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What “Miracle of Compound Interest”?
How Ben Franklin's best laid plans came a cropper

[A]mong artisans, good apprentices are most likely to make good citizens…. To this end, I devote two thousand pounds sterling, of which I give one thousand thereof to the inhabitants of the town of Boston, in Massachusetts, and the other thousand to the inhabitants of the city of Philadelphia….

If this plan is executed, and succeeds as projected without interruption for one hundred years, the sum will then be one hundred and thirty-one thousand pounds; of which I would have the managers of the donation to the town of Boston then lay out, at their discretion, one hundred thousand pounds in public works….

The remaining thirty-one thousand pounds I would have continued to be let out on interest, in the manner above directed, for another hundred years…. At the end of this second term, if no unfortunate accident has prevented the operation, the sum will be four millions and sixty one thousand pounds sterling….

Benjamin Franklin liked “artificers,” or tradesmen, believing as he did that they made good citizens (Franklin had gotten his own start as an apprentice printer). In his will (Franklin died in 1790 at the age of 84) he left 1,000 pounds each to the cities of Boston and Philadelphia, to be lent to “such young married artificers” as have “served an apprenticeship in the said town,” who were to repay the loans at 5 percent interest over ten years.

This self-taught scientist and inventor of bifocals also liked the idea of compound interest. Ever a fan of the mechanistic systems of the Enlightenment, Franklin got the idea for compounding his bequests from a correspondent, Frenchman Mathon de la Cour.

Franklin figured that within a century, his bequests would be worth 131,000 pounds, at which point the cities were to each spend 100,000 pounds on public works and reinvest the remainder. After another 100 years, each bequest should have totaled 4,061,000 pounds. Franklin decreed that 1,061,000 pounds was for “the disposition of the inhabitants of the town,” with the remaining 3,000,000 pounds to be given to the state government.

Franklin’s math was sound but his projections were optimistic, in part because of the demise of the system of apprentices and trades from which he had graduated.

By 1907, the Benjamin Franklin Fund in Philadelphia totaled $172,350, less than a fourth of what Franklin had projected. Of that sum, $133,076 was transferred to the Franklin Institute, a hands-on science education museum. By 1990, 200 years after Franklin’s death, the remainder of the Philadelphia fund was valued at just $2 million. Of this sum, Philadelphia initially decided to spend its share, $520,000, on tourist promotion. After some public outcry a panel recommended that the city expend the funds in a manner closer to Franklin’s heart—helping educate young people in trade and applied sciences. The remainder, approximately $1.5 million, went to the state kitty.

The fund in Boston, at the end of its first 100 years, amounted to $391,000 (Boston gave up on Franklin’s loan scheme and played the stock market). Some of this money went to fund public works, including the Franklin Union, a technical school. In 1990, the fund was valued at almost $5 million. As in Philadelphia, the disposition of the funds proved contentious. While the state’s highest court ruled that the money should be divided between the city and the state, the legislature overturned this ruling by passing a law to give the money to the Franklin Institute of Boston. The governor signed the law and the institute did indeed receive the funds. .