APPENDIX 1
It goes without saying that the pound sterling was worth considerably more in the nineteenth century than it is now, mainly because of the inflation which has been a perennial feature of economic life since the 1950s. To be precise, in 1800 the pound was worth around 25 times what it is worth today. Because prices tended to fall during the nineteenth century, it was actually worth rather more in 1900: close to fifty times as much. To put it another way, the purchasing power of the pound has fallen in the past century by around 98 per cent: in 1900 terms, a pound today is worth just two (decimal) pennies.
To try to make historic prices intelligible to modern readers, historians often use price indices to calculate what a sum of money in the nineteenth century “means” in today’s pounds. This is easily enough done. Let us take as an example Nathan Mayer Rothschild’s total wealth at the time of his death in 1836, which I estimate at around £3.5 million (see chapter 11). Following the conventional system, in order to “convert” that figure into 1995 pounds to allow for inflation in the past 160 years, all that the reader need do is multiply by 35.5, giving £124.25 million.
The trouble with this is that it takes no account of the dramatic changes in economic structure and relative prices which have happened in the past two centuries. The cost of living is in fact a fairly meaningless concept over time because the nature of living—that is, what we buy with money—has changed so much in 200 years. As James de Rothschild’s biographer rightly says, “A fortune . . . is essentially the power to purchase so many acres of land, to employ so many workers, to maintain so many residences.” Labour was much cheaper in Europe 150 years ago than it is now (hence the huge numbers of people employed as servants) and taxes were negligible; by contrast, many of the things now considered “necessaries” were expensive luxuries then, if they existed at all. The long-run price indices used for such calculations are also problematic because of definitional changes (the contents of the supposedly representative basket of goods).
A more accurate method is to relate a money value to current gross domestic product (GDP). The advantage of this is that it conveys the purchasing power of a given sum of money—that is, it gives us an approximate idea of how much of the year’s total economic output expressed in current prices it could buy. As a proportion of UK GDP (£562 million in 1836), Nathan’s total wealth at death was equivalent to around 0.62 per cent; 0.62 per cent of the United Kingdom’s 1995 GDP (£605,100 million) is £3,752 million—a rather larger figure than the one given by the crude inflation multiplier!
Another way of conveying the significance of the original figure is to relate it to per capita GDP; this has the advantage of bringing population change into the equation. Thus Nathan’s £3.5 million should be compared with a per capita GDP figure for the same period of £22—that is, Nathan had accumulated around 160,000 times per capita national income; 160,000 times the 1995 figure for per capita GDP (c. £10,430) is £1,669 million. It therefore seems clear that Nathan was by the standards of our own time close to being a double billionaire.
Even this measure is misleading, however, because it leaves out of account the greater inequality of the nineteenth century. In the absence of a progressively redis tributive tax system and a welfare state, the distribution of income and to a lesser extent of wealth was far more unequal than in our own day. Very rich individuals and families were much rarer then than they are today, and the gulf which separated the Rothschilds from nearly everyone else in Britain was vast. As late as 1911-13, no fewer than 87 per cent of all people aged twenty-five and over in England and Wales—16 million people—had total wealth of less than £100, compared with 0.2 per cent—32,000 people—who had wealth of more than £25,000. The Rothschilds remained at the very pinnacle of this wealthy elite. When they died in rapid succession in 1915, 1916 and 1917, Nathan’s grandsons Natty, Leo and Alfred left between them £6,494,000—almost exactly 0.1 per cent of the total capital owned by all adults in England and Wales. To put it another way, they bequeathed between them as much as 191,000 men from the bottom 87.4 per cent of the population.
Were the Rothschilds the richest family in the nineteenth century? Rubinstein’s figures for British millionaires do not give precise figures for fortunes in excess of £1 million before 1858; but it seems unlikely that any of the eleven other individuals listed for the period 1810-56 left his heirs as much as Nathan. The nearest was the banker William J. Denison, who left £2.3 million (including real estate worth £600,000) in 1849. It was not until 1857 that someone left more than Nathan to his heirs—the textile warehouseman and Anglo-American banker James Morrison, who left between £4 million and £6 million at his death. Nathan not only died richer than the ironmaster Richard Crawshay and the cotton manufacturers Robert Peel and Richard Arkwright; he also left more than the Duke of Queensberry, the Duke of Sutherland and the Duke of Cleveland. Taking the period 1860-99 as a whole, only twenty-three individuals left estates worth £1,800,000 or more: four of them were Rothschilds (Nathan’s sons Lionel, Anthony, Nat and Mayer). Although individually they were not the richest men of their time—Rubinstein cites two individual estates greater than £3 million—no other family could match their collective wealth. Altogether the brothers left £8.4 million: if Nathan, like all aristocratic millionaires, had left his fortune to a sole heir, Lionel would unquestionably have been the richest man in Britain. In reality, the richest man in the world was probably his uncle James who, at his death in 1868, was reported to have left his heirs around 1,100 million francs (£44 million), though a more realistic figure is probably around 193 million francs (£7.7 million) (see volume II).
From 1900 onwards, the English Rothschilds ceased to be exceptional as millionaires. Natty was the richest of his generation of English Rothschilds (leaving £2.5 million); but at least forty-six British millionaires in the period 1900-39 left as much as or more than him. It should be noted once again, however, that the partners in the French and Austrian houses were significantly richer than their English cousins. In 1905 Edouard, Gustave and Edmond each had personal shares in the combined Rothschild partnership worth £5.8 million. Albert, the head of the Vienna house, had a total share of £5.9 million. This excludes very substantial assets outside the partnership. Only seven of Rubinstein’s pre-1940 millionaires could match this; nine if the South African “Randlords” are included. Taken together at its peak in December 1899, the combined capital of the Rothschild houses was £41.4 million, divided between ten partners. Again, this takes no account of private wealth, much of it held in the form of expensive art collections and prime real estate. It is almost inconceivable that any other family could match this.
Nearly a hundred years on, do the Rothschilds have a modern equivalent? The answer is no. Not even the Saudi royal family has a comparable share of the world’s resources in its possession today. Nor can even the richest businessman in the world claim without qualification to be as rich in relative terms as Nathan Rothschild was when he died at the height of his fortune. At the time of writing, Bill Gates (the founder of the computer software company Microsoft) has an estimated personal fortune of $36.4 billion (£21.7 billion) and has a good claim to be the richest man in the world. If we relate that to current US GDP ($7,487.6 billion), we find that Mr Gates’s wealth is equivalent to 0.49 per cent of US GDP. This figure is less than Nathan’s equivalent figure of 0.62 per cent of UK GDP in 1836, though Mr Gates is gaining fast. Only if we relate the Gates fortune to American GDP per head ($27,730) does he have the advantage over Nathan: Gates’s wealth is 1.3 million times greater than American per capita GDP, whereas Nathan’s was only 160,000 times greater than British per capita GDP. The difference, however, mainly reflects the enormous growth in population since the early nineteenth century, which has restrained the growth of American per-capita income.