Let Us Give To Future

18 months ago I wondered:

Franklin … [left] £1000 each to Philadelphia and Boston in his will to be invested for 200 years. … by 1990 the funds had grown to 2.3, 5M$. … Why has Franklin’s example inspired no copy-cats?

Thanks to Gwern, I now know of several copy-cats, mostly failures (quotes below). This confirms that many are willing to donate to distant future folks, but are prevented by law, largely from fears that donor funds will eventually dominate the economy. Alas, as these are the likely consequences of allowing donations to the distant future:

1) The fraction of world income saved would increase, relative to consuming not-donated resources immediately. This effect starts small but increases with time, until savings become a large fraction of world income, after which diminishing returns kicks in.

2) While funds are in saving mode, world consumption would be smaller at first, relative to immediately consuming donor resources, but then after a while it would be higher, though it might eventually fall to zero difference. When such funds switch from saving to paying out, or when thieves steal from them, the consumption of thieves and specified beneficiaries would rise.

3) As investment became a large fraction of world income, interest rates would fall, and the market would take a longer term view of the future consequences of current actions.

4) Some would change their behavior in order to qualify for benefits, according to the conditions specified by the original donors and the agents they authorize to later interpret them.

These changes seem good overall, especially if, as I estimate, the future will have many folks in need. Not only would donors actually get to do what they want with their resources, but policy-makers usually lament that savings rates are too low, and interest rates too high, leading us to neglect distant future consequences of our actions. The added consumption given to future folk is mostly stuff that would not exist if not for their donations, so it is hard to begrudge them giving to whom they wish. Our evolved instincts to resist domination makes less sense here, as “dominating” donors are long dead, influencing the world only via largely-altruistic explicit visible instructions.

Note that once physical, if not economic, immortality is feasible (i.e., paying enough lets you survive indefinitely), then original donors can stay around to manage their growing funds. Those promised quotes:

Thanks to an eccentric New York lawyer in the 1930s, [Hartwick] college … inherited a thousand-year trust that would not mature until the year 2936: a gift whose accumulated compound interest, the New York Times reported in 1961, “could ultimately shatter the nation’s financial structure.” …

Benjamin Franklin got there first. Upon his death in 1790, Franklin’s will contained a peculiar codicil setting aside £1,000 (about $4,550) each for the cities of Boston and Philadelphia to provide loans for apprentices to start their businesses. The money was to be invested at compound interest for one hundred years. .. After a portion of the funds were to be paid out for a first set of public works, the remainder was then to grow for another century—until, by Franklin’s estimate, in 1990 both cities would receive a £4,061,000 windfall from their most famous native son. …

Franklin’s experiment inspired Peter Thellusson, a London merchant and a director of the Bank of England, to even dizzier heights. Thellusson had an impressive fortune of some £600,000 by his death in July 1797, worth about $68 million today. … Most of [his] estate was to be invested at compound interest until every currently existing heir was dead, whereupon upward of £19 million would cascade onto their distant descendants. … The Thellusson will occupied courts for decades, … over one hundred lawyers [were] involved in the judgment. … “The fear was that when the trust expired these two or three mega-rich men would be able to exert a massive influence through buying up seats in the House of Commons and that they would establish dynasties of peers; worse, that others would follow suit.”

By the time the case was resolved sixty-two years later in 1859, much of the fortune had been consumed in legal fees, and Parliament enacted the Perpetuities Act barring Britons from ever attempting Thellusson’s stunt again. Perhaps, in the end, a dynastic trust that locked up money for generations simply smacked too much of feudalism for Britain’s new industrial economy. “A fortune in circulation,” explained one judge from the case, “even if spent in luxuries, waste, and dissipation, did more good to the public.” …

As the founder of what he christened “The Futurite Cult” … [New York lawyer Jonathan Holden] concluded that the earth had achieved “a stage of civilization when vested property rights will be unmolested even in the case of conquest.” … Beginning in 1936, he sluiced $2.8 million into a series of five-hundred- and thousand-year trusts [to benefit] … the Unitarian Church, … the state of Pennsylvania … [and] Hartwick College. … The trustees overseeing these immense funds would be Holden’s own children, and perhaps in turn their own descendants. …

Ten years after Holdeen’s death, in a Pennsylvania courtroom in 1977, economist Jack Rothwell laid out the Armageddon that awaited the state. … The Holdeen Trusts, he argued, would grow until “They would absolutely own the world.” “Any time you wanted to make a telephone call or take a trip…You would be paying money to the Holdeens,” added economic forecaster Michael Evans. “Everyone in the world would work for the Holdeens.” …

Within his own lifetime, Holdeen’s plans nearly disappeared into a maze of lawsuits. … The trusts, the IRS argued, would in any case wreck “the tax base of the nation, if not the world.” … The funds … survived a number of early challenges. Their survival owed much to their being more high-minded than Thellusson’s scheme for enriching his family. Although nearly all states had perpetuity laws like Britain’s, there was more leeway given to charitable trusts like Holdeen’s. One hundred-year account, set up by suffragette Anna C. Mott, dumped $215,000 on Toledo in 2002—rather more than the thousand dollars she started with—and similar funds were created in the 1920s to relieve Britain from its national debt. In 1919, the Indiana legislature even passed a law to allow a charitable five-hundred-year [non-growing] trust by Charles Fairbanks, an Indiana senator who had also served as vice president under Teddy Roosevelt. …

Eventually the Holdeen trusts were allowed to stand, but they paid out yearly instead of accumulating and compounding. The matter was not truly settled until 2005, a full ninety-two years after Jonathan Holdeen first wrote his will. That was when Haldis Holden MacPherson, the sole surviving original trustee, died in Poughkeepsie. …

The past can dictate the terms of a will, but the future dictates who it actually cares to remember. And so it is that Jonathan Holdeen—the man whose trusts were once said to threaten the U.S. economy with annihilation—does not have so much as a picnic table named after him. (more)

Added 3p: Tyler argues that, unless catastrophic risks are large, investment returns may fall below growth rates. Yet historically, investment returns have consistently exceeded growth rates.

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  • J Storrs Hall

    Ah, the old “When the Sleeper Wakes” gag. I think of all Wells’ plot ideas this is the lamest. (I remember from the 50s also a copycat short short called “The John Jones Dollar.”)

    Economically this is asinine. Money invested over hundreds of years in a trust fund has no better chance of prospering than the economy as a whole, and lots of chances of coming a cropper. So for the bequest to remain the same percentage of the overall economy as was the original investment is a best-case outcome. Much more likely, as actually happened in most cases, is for people to find legal excuses to raid it.

    Let those setting up cryonics trust funds beware.

    • > Economically this is asinine. Money invested over hundreds of years in a trust fund has no better chance of prospering than the economy as a whole, and lots of chances of coming a cropper. So for the bequest to remain the same percentage of the overall economy as was the original investment is a best-case outcome.

      You know, your conclusion does not follow from the quite true observations.

      • Matthew

        In the current environment of negative real interest rates and the likely imminent unraveling of the global financial system, Mr. Hall’s observation is right to the point.

  • Josh, gwern, I’m arguing against those who fear it might work. Neither of you seem to fall into that category.

    • My point with Hall was that even if perpetuities only remain a constant part of the economy as he asserts, his conclusion that they are economically ‘asinine’ does not follow – obviously they represent increased investment and decreased present consumption, and so they deserve everything they earn. (I rather like the idea of perpetuities, if only for purposes like cryonics.)

    • Robert Easton

      I recognise that this post is about the legal barriers, but ignoring them I’d be interested why you think it will work, apart from the em scenario you have put forward before. I don’t remember what probability you assign to that scenario.

      Currently I do not know how to even earn 0% real interest on my savings or investments and I don’t know when that will change.

      • Matthew

        Exactly, negative real interest rates as far as the eye can see.

        I’d recommend gold, as the current financial system is clearly falling apart. . .

      • Robert Easton

        Because if the entire financial sector collapses, the one thing we’ll really want more of it gold… It’s going to be so useful in that post-apocalyptic society.

      • Matthew C.

        The collapse of the financial system does not mean “Mad Max”. We have many instances of fiat currencies blowing up throughout history, and they did not lead to cannibal gangs on motorcycles. Instead, in each and every case, hyperinflation has led to the use of alternative currencies, including gold.

        The fact that so many equate the collapse of a fiat ponzi scheme with the end of the world is a pretty fascinating insight into people’s belief systems, though.

  • Doug S.

    The world has already hit diminishing returns on savings. Interest rates on bank deposits have hit rock-bottom, and banks are having trouble finding worthwhile loans to make.

    • Daniel

      Do you mean that saving more will lower the marginal benefit, or the total benefit? The former is pretty much always true, and doesn’t mean a whole lot. The latter would be significant, and basically means that the prevailing interest rate has hit 0% (including cases where risk is involved). That is, loans will charge interest only to make up for the risk of not getting it back, banks will pay interest only to make up for the possibility of them going bankrupt, etc. I don’t know how to actually check the prevailing interest rate, but I very much doubt that it’s below 0%.

      • Matthew C.

        The interest rate, after inflation, is negative, not zero.

    • All this means is that people extracting rents have too much money and there are not enough rentees who want to, or can afford to, rent that money.

    • I’m talking about the long run, not the current unusual period, and I”m talking overall rates of return on investment, not just low-risk investment.

  • Mitchell Porter


    “This confirms that many are willing to donate to distant future folks, but are prevented by law, largely from fears that donor funds will eventually dominate the economy.”

    The idea of a world groaning under a legal/economic dictatorship of perpetual trusts is suited to science fiction. But in the real world, the destinies of hundreds of millions of people are currently being decided by the question of what to do about out-of-control debt – private debt, corporate debt, government debt – and it is a somewhat analogous situation. Compounding debt is the obverse of compounding interest. In both cases, the financial rules of the game say that the debt burden shall keep growing, or the interest shall keep accruing, regardless of the vitality of the actual economy.

    (I find very plausible the analysis, due to Steve Keen, that one reason the current global financial crisis arose, was because of a deficiency in standard macroeconomic thought, which did not view debt levels as something to worry about. Instead, the prevailing philosophy was that Homo economicus is rational and will not get into unsustainable levels of debt. So data about debt levels in society, rather than a macroeconomic indicator as important as inflation and growth, is just another homeostatic market variable that will correct itself.)

    The arguments by Jack Rothwell are not realistic, it’s more of a science-fiction scenario meant to make the very idea of a perpetual trust look unreasonable, allowing the current heirs to grab a slice of the inheritance. But it would be unreasonable only if everyone did it. That’s not going to happen, but “everyone” did get into debt, and that is providing a similar lesson in the unsustainability of exponentially compounding obligations.

    • Matthew

      Nice to see some people with a clue about economics commenting here on OB. Gives me hope that when this Fiat / Debt / Ponzi system collapses in a couple years we will have some smart folks around who haven’t mindlessly consumed the flavor-aid being dispensed by mainstream economics.

  • John Maxwell

    Seems like you could potentially do even better by working to reduce existential risks [1], thereby ensuring that there is a future to inherit gifts from the present.

    [1] http://www.nickbostrom.com/existential/risks.html

  • richard silliker

    LOL thank God for the lawyers.

  • readerrr

    I have just realized that reading Overcoming Bias is a bias – noone does it. 😉

  • y81

    “historically, investment returns have consistently exceeded growth rates.”

    That seems unlikely: my great-grandfather’s portfolio of farm mortgages, railroad bonds etc. hasn’t exactly outperformed the overall U.S. economy. Of course, if he had bought some of those “stock” things, he might have done better, but that would have demanded unusual prescience for a schoolteacher in the 1890s. It’s hard to find trustees who will outperform the overall investment market for a thousand years.

    • Are you remembering diversion of the return to consumption? In the long-run, we’re all dead – the point of investing is to consume at some point.

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  • Ed

    It seems compound interest can produce a great return throughout ones life. After one passes away, however, things change. What had been easily invested by one individual suddenly becomes something that needs to be professionally managed. Fees add up and the real return goes down. But worse, is that anxious would-be heirs often sue to break the trust. They succeed a lot of time, ending the perpetuity.

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