How rich was rich? by Henry P. Kramer

        Mother had tried to teach me that I had come from a distinguished and rich family in Germany and that that was important. However, this mythology seemed to me too nostalgic in a small rural town of the central coast of California. I very quickly learned to disregard all such talk as I got jobs washing windows in a drug store on the main street, harvesting almonds by knocking the branches with a big rubber covered club, and chopping oak wood in the hills for a charcoal maker who had learned his trade in Michoacan, Mexico. I avoided the use of big words so as to cause no offense and to behave like one of the fellows in as many ways as I could. The mythology of a rich Berlin family was quickly replaced while I was in highschool, at least in spirit if not in fact, by the mythology of the ten gallon hat, high heeled cowboy boots, and the monosyllabism of Mr. John Wayne. It took getting away to the University for me to be cured of that bit of the Wild West.
        But then recently I was visiting an old man, the family's former lawyer, in his London apartment. It was decorated with Persian rugs and overstuffed sofas and pictures and knickknacks like many Berlin apartments that I remember from my childhood. He said to me: "You know that your great grandfather was a very rich man. When he died in 1905, he had more than five million gold marks." I expressed the awed disbelief that I felt was expected of me, having in the meantime turned into an ordinary Western American from California thousands of miles and an eternity removed from rich Berliners in the Kaiser's era, even if they were my ancestors.
        Having accepted the old lawyer's assertion that five million gold marks was a great deal of money and marveling responsively at the enormity of the sum I started wondering. How much are we really talking about here in terms that I can understand? How many inflated and devalued, pitiful, ordinary, everyday 1992 dollars would be equivalent to these mythical 1905 gold marks? Well, thinking about the matter goaded me into looking around for ways of translating the one into the other.
        The easy way to get some kind of an answer is to look in the newspaper and find out that one mark, i.e. one of today's Deutsche Mark is worth about 65 cents of today's dollar. Great grandfather Julius' five million marks would come out to about two million dollars. Well, that's a good deal of money, but certainly not an overwhelming amount today. I know many people whose houses here in Southern California have appreciated in value in the last thirty years or so by a factor of about 30. A person whose house is worth now about two million dollars may have bought it for between sixty and seventy thousand dollars in 1960. That's a fair sum of money but not enough to cast a spell. Obviously, looking at the present exchange rate is not the right way to make the conversion from 1905 gold marks to today's dollars.
        Another way might be to find out the legal gold content of the gold mark and determine the value in today's dollars of the amount of gold represented by five million gold marks. Being the fortunate heir to my father's Meyers Lexicon, a German encyclopedia, I looked up the article "Mark" and found that according to the German law promulgated 1870/71 the mark was fixed at 1/2790 kg. of fine gold. Today's price of gold, according to the newspaper's business page, is $333.25 per oz. troy. But I oz. troy is the same as 31.103 gm. Accordingly, great grandfather's five million gold marks if turned into gold and kept in a vault would be worth today $19, 201,434.66.
        This seems like a much more reasonable figure in keeping with some information that I haven't yet revealed. A number of families lived extremely well from the proceeds of great grandfather Julius' fortune without having to struggle to supplement their income with earnings of their own. Grandfather Paul had a big house and gardens with two greenhouses where he grew tropical orchids in the icy Berlin winters. The house and gardens were tended by a number of servants. The children, one of whom was my mother, were cared for by nannies and governesses, and later on were started in life with a good education and presents of money. Paul was a paleontologist of international renown in his specialty. However, corellating the classification of fossilized remains of extinct marine fauna with the age of the embedding geological strata did not produce an income for him. Great-aunt Gertrud lived in a nice large house with appropriate staff. She was married to uncle Moritz, an artist whose paintings, alas, did not provide a living for the family. Great-aunt Martha was married to a distinguished professor of sociology. However, her family's expansive lifestyle also was not supported by her husband's earnings from scholarship. In addition, there was great uncle Alfred, a bachelor of comparatively restricted mental horizon, who lived simply but comfortably, and great uncle Felix who had been fobbed off with a minimal inheritance as a result of a family quarrel. Is the sum of nineteen some million dollars consistent with this knowledge of the family life style? Let's make a rough test.
        Suppose that 1/10 of the total amount was settled on Felix. Suppose furthermore, and all of this is simply guesswork, that Paul as the oldest son and administrator of the estate took 4 units for himself, gave 3 units each to his sisters, and left I unit for his brother, poor great uncle Alfred, of diminished capacities. A 6% after tax or tax free yield would provide the equivalent of $ 94,000 in annual income for Alfred, $283,000 each for Gertrud and Martha, and $380,000 for Paul. These incomes are perhaps a little skimpy for the lifestyle that was described to me and that I glimpsed a little of as a small child.
        The calculation of a total worth of $19,000,000 assumes that the value of gold is constant with time. This is roughly true. I have read in support of this notion that in George Washington's day, the late eighteenth century, the price of a good suit of clothes was one ounce of gold. Today, a fair suit of clothes can be had off the rack for about $340, which still is roughly the price of an ounce of gold. However in the late nineteen sixties and early nineteen seventies gold was worth between six hundred and seven hundred dollars of a less devalued currency. It seems that the value of gold can fluctuate by a factor of two or so.
        Another method of arriving at an estimate of great grandfather Julius' fortune is to convert the gold value of the mark into gold dollars and allow for an average inflation rate between 1905 and 1992 of about 3% per annum. From 1837 to 1934, according to the Encyclopedia Britannica's article "Dollar" the price of I oz. troy of gold was fixed at $20.66. Only under the early Roosevelt administration was the price changed to $35 per ounce in the hope that the price of other goods would follow suit. Since President Nixon's time the dollar value of gold has been allowed to float. Accordingly, the value of the gold dollar in 1905 was equal to 4.2 gold marks. Let us convert great grandfather's five million gold marks into gold dollars. We find an equivalent of $1,190,476. Multiplying this amount by 1.03 raised to the (1992-1905) th. = 87 th. power yields 15,579,703.or in round numbers $16,000,000. According to the calculation of the preceding paragraph, this would yield uncle Alfred an annual after tax income of about $79,000 aunts Gertrud and Martha and their families an income of about $236,000 and grandfather Paul an income of about $314,000. These incomes seem low in view of what I know of my forebears' lives.
        The average inflation rate of 3% is a rough guess. I have, however, seen an extract from the "Grundbuch", the land registry in Berlin, which shows the purchase in 1869 of a piece of property of 589 square meters in area by great grandfather Julius and his brother Louis for 80,000 Taler. A recent estimate of its value is 10,000 Deutsche Mark per square meter, or, at today's exchange, $6,500 per square meter. According to the entry "Taler" in Meyers Lexicon, the Prussian Taler of 1750, the official currency of Prussia until 1871, was equivalent to 3.01 gold mark according to a ruling during the reign of King Frederick II of Prussia. Thus one taler was equivalent to 0.72 gold dollars from which we find the value of the land being equal to $97.18 per square meter in 1869. Its value increased by a factor of 67 over a period of 123 years. A representative inflation rate can be calculated by taking the 123rd root of 67 and subtracting I from the result. The average yearly inflation rate comes out to be 3.48%. This inflation rate, rather than the 3% assumed before, brings the total property value to $23,346,898 somewhat larger than the value according to the first method of calculation. Since most of great grandfather Julius' fortune consisted of real property, a comparison of real estate prices then and now is a fitting method for estimating the rate of increase. Using the previous assumptions, grandfather Paul would have had a yearly after tax income of about $458,000, his two sisters about $344,000 and great uncle Alfred about $115,000.
        The above estimate of the inflation rate is based on the assumption that the price of 80,000 Talers was paid for land without improvements. If there was a building on the land and a portion of the 80,000 Talers is attributable to the value of the building, then the estimate of the inflation rate has to be raised. In an extreme case, the value of the land alone might have been only about 25% of the purchase price. In that case, the factor of increase is 4 times 67, or 268, and the mean inflation rate becomes 4.65%. The estimate of the value of the estate then rises to about 60 million dollars. This calculation shows that the result is very sensitive to assumptions about the rate of inflation.
        A more likely assumption is that the value of any building on the land was small because the original buildings may have been knocked down to make place for those that ultimately occupied the land until they were bombed out during WWII. The eventual buildings were large and designed to yield considerable rent from offices and apartments.. Suppose, therefore, that 75% of the purchase price was attributable to the value of the land. Then the factor of increase is 89 and the mean inflation rate becomes 3.72% per annum. The resulting size of the estate is $28,481,147.
        The uncertainties in the calculation are sufficient to allow for a considerable deviation from these numbers by as much as a factor of two. A more precise determination could be made by examining the actual income, insofar as it is known, and the actual expenditures and comparing prices in 1905 with today's prices. The value of further speculation about these matters is questionable. Suffice it to conclude as most likely that great grandfather Julius left an estate that would be worth today somewhere between $20,000,000 and $30,000,000. 1 can now agree with the old lawyer that, indeed, great grandfather was a rich man.
        Having seen folks in the last few years make much greater fortunes in various ways, many of them shabby and despicable, it seems to me most appropriate to base respect and love of family not on the size of the estate but instead on the artistic and scholarly accomplishments of the members of the family and, above all, on their idealism and devotion to service to their fellow man and woman.
Certainly the history of my family since the tragic years between 1933 and 1945 has shown that money, to say nothing of life, can vanish as quickly as it appears, and that strength of character must then supplant the crutch of money. Possession of money is never an excuse for arrogance and conceit, nor, for that matter, is anything else. Let us remember the famous lines, in free translation, of the great Pompus Maximus (123 L A*):

While the proud fall and the pompous stumble,
Peace and vacuity bless the poor and humble.**

*Long Ago.

**In fairness, it must be admitted that there are some scholars who claim that Pompus Maximus (PM) never lived, either in our or anyone else's era. However, as a sage of antiquity, PM in his many aphorisms may, or possibly may not, have had a great deal of importance to say about today's pressing problems.