{"id":23074,"date":"2013-06-25T00:00:58","date_gmt":"2013-06-25T07:00:58","guid":{"rendered":"http:\/\/www.todayifoundout.com\/?p=23074"},"modified":"2013-06-22T19:23:22","modified_gmt":"2013-06-23T02:23:22","slug":"ben-franklins-interest","status":"publish","type":"post","link":"http:\/\/www.todayifoundout.com\/index.php\/2013\/06\/ben-franklins-interest\/","title":{"rendered":"Ben Franklin’s Interest"},"content":{"rendered":"
Dan Lewis runs the wildly popular daily newsletter Now I Know<\/a> (\u201cLearn Something New Every Day, By Email\u201d). To subscribe to his daily email, click here<\/a>..<\/div>\n

\"Ben-franklin-money\"<\/a>Google the phrase \u201cmagic of compound interest\u201d and you\u2019ll come up with\u00a0about 4 million or so results<\/a>. Compound interest \u2014 which Albert Einstein\u00a0may have called<\/a>\u00a0\u201dthe most powerful force in the universe\u201d \u2014 is the simple idea that when initial money deposited into the bank (the\u00a0principal) collects interest, and that interest is added to the principal, the interest itself begins collecting interest. The money builds upon itself, allowing the person holding the bank account or trust to, over time, build up a\u00a0sizable\u00a0war chest.<\/p>\n

But what if you kept the money in an account, earning interest, for decades if not centuries? What would happen?<\/p>\n

To answer this, all we need to do is go to Ben Franklin, who did exactly that.<\/p>\n

In his will, the American statesman left 1,000 pounds each \u2014 the equivalent of about $4,400 at the time \u2014 to the cities of Philadelphia and Boston. But the cities were not given access to the money immediately. Instead, Franklin required that the money be held in trust for 100 years after his death. (Franklin died in 1790.) After that, the cities could remove a portion of the trust money to establish a trade school. But not all of the money could be withdrawn; some had to remain for\u00a0another<\/em>\u00a0100 years.<\/p>\n

Franklin\u2019s investment on behalf of the cities paid out handsomely. When he placed the money in trust in 1785, the 2,000 pounds\u00a0combined\u00a0was worth about $100,000 to $125,000 in\u00a0today\u2019s dollars, accounting for inflation. When the trusts became due in 1990, Philadelphia\u2019s was worth $2 million \u2014 well outpacing inflation. Boston\u2019s trust, which withdrew less money during the trust\u2019s second century, was worth $5 million. Philadelphia used the $2 million windfall to provide scholarships for area high schoolers. Boston used the $5 million to fund the Benjamin Franklin Institute of Technology, which was established out of the trust\u2019s funds which were withdrawn 100 years earlier,\u00a0after a bit of litigation<\/a>.<\/p>\n

One may wonder what would happen if America\u2019s elder statesman had required that the trust remain for another century or so.\u00a0In that case, however, the trust may be ruled illegal.\u00a0As recounted by Lapham\u2019s Quarterly<\/a>, in 1938, a lawyer by the name of Jonathan Holden took $2.5 million and divided it into a series of trusts, each of which had 500 or 1,000 year locks on them. One of the trusts was given to the Unitarian Church; another to Hartwick College in the Catskills of New York, as two of his\u00a0children\u00a0and one of his grandchildren went there; and another was given to the state of Pennsylvania, as a way to honor Ben Franklin for inspiring the wonderful idea. (Holden\u2019s goal was to make it so that the citizens of the state never had to pay taxes again \u2014 starting in the year 2938 or so.)<\/p>\n

These trusts, soon known as the Holdeen Trusts (he\u00a0would later change his last name to \u201cHoldeen\u201d in order to differentiate himself from other Jonathan Holdens), soon ran into a problem. The size of an ever-growing trust of that starting size and duration, could, economists feared, outpace the net worth of the known universe. Holden, himself, estimated that the trust for the\u00a0Unitarian\u00a0Church itself could reach $2.5 quadrillion (that\u2019s 2.5 thousand\u00a0trillions<\/a>, or 2.5 million billions) by the time it became payable; that could outstrip the GDP of the country, if not the world, by the end of the 500 year trust lockup. And the 1,000 trusts? They\u2019d be even more likely to overtake the global economy.<\/p>\n

Litigation over the\u00a0validity\u00a0of the trusts hit full swing after Holdeen\u2019s death in 1967. Perhaps\u00a0surprisingly, even the would-be beneficiaries of the trusts were, by and large, not fans of how the trusts were set up; while a quadrillion or so dollars in the year 2430-something sounds great, immediate access to a few million bucks sounds much, much better. (After all, we don\u2019t even know if the Vulcans or Romulans accept U.S. currency. And forget about the Borg.) The Pennsylvanian courts agreed, kind of. In 1977, a judge\u00a0ruled<\/a>\u00a0that the trusts could remain for however-many centuries Holdeen required, but the interest could not be reinvested; rather, it had to be paid out to the beneficiary each year. Hartwick College, therefore, gets about $450,000 annually from their Holdeen Trust and, in or around 2936, will receive a lump sum payment of $9 million.<\/p>\n

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