Saturday, January 26, 2013

Who Was the Richest Person Ever?

By Branko Milanovic

Comparing incomes from the past with those of the present is not easy. We do not have an exchange rate that would convert Roman sesterces or Castellan 17th-century pesos into dollars of equal purchasing power today.

Even more, what “equal purchasing power” might mean in that case is far from clear. “Equal purchasing power” should mean that one is able to buy with X Roman sesterces the same bundle of goods and services as with Y U.S. dollars today. But not only have the bundles changed (no DVDs in Roman times), but were we to constrain the bundle to cover only the goods that existed both then and now, we would soon find that the relative prices have changed substantially.

Services then were relatively cheap (because wages were low). Nowadays, services in rich countries are expensive. The reverse would be true for bread or olive oil. Thus, to compare the wealth and income of the rich in several historical periods, the most reasonable approach is to situate them in their historical context and measure their economic power in terms of their ability to purchase human labor (of average skill) at that time and place.

In some sense, a given quantum of human labor is a universal yardstick with which we measure welfare. As Adam Smith wrote more than 200 years ago, “[A person] must be rich or poor according to the quantity of labor which he can command.” Moreover, this quantum embodies improvements in productivity and welfare over time, since the income of somebody like Bill Gates today will be measured against the average incomes of people who currently live in the United States.

A natural place to start is ancient Rome, for which we have data on the extremely wealthy individuals and whose economy was sufficiently “modern” and monetized to make comparisons with the present, or more recent past, meaningful. We can consider three individuals from the classic Roman age.

The fabulously rich triumvir Marcus Crassus’s fortune was estimated around the year 50 BCE at some 200 million sesterces (HS). The emperor Octavian Augustus’s imperial household fortune was estimated at 250 million HS around the year 14 CE. Finally, the enormously rich freedman Marcus Antonius Pallas (under Nero) is thought to have been worth 300 million HS in the year 52.

Take Crassus, who has remained associated with extravagant affluence (not to be confused, though, with the Greek king Croesus, whose name has become eponymous with wealth). With 200 million sesterces and an average annual interest rate of 6% (which was considered a “normal” interest rate in the Roman “golden age” — that is, before the inflation of the third century), Crassus’s annual income could be estimated at 12 million HS.

The mean income of Roman citizens around the time of Octavian’s death (14 CE) is thought to have been about 380 sesterces per annum, and we can assume that it was about the same 60 years earlier, when Crassus lived. Thus expressed, Crassus’s income was equal to the annual incomes of about 32,000 people, a crowd that would fill about half of the Colosseum.

Let us fast-forward more closely to the present and apply the same reasoning to three American wealth icons: Andrew Carnegie, John D. Rockefeller and Bill Gates. Carnegie’s fortune reached its peak in 1901 when he purchased U.S. Steel. His share in U.S. Steel was $225 million. Applying the same return of 6%, and using U.S. GDP per capita (in 1901 prices) of $282, allows us to conclude that Carnegie’s income exceeded that of Crassus.

With his annual income, Carnegie could have purchased the labor of almost 48,000 people at the time without making any dent in his fortune. (Notice that in all these calculations, we assume that the wealth of the richissime individual remains intact. He simply uses his annual income, that is, yield from his wealth, to purchase labor.)

An equivalent calculation for Rockefeller, taking his wealth at its 1937 peak ($1.4 billion), yields Rockefeller’s income to be equal to that of about 116,000 people in the United States in the year 1937. Thus, Rockefeller was almost four times as rich as Crassus and more than twice as rich as Andrew Carnegie. The people whom he could hire would easily fill Pasadena’s Rose Bowl, and even quite a few would have remained outside the gates.

How does Bill Gates fare in this kind of comparison? Bill Gates’s fortune in 2005 was put by Forbes at $50 billion. Income could then be estimated at $3 billion annually, and since the U.S. GDP per capita in 2005 was about $40,000, Bill Gates could, with his income, command about 75,000 workers. This places him somewhere between Andrew Carnegie and John D. Rockefeller, but much above the “poor” Marcus Crassus.

But this calculation leaves open the question of how to treat billionaires such as the Russian Mikhail Khodorovsky and Mexican Carlos Slim, who are both “global” and “national.” Khodorovsky’s wealth, at the time when he was the richest man in Russia in 2003, was estimated at $24 billion.

Globally speaking, he was much less rich than Bill Gates. Yet if we assess his fortune locally and again use the same assumptions as before, he was able to buy more than a quarter million annual units of labor, at their average price. In other words, contrasted with the relatively low incomes of his countrymen, Mikhail Khodorovsky was richer, and potentially more powerful, than Rockefeller in the United States in 1937. It is probably this latter fact — the potential political power — that brought him to the attention of the Kremlin.

Without touching a penny of his wealth, Khodorovsky could, if need be, create an army of a quarter-million people. He was negotiating with both the Americans and the Chinese, almost as a state would, the construction of new gas and oil pipelines. Such potential power met its nemesis in his downfall and eventual jailing. However, Russian history being what it is, the shortest way between two stints in power often takes one through a detour in Siberia. We might not have seen the last of Mr. Khodorovsky.

The Mexican Carlos Slim does Khodorovsky one better. His wealth, also according to Forbes magazine, prior to the global financial crisis in 2009, was estimated at more than $53 billion. Using the same calculation as before, we find that Slim could command even more labor than Khodorovsky at his peak: some 440,000 Mexicans. So he appears to have been, locally, the richest of all! No stadium in Mexico, not even the famous Azteca, would come close to accommodating all the compatriots Mr. Slim could hire with his annual income.

Another complication that may be introduced is the size of populations. When Crassus lived and commanded the labor incomes of 32,000 people, this represented one out of each 1,500 people living in the Roman Empire at the time. Rockefeller’s 116,000 Americans were a higher proportion of the U.S. population: one person out of each 1,100 people. Thus, in both respects Rockefeller beats Crassus.

Can we then say who was the richest of them all? Since the wealthy also tend to go “global” and measure their wealth against the wealth of other rich people living in different countries, it was probably Rockefeller who was the richest of all because he was able to command the highest number of labor units in the then-richest country in the world.

But when the richissime decide to play a political role in their own countries (which may not be the richest countries in the world, such as, for example, Russia and Mexico), then their power there may exceed even the power of the most globally rich.

The above is adapted from THE HAVES AND THE HAVE-NOTS: A BRIEF AND IDIOSYNCRATIC HISTORY OF GLOBAL INEQUALITY by Branko Milanovic. Copyright Basic Books 2011.


  1. You don't go far enough back in history. The answer is Solomon.

    1. Amen to that. My thought exactly. God blessed him with wisdom such that no man after him will ever be as wise or rich.

  2. I take offense at the fact that this list doesn't include ducks.

    -Scrooge McDuck

  3. Why not use the only constant metric possible... Ounces of gold?

  4. Yes, Tom - you nailed it - Solomon.

    And this satisfied the above discussion using gold, of which Solomon did so.

    Just as important of the amount, was their standing in at their time. This by far, Solomon was most admired.

    The lesson for us all is, look how quickly it disapears.

  5. It should be some billionnaire from India or China where labour is cheap.

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