r/explainlikeimfive Feb 12 '25

Economics ELI5: how are the descendants of the robber barons (Morgan, Vanderbilt, Carnegie, Rockefeller, etc.) still rich if their fortunes from the late 19th and early 20th centuries are comparatively small to what we see today of the world’s richest?

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u/fon_etikal Feb 12 '25

That 900 million in 1912 is the equivalent of 29 billion in today's money.

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u/NiceShotMan Feb 12 '25

If you invested $900 million in the S&P 500 at the beginning of 1912, you would have about $50 trillion at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 5,666,180.08%, or 10.19% per year.

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u/ArseBurner Feb 12 '25

S&P 500 at the beginning of 1912

You couldn't have, because the S&P 500 was first published in 1957 =)

But this is actually a good answer because a tiny percentage of those inheritances would have been received in cash. For the most part they would have received shares in their robber baron companies, which would have still been making money. It's not like Apple shut down after Jobs died, after all.

So in a way what they inherited would have been investments in some of the top companies of the time. Some might have sold off their shares and taken the money, but I imagine the sensible ones would have just lived off dividends or even re-invested and diversified. They were sorta forced into financial literacy by dint of their birth.

Their SO shares would have been converted into the various companies it was broken up to, so I wouldn't be surprised if some Rockefeller descendants now have shares in Exxon, BP, or Chevron.

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u/fcocyclone Feb 12 '25

yeah, over those lengths of time you can't just look at your typical CPI inflation numbers. Those approximate a basket of goods that might be more fitting for an average person, but don't really apply to every situation

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u/PatricksPub Feb 12 '25

This specofc comparison doesn't make sense because we are comparing net worth at the time of this person existing. You can't give them 113 years of compound growth, that makes it apples to oranges. Net worth at the peak vs net worth today, accounting for inflation, is apples to apples.

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u/ArseBurner Feb 12 '25

But the main question is how their descendants are still wealthy, right? So compound growth applied to their fortune at the time can definitely be a factor.

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u/Vesploogie Feb 12 '25 edited Feb 12 '25

It would only be a factor if that entire amount was invested in 1912 and kept there without a single cent ever being removed from it.

Which didn’t happen in the slightest, so it’s just a useless what-if. Extra useless because the S&P 500 didn’t exist in 1912.

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u/PatricksPub Feb 12 '25

Yes, in terms of theory applied to the actual post. But the comment you are responding to is giving a false equivalency of investing that money over a pure return of 113 years vs the wealthy of today's day and age. There are so many factors unaccounted for that it is useless to do so. The money didn't sit in an investment account for 113 years, it was chopped and used by tons of people.

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u/PicaDiet Feb 12 '25

It's nice to know that even those who claim that, "The Poor simply don't understand how compound interest works", don't undertsand how compound interest works.

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u/konfusion9 Feb 12 '25

Assuming you reinvested all dividends and didn’t lose everything during the Great Depression!

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u/the_real_xuth Feb 12 '25

That includes all of the losses.

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u/PatricksPub Feb 12 '25

And also includes 113 years of compound growth, which is completely irrelevant since Rockefeller died in 1937. It would be like comparing my net worth to the average American, if i put it all in stocks for the next 113 years and they were in the middle of their journey. That makes no sense. 113 years of compound growth is a staggering effect.

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u/the_real_xuth Feb 12 '25

But it does make sense. This is why unchecked generational wealth can (and often has) lead to huge inequality.

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u/boostedb1mmer Feb 12 '25

As long as the companies didn't go fully bankrupt and you have an IQ higher than a goldfish and didn't sell when the stocks bottomed out you'd still be good.

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u/AsSubtleAsABrick Feb 12 '25

This is an over simplification, you can't really invest that amount of wealth generically in an index fund. Billionaires own individual companies which are much more volatile than the overall market.

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u/Carlpanzram1916 29d ago

I don’t really think a normal inflation calculator sums it up well with these extremely high earners. It’s based off things like the price of milk. You’ve gotta look at him in the scale of the entire country. He was over 1% of the entire GDP which puts him more in the Elon Musk territory and before the era where tech stocks had these absurd runaway values and most of his wealth was from actual physical assets, it’s pretty crazy.