Who (still) wants to be a millionaire?

23rd June, 2012

‘Being a millionaire in modern Britain no longer guarantees an extravagant lifestyle, after a study found that inflation has significantly downgraded the trappings of wealth that £1m can buy over the last 20 years.’

The Daily Telegraph, June 20

Wow. Where was this ground-breaking study published? Surely it ranks with the general theory of relativity, the discovery of penicillin, and development of the transistor?

Indeed. I doubt that a Nobel Prize awaits. The “study” was a press release from a bank.

Which bank? I must transfer my current account there at once, so keen is their grasp of contemporary economics.

You’ve made your point.


The idea that “millionaire” is losing its status is intriguing, though. Perhaps it is surprising that the word has held its allure for so long.

Blame Cole Porter for writing such a memorable tune.

I suppose so. The term is much older. The Oxford English Dictionary has The Times using the word in 1795. Actually, although Porter’s song dates from 1956, it was for a remake of a 1940 comedy. There was a sense that the stereotypes of a gilded age for the idle rich were already dated.

Spare me the history lesson – especially since the gilded age seems to be making a comeback. What was £1m worth in 1795?

Compared to average earnings, about £1bn in today’s terms.

Serious money.

Indeed. An alternative way to think about this is to note that £1m in 1795 would buy you goods and services comparable to what you could get today for about £80m.

Would it? Most of what I have today you couldn’t get in 1795 for any money: smartphones; penicillin . . .

You really have penicillin in your bathroom cabinet? But you’re right. Hold that thought for a moment.

I’m holding it.

If you want to go back only to 1940, £1m then would be worth about £140m today, relative to other people’s earnings. Relative to the price of goods and services it would be worth about £50m.

Yes, yes. Money isn’t what it used to be, we already know that from the very surprising and insightful press release.
Answer my question about penicillin.

Implicitly your question is about how to measure changes in the price level. The basic idea sounds really simple: look at what a bunch of goods cost in 2012 and then what the same bunch of goods cost in 2011, and you can measure how the price of goods is changing. Extend that exercise for a couple of centuries and you can compare today’s bunch with a bunch from 1795. Except, of course, the goods you might plausibly look at keep changing.

How do you cope with that?

Well, you can’t, really. One problem is that when new technologies arrive, they tend to be expensive at first and then get cheaper. When it’s expensive, few people buy it. By the time it becomes popular enough to be included in the representative basket of goods by statistical agencies, the price has already plummeted. This is a specific instance of a general problem: what people choose to buy is inextricably connected with how much those things cost. You can’t study the change in price of what people buy because what people buy is changing because of the change in price.

That sounds pretty deep. What does it mean?

It means you can’t really compare the general price level in 1940 with the general price level today. Not that that stops us trying. Actually, the economist Timothy Taylor has a fascinating thought experiment that bears on this topic.

Really? The words “fascinating” and “economist” tend to go together in your sentences a lot more than in mine.

Open your eyes to the joys of the dismal science. Prof Taylor asks his students whether they would rather have $70,000 a year now, or $70,000 a year back in 1900 – when it would have supported a mansion with servants. About two-thirds of the students say they would rather have the money in the modern world, apparently preferring mobile phones and modern medicine to the services of a butler and a cook. I find that rather encouraging. It suggests that while £1m may no longer buy a Kensington home and a yacht, the things that Frank Sinatra and Cole Porter could not buy back in 1956, even as millionaires, are things that are well worth having.

Also published at ft.com.

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