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When the first-ever Forbes list of the wealthiest Americans came out in 1918, John D. Rockefeller was on top with an estimated net worth of $1.2 billion. Adjusted for inflation, that’s more than $20 billion today. Does that staggering sum make you envious? It shouldn’t.
Consider the following hypothetical: How much money would someone have to offer you to go back and live the rest of your life in 1918? Would a million dollars do it? What about a billion? Sure, with that much money, you could buy a mansion and hire servants. But in material terms, almost everything was worse. Imagine life without air-conditioning, reliable transportation, the internet, television or radio, effective medicine or contraceptives, or modern cuisine, among countless other things.
Personally, nothing could convince us to trade places with Rockefeller. In a very real sense, the average American today has a higher standard of living than the wealthiest American 100 years ago.
Even over the last few decades, there has been an amazing amount of economic progress. This was apparent leafing through the pages of a 1975 Sears catalog. Looking at the product advertisements, it was striking not only how much worse the quality of the products was, but also how much less affordable they were for the average person.
For instance, in 1975, a vacuum cleaner cost $97.95. The average worker made $4.74 per hour and had to work 20.7 hours to purchase it. Today, the average person can earn enough to purchase a higher-quality vacuum cleaner in less than four hours. A console TV was $749.50, representing 158.6 hours of work for the average person. The same size flat-screen TV today requires only 17.1 hours of work. Remarkably, a calculator that took 2.9 hours of labor to buy in 1975 can be earned in two minutes today.
Overall, our review of the 20 products for sale in the catalog finds the average person would have had to spend 625.4 hours working to afford them. It would take today’s counterpart only 144.1 hours.
This massive improvement in well-being wasn’t brought about by government programs or wealth redistribution. It was brought about by capitalism. From an economic perspective, the most notable thing about American capitalism is not income inequality or the fact that a few people become billionaires. Rather, it is how quickly it has made the common person wealthy beyond the wildest imagination of those living 100 years ago.•
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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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