Sunday 24 June 2018 | UK News feed


A wealth of difference in how fortunes were calculated then and now

Computing the wealth of anyone at any time is a complicated and controversial business, as the compilers of modern "rich lists" will readily admit.

The list compiled by the Inland Revenue in the summer of 1929 has the advantage of being wholly reliable because it is based on the actual declared income of the super-rich (or at least that part of it which they could not conceal from the taxman).

The Revenue calculated the assets of the 438 millionaires on its list by taking their declared income and assuming that it was the result of a five per cent return on their investments. Therefore, multiplying the income by 20 gave an estimate of the money each man or woman had.

Having said that, the Revenue figures take no account of assets such as property, art collections and so on which might have great inherent value, but did not contribute to income.

In 1929, when people perceived tax to be even more of a burden than we do today, assets of that kind were well-favoured by the extremely rich as a way of accumulating wealth while avoiding income tax.

Yet calculations are still difficult and arguments will arise, because of the difficulty of working out how much both income and assets would be worth in modern terms.

While the familiar measure of the retail price index is the best way to calculate how much a 1929 pint of beer cost in comparison with a pint today, it is not the preferred method of calculating people's earnings.

For that, economic historians prefer a measure in which the ratio of a person's income to the average of all earnings in 1929 is multiplied by the average of all earnings today.

So, according to the RPI calculation, an income of £50,000 in 1929 would be worth about £2 million today, but according to the more accurate average earnings calculation, it would be worth almost £8.5 million.

However, for both the income and the assets of the superwealthy, historians say the only accurate method of comparison is by using Gross Domestic Product. You work out what share of 1929 GDP the superwealthy person earns or owns and multiply that percentage by today's GDP, which is about 250 times greater.

This is the calculation that gives Ellerman's income for that year as £389 million and his liquid assets of about £9 billion at today's prices.

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