History of efforts to harness compound growth

What guidance can we glean from prior attempts to harness the power of compound growth to benefit our societies? Multiple thinkers have considered harnessing compound growth over the centuries ahead. This blog explores these efforts to seek learnings.

Upon his passing, Benjamin Franklin created a microfinance business that lasted 200 years. In doing so, he inspired others to create similar legacies, some actual and some fictional. Let's examine each one to see what happened and what about each effort is instructive.

Before we get to these legacies and stories, consider where society is with the development of its 'Financial Independence for Society.' I define FIS for social uses as having adequate and growing annual public budgets entirely met by investment income. The easiest and least disruptive path to FIS is to invest seed funds for centuries. However, today the idea of funds that grow for centuries seems so inappropriate and unachievable as to be summarily dismissable.

I purposely omit the sovereign funds here. Funds of this nature, such as Norway's Sovereign Wealth Fund and Canada's CPP (Canada Pension Plan), use money from the fund each year to finance social needs, which use, in turn, severely reduces possible long-term compound growth of the funds.

In contrast, I propose the creation of multiple Funds Generators that contribute half their accumulated capital once per generation. In this way, capital continues growing within the Funds Generator at a much higher rate to eventually support more and more public needs.

Many social needs could be addressed but for the lack of funds. Achieving Financial Independence for Society is considered a nice dream but rarely seriously considered a possibility, much less acted upon. This inaction, this state of suspended animation, is not unlike the eons humankind spent dreaming of being able to fly.

Biblical tales give the power of flight to angels - as if you had to be one to fly. That is how unreachable the idea of flight seemed not so long ago. So why even try to achieve powered flight?

The Wright brothers had the dream of powered flight but simply owned a bicycle shop. Their secret sauce was in applying science and ingenuity to repeatedly test and learn. They had belief and persistence. Eventually, they created the first controlled heavier-than-air powered flight.

We should use the Wright brother's approach to be more scientific when we build our vehicles to create Financial Independence for Society. Future FIS attempts should take advantage of learning from earlier trials, as have actually happened and as have been imagined.

Below is a brief summary of the history of humanity's attempts to harness compound growth, along with a few high-level learnings as I see it. Do you see other learnings here? Let me know!

​1784 Charles-Joseph Mathon de la Cour wrote 'Testament de Fortune Ricard,' a friendly parody satirizing Benjamin Franklin's 'arithmetical-political' method of making a lot with little as advocated in Franklin's 'Poor Richard's Almanack.' Mathon's book presents the fictional will of Fortunate Ricard, a master of arithmetic, who leaves five lots of 100 livres to his relatives and friends on the condition that they be allowed to compound for 100, 200, 300, 400 or 500 years. The book continues with humourous stories of uses of the resulting enormous money, such as building a bridge over the Atlantic Ocean.

Key Learnings:

• Mathon was the first on record with the idea of using compound growth to finance large opportunities in the distant future

• Franklin added a codicil to his will, adapting Mathon's idea to be useful for society. Franklin avoided frivolous or fantastical uses.

1790 Ben Franklin dies. His will has a codicil (inspired by Mathon) which invested $150 thousand (today's dollars), creating a microfinance business to last 200 years, loaning funds to artisans while compounding the returns. Millions of dollars were eventually given to Boston and Philadelphia, and thousands of businesses and individuals were assisted. All did not go smoothly, however.

Franklin's trust administrators had to request court variances for every adjustment to the business. For example, Franklin specified interest charges to be 5%, which was not always attractive. Franklin's final payout in 1990 required an act of Congress to finalize since many claimed they had a justifiable stake. Franklin had calculated the final payout would be $36 million, but only $6 million was available due to various investment issues with the business. With money doubling every 14 years at 5%, this sum could have been reached after only 35 more years.

Key Learnings:

• Apply funds for social, not personal, uses.

• Don't design the business too specifically

• Be clear about who decides how to distribute the money

• Keep it going - why wind down when growth takes so long to accumulate $millions?

​1799 Peter Thellusson creates a trust to benefit the last surviving descendent (unknown at the time of trust formation) of his current descendants. In 1800, the UK passed the Accumulations Act to limit the term to 21 years after death. The result was a lawsuit lasting 62 years, and in 1859 British parliament passed the Perpetuities Act to stymie such trusts.

Key Learnings:

• Don't create an inheritance locked without payouts before everyone alive passes.

• Do specify concretely how payouts will be triggered.

• If the government fears excessive power concentration from growing funds, new laws will be created to prevent it.

​1853 Charles Dickens wrote 'Bleak House,' in which a never-ending lawsuit, Jarndyce v Jarndyce, was a fictional probate case in the English Court of Chancery, which dealt with equity and trusts. The case has been going on for generations over a disputed inheritance, with no end in sight, highlighting corruption and inefficiency in the justice system, causing much misery.

Key Learnings:

• Expect legal challenges and that vested interests will keep those challenges going on and on.

• Fictional outcomes can easily be painted as so dystopian as to discourage experimentation

​1899 (expanded in 1910) HG Wells wrote "When the Sleeper Wakes," the story of Graham, a young man who suffers from insomnia and takes a drug that puts him into a deep sleep. He wakes up in the year 2100, in a futuristic London that has undergone radical social and technological changes. He discovers that he has become the richest man in the world, as his money was invested and multiplied by a group of trustees who used it to establish a global dictatorship.

Key Learnings:

• Never let the truth get in the way of a good story. In truth, the money would never have grown that much in 200 years unless he invested $billions to start with. Secondly, the world would have many others with this level of future riches, as growth would apply to all investments held by all investors, thus negating the power to establish a dictatorship.

1914 Harry Keeler wrote "John Jones Dollar" The story begins in 1914, when John Jones, a wealthy American, decides to deposit a silver dollar in a bank with a compound interest rate of 3% per year. He stipulates that the money should not be touched until the year 2921 when it will be worth a staggering $ 4 trillion trillion.

The story then jumps to the year 2921, where we meet a descendant of John Jones, who is eager to claim his inheritance. However, he soon discovers that his dollar is not only the most valuable thing in the world but also the most dangerous. His dollar has become the basis of a complex and fragile economic system.

Key Learnings:

• As per above for HG Wells, growth of investments in Keeler's tale would apply to everyone's investments, and so the concentration of power into this one investment would not happen

From 1945 to 1955, James Holdeen set up five inter vivos trusts with durations ranging from 500 to 1000 years. Holdeen was a lawyer and a visionary who dreamed of creating a system of "cumulative endowments" for the government. The IRS and others claimed that the trusts violated the rule against perpetuities, the cy pres doctrine, and public policy, and in 1979 the Supreme Court of Pennsylvania limited the duration of the trusts to 21 years after the death of Holdeen's last surviving grandchild, and that payment to operating charities must be made annually.

Key Learnings:

• Tax-sheltered trusts will likely attract public scrutiny and, ultimately, a significant variation of the terms.

• Don't wait 500 years for the public to benefit. Regular payouts every so often would help the public see the value.

• A non-charitable for-profit entity that pays annual taxes may have been a better choice of business model, as no donor tax deductions apply, and thus the public and tax authorities have no vested claim.

In general, the actual attempts indeed are instructive for future efforts. It's also interesting to see how fiction began this journey and how the actual attempts inspired yet more fictional accounts. Art imitating Life imitating Art.

Overall, two key learnings stand out: 1) that others have seen the value of such a long-term approach and have even gone to great lengths to achieve it, and 2) many in society have worked to shut the efforts down. I believe the latter is both because of design and that society did not buy into the plan as proposed. Buy-in by society is crucial, which design facilitates.

Bensway Funds Generators must be designed by leveraging learnings from the historical versions of harnessing compound growth. Funds Generators with good design and strong social support will survive, and seed fund donors will generate huge funds for their charities for centuries. Social licence is critical, requiring agreement to support the purpose: to create abundant financial resources for public use, in other words, Financial Independence for Society.

Photo by Patrick Hendry on Unsplash