Wealth in the modern world

Maasai herder with cattle

With the primary election season upon us, there has been a lot of attention focused on income and wealth. Particularly that of the 1%.

In a widely reported account, Oxfam released a study last week purporting that just 62 billionaires possessed as much wealth as half of the world’s population. Without delving into the politics of equality, taxation, and redistribution, let’s simply look at why that might be.

The first question one might ask is how is wealth measured? In our Western sense, wealth is measured in dollars: the equity in our homes and other possessions, the value of our 401Ks and other bank accounts. These assets are currency-denominated. But to a Maasai nomad, wealth is measured by the number of cattle he owns. The value of those bovines is not likely to show up in Oxfam’s report.

But that is to quibble. It is undeniably clear that Bill Gates holds more assets than all of the Maasai tribes put together, regardless of how those assets are measured.

Another minor confusion to clear up is the distinction between income and wealth. Income is the flow of net additional assets accruing to an individual, typically from labor (wages) or return on capital (investments). For the Maasai, income is measured in milk, not in steaks.

Oxfam does not confuse these, but politicians and the media have a free-for-all, mixing income and wealth in a confusing mélange of “who owns what” and “who earns what.” The answers can be greatly different, with wildly differing effects on public policy. It is wise to learn the difference. 

But let’s refocus on wealth, and who holds it, and why.

Between the Civil War years and the mid-twentieth century, we saw enormous growth in this country. This was due largely to technological advances. In these eighty years, we saw the coming of the transcontinental railroad, coast-to-coast telegraphy and telephony, massive steelworks, sprawling oilfields, and the capital accumulation (banks) to finance all of it.

The names are famous. Cornelius Vanderbilt (railroads and shipping), John D. Rockefeller (petroleum), Andrew Carnegie (steel making), Henry Ford (automobiles), and J.P. Morgan (banking). These, along with many others, built twentieth century America. And for their pains, for their risk taking, they became enormously wealthy. (Completely unknown are the stories of thousands of other entrepreneurs who tried and failed. Only the successful made it into our consciousness).

Did these vaunted capitalists deserve their wealth? One can only compare the lives of a woman in 1870 to one in 1940. The latter woman could call a relative on a far coast, just to chat. She could travel there in mere days, not months. She was able to listen to entertaining radio programs and wash her clothes in a new-fangled wringer/washer. She could drive to the grocery store and buy fresh bananas recently imported from Nicaragua. And place her homogenized milk in an electric refrigerator, keeping it fresh for days. These were the most wrenching changes in the history of mankind, in only one lifetime.

Many millions experienced these benefits. Was it immoral for the Vanderbilts and Rockefellers, Carnegies and Fords, to have accumulated great wealth as a result? What if the opposite were attained – no wealth, no such advances?

In the current debate, Oxfam lists sixty two billionaires who hold half of the world’s wealth. Let’s ask, what have they done to deserve it? With limited space, here are a few:

A couple of Waltons – $161 billion – Walmart

Bill Gates – $79.2 billion – Microsoft (Windows et al)

Warren Buffett - $72.7 billion – Berkshire Hathaway, Geico (the little lizard)

Larry Page and Sergey Brin –  $58.9 billion – Google

Jeff Bezos – $34.8 billion – Amazon

Mark Zuckerberg, $33.4 billion – Facebook

Let’s imagine stripping these people of their wealth and erasing their companies. No more Walmart “everyday low prices.” No more Microsoft Windows (OK, that’s a mixed blessing). Goodbye little lizard and the millions of home and auto insurance policies he represents. No more Google – look it up yourself at the library. So long Amazon, can’t order those terrific shoes for delivery on Friday. And the cruelest cut of all – no more silly cat videos on Facebook to share with your many “friends.”

In the end, the populists have possibly won the debate. While the capitalists of the Golden Era instituted the greatest advances in human history, thoroughly earning their wealth, the most recent ones have simply provided us with convenience and entertainment.

In the end, we need to determine how much that is worth.