BILL GATES: RICHEST AMERICAN EVER AND YOU THOUGHT ROCKEFELLER HAD MONEY
By RANDALL E. STROSS

(FORTUNE Magazine) – Has the world's largest personal fortune become so large as to be incomprehensible, hence invisible? When billions reach a certain point, do they become jillions, beyond the comprehension of anyone not an astronomer? To wit: Bill Gates' wealth expanded by $18 billion over the past year. Doesn't it merit at least a glance?

Last June, Gates' Microsoft holdings were worth $17 billion--placing him a few billion ahead of America's second-richest man, Warren Buffett. Three months later Gates' 24% stake in Microsoft had jumped to $19 billion. By December the number was $23 billion. Then came April, when, with the help of a one-day, $2.5 billion jump in the value of Gates' shares, his stock was worth $33.5 billion. Today that same stock is valued at about $35 billion.

Perhaps Gates has been famously rich too long for changes in the numbers to be noticed, no matter how large the increase. Gates' ascension to billionaire status, after all, took place a decade ago. Or maybe it's that his wealth is not--historically speaking--as astounding as we've all come to assume.

That, in any case, would seem to be the somewhat unbelievable argument put forward by Michael Klepper and Robert Gunther, the authors of a book published last year entitled The Wealthy 100: From Benjamin Franklin to Bill Gates--A Ranking of the Richest Americans, Past and Present. Klepper and Gunther looked at large fortunes in widely differing historical contexts; according to a ranking system of their devising, Gates shows up on the list ranked a mere 31st. (John D. Rockefeller is first.) Even when you plug in a $35 billion figure for Gates instead of the $15 billion estimate used in the book, the Wealthy 100 methodology would move Gates up to only 11th place or so. That puts him ahead of Henry Ford, but behind...Marshall Field.

How can this be? If your instincts say it can't be, you're right, for the authors' methodology is flawed. They try to put each fortune into historical perspective by comparing the wealthy person's net worth at the time of death (or, if still living, the present moment) with the nation's GNP at that same time. They use this ratio of personal wealth to GNP to assemble the rankings. John D. Rockefeller's fortune at the time of his death in 1937 was nominally $1.4 billion, but it was 1/65 of the country's GNP that year, the largest share of GNP of any American they ranked.

At first glance, this may seem a promising way to compare older apples (George Washington, 1/777 in 1799) and newer oranges (Bill Gates, 1/425 in 1995). But it doesn't stand up. Think about it: Is GNP at all conceptually akin to the accumulation of personal wealth? By basing their comparisons on data that are merely convenient, Klepper and Gunther resemble the drunk in the old joke who looks for lost keys not where he thinks they were dropped but under a streetlamp where the light is better.

A more meaningful way of looking at each man's wealth in the context of his times would be to have compared the personal wealth of each prospective member of the 100 with, say, the average wealth of the rest of us. Here is an alternative quick-and-dirty analysis of Rockefeller and Gates. Consider the increase of Gates' fortune just this past year: The $18 billion works out to $49.5 million a day, seven days a week, or $2.1 million per hour, 24 hours a day, $35,000 per minute, or $583 a second. These are terms that anyone will recognize as a mite larger than the numbers on one's own pay stub. Now let's calculate a new ratio: average annual income in the populace to the increase in the rich one's net worth in one year. Take Gates this past year and Rockefeller in 1892, compare each with his contemporaries, and it turns out that the gap between Mr. Wealthy and Mr. and Ms. Average is 311 times as great in the Age of Gates as it was in the Age of Rockefeller. In other words, your instincts were correct. Even in historical context, Bill Gates is the richest American who ever lived.

Which leads to the most interesting question of all: Why is it that angry workers and peasants with torches and rope have not gathered at the foot of Microsoft's battlements? Several reasons. First, the software business is relatively benign. Unlike some of the robber barons, Gates has not gotten rich while laborers died. Second, Gates enjoys a special popular dispensation conferred on company founders that allows a literally unlimited payoff to the person who took the initial risk. No matter how large Disney's market capitalization grows, Michael Eisner will never attain founder's status. Undoubtedly the biggest reason that Gates' shattering of records has passed by without exciting Jacobin passions in the heartland is the democratization of Wall Street and the growth of mutual funds. Author Ron Chernow, whose forthcoming The Death of the Banker looks at the "triumph of the small investor,"observes that today "people identify with the rich in a way they didn't do in the past." Anyone can ride alongside Gates in the Microsoft rocket too, if not as an individual shareholder, then through mutual funds.

The Wealthy 100 fails to notice this paradox: On paper, the gap in financial circumstances between citizens in the middling ranks and the very, very wealthiest person has never been greater--yet psychologically, the gap does not seem so large, simply because now we nobodies get to tag along too.

--Randall E. Stross