESTION:  I have been reading Churchill’s Marlborough: His Life and Times, and I have been trying to get a grip on how much it was that the Queen was actually giving him. I see that £10,000 in 1700 could be worth anything from £1.3 Million to 250 Million, and I am still puzzled as to which figure to have in mind.

ANSWER:  To use £1.3 Million is silly as that is using the RPI and is measuring relative prices of goods and services.  Marlborough was receiving an “income”, so using relative GDP per capita would be much better at £25.6 million.

Trivia: In 1912, The NY Yankees and the NY Giants plaid a benefit game at the Polo Grounds for Titanic survivors Giants won 11-2 and the teams raised $9,425.25. I wanted to know how much that was in today’s money. I get a nuanced sense of that and the complexity of the question from your results. Bravo!

If you want to compare the value of a $9,425.25 Commodity in 1912 there are four choices. In 2018 the relative:
real price of that commodity is $252,000.00
real value in consumption of that commodity is $541,000.00
labor value of that commodity is $1,150,000.00 (using the unskilled wage) or $1,620,000.00 (using production worker compensation)
income value of that commodity is $1,490,000.00
economic share of that commodity is $5,120,000.00

COMMENT: I am using this calculator to determine the value of a wedding gift I have to give relative to the gifts I referred when I got married. The site is very educational and should be required as part of economic classes in schools.

RESPONSE: Your use highlights one of the most important points of measuring relative worth, and that is there is nearly always more than one relevant answer.  If you are looking at the wedding gift you received many years ago, you could be thinking about how much it “cost” you in the share of income you spent.  You would use the income or labor value for that.

But if you were thinking about how it “ranked” with other gifts you received, was it the most expensive or was someone giving you another cheap salt and pepper set, then you would use the real price index.

Thank you for your compliment and, of course, we feel economics classes should learn more about how to compare relative worth.

QUESTION: According to the information I have skilled watchmakers at Waltham in 1857 earned about $1.50 per day, about $450 per year, at the Waltham watch factory. (I base this on a 6 day week with about 10 holidays making about 300 work days.) Measuring Worth gives: real wage or real wealth value of that income or wealth is $13,000.00 relative labor earnings of that commodity are $89,300.00 (using the unskilled wage) or $211,000.00 (using production worker compensation) relative income value of that income or wealth is $189,000.00, relative output value of that income or wealth is $2,100,000.00. Production worker compensation is the obvious comparison, but I think it is far too high. For example:https://tradingeconomics.com/united-states/wages-high-skilled gives $54,240. https://www.statista.com/statistics/243814/total-compensation-per-employee-in-the-us-by-industry/ gives $86,642 for manufacturing. Have you any suggestion, comments to clarify this problem?

ANSWER: I can understand you desire to put things in the perspective of an annual wage, but by doing this you are introducing precision that is not there and making the process too complicated.

You have three pieces of information.  The workers earned $1.50 a day, from the MeasuringWorth website that the hourly wage for production workers in 1857 was 7¢ an hour and in 2017, for $32.39 an hour.  The missing link is the number of hours a day the watchmakers were working.  I would guess ten as they were highly skilled. If that is true the that is 15¢ an hour or more that is double the 7¢ average. If they work 11 hours a day, the it would be 13.6¢, still roughly twice the average.

Clearly watchmakers were very skilled workers and earned a premium.  So you should conclude that in today’s dollars their relative wage was about $64.80 an hour.  If you want you can use the to give a weekly or annual wage, but now you are making more assumptions that are not necessary if your goal is to show how well they are paid.  Most everyone can identify with what an hourly wage of that amount would mean.