Ben Franklin, Compound Interest, and Evolution

IN A CODICIL to his will, which we copied from here: The Last Will and Testament of Benjamin Franklin, Benjamin Franklin made an unusual pair of bequests. This is lengthy, but interesting, so bear with us. We’ve added some bold for emphasis:

… I wish to be useful even after my death, if possible, in forming and advancing other young men, that may be serviceable to their country in both these towns. 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, in trust, to and for the uses, intents, and purposes herein after mentioned and declared.

The said sum of one thousand pounds sterling, if accepted by the inhabitants of the town of Boston, shall be managed under the direction of [various churches] who are to let out the sum upon interest, at five per cent, per annum, to such young married artificers, under the age of twenty-five years, as have served an apprenticeship in the said town … And in order to serve as many as possible in their turn, as well as to make the repayment of the principal borrowed more easy, each borrower shall be obliged to pay, with the yearly interest, one tenth part of the principal and interest, so paid in, shall be again let out to fresh borrowers.

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, as I hope it will have been found that the institution has had a good effect on the conduct of youth, and been of service to many worthy characters and useful citizens.

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, of which I leave one million sixty one thousand pounds to the disposition of the inhabitants of the town of Boston, and three millions to the disposition of the government of the state, not presuming to carry my views farther.

All the directions herein given, respecting the disposition and management of the donation to the inhabitants of Boston, I would have observed respecting that to the inhabitants of Philadelphia …

Franklin died in 1790. Each city received £1,000, then worth about $4,400. What happened to the money? According to the Wikipedia article on Benjamin Franklin:

As of 1990, more than $2,000,000 had accumulated in Franklin’s Philadelphia trust, which had loaned the money to local residents. From 1940 to 1990, the money was used mostly for mortgage loans. When the trust came due, Philadelphia decided to spend it on scholarships for local high school students. Franklin’s Boston trust fund accumulated almost $5,000,000 during that same time, and was used to establish a trade school that became the Franklin Institute of Boston.

Why such different amounts? The Wikipedia article on Franklin has a footnote which links to the text of a 1993 article from the Philadelphia Inquirer, DIVVYING UP BEN: LET’S TRY FOR 200 MORE, where we are informed:

“Boston has always prided itself that it compounded the money wisely. Philadelphia has always had an inferiority complex because it didn’t,” said Bruce Yenawine, a Syracuse University Ph.D. candidate in history who has spent years researching the Franklin funds in both cities. “But Boston decided to minimize risks and maximize proceeds. Philadelphia, on the other hand, focused on the other side of Franklin’s instructions by loaning the money to individuals. I think that’s more in keeping with what Franklin wanted.”

Even with sizable distributions after the first 100 years, as Franklin had directed, 200 years after Franklin’s death his bequest of $4.4K to Philadelphia had grown to over $2 million; and in Boston, an equal bequest had become $5 million.

What, you’re wondering, does this have to do with Charles Darwin’s theory of evolution? Okay, you’ve stayed with us this far, so here it comes.

We’ve been looking for a good analogy to deal with the creationist fallacy of artificially dividing evolution into what they call “micro evolution,” which is observable, and “macro-evolution,” which requires so much time that we only see its effects in the fossil record. As we said in one of our recent articles:

Ah yes, the old micro-macro dichotomy. What creationists are compelled to admit is the evidence of evolution which is clearly observable within human lifetimes, which they call “micro” evolution. This observable evidence includes the mechanisms of mutation and natural selection. Although they can’t argue against evolution’s occurrence to the extent that it’s visible, they convince themselves that this undeniably manifest process somehow didn’t occur with cumulative effect over vast spans of time …

But we weren’t satisfied with that. We wanted a good analogy we could use that would be easily understandable. And Ben Franklin has given us that analogy — compound interest. If you play with an online Compound Interest Calculator, you can easily see that $1 invested at 5% interest (the rate Franklin specified), compounding only once a year, grows to $131.50 in 100 years; and — using Franlkin’s time frame — it will become $17,292.58 in 200 years.

The financial world’s version of a creationist asks:

How is this possible? Five percent interest on a dollar is only five cents a year — one nickel — and after 100 years, that’s 100 nickels, which is $5. The original sum of $1, plus $5 interest over 100 years, is only $6. How does it grow to over $130? And in another 100 years, all you’d have is another $5. There’s no way the fund could be over $17,000!

As Sherlock Holmes would say: “It’s elementary, my dear creationist.” The financial neophyte is thinking only of simple interest (“micro-interest”). His figures would be correct if the annual interest were withdrawn, leaving the original $1 intact; but he’s not allowing for interest to be earned on the interest received in the past. With compound interest (“macro-interest”), the first year’s interest remains in the fund and is added to the principal. For the second year, therefore, the principal which is now earning interest is no longer $1.00; it’s $1.05. The principal will be more the next year, still more the year after that, etc. Thus, each succeeding year’s interest will be correspondingly greater than in past years.

As with compound interest, so too with evolution. Think of your DNA as a bank account you’ve inherited, and think of mutations as interest which has been regularly added to — not withdrawn from — that account each generation. Each generation’s DNA, including whatever mutations have been accumulated in that “account,” is the new “principal” for the next generation. You are the heir to a genetic fortune which has been accumulating for a long time.

Any part of the current generation’s DNA (not just some ancestral portion) can mutate (generate “interest”) when producing the next generation. As the principal in your DNA account grows, so does the opportunity for mutations — just as interest, once earned, becomes principal which then bears interest. Thus, even if there were original “kinds” — which creationists believe are forever fixed — they become increasingly obscure, not only because their genetic material may continually mutate through the generations, but because a hypothetical kind’s genetic proportion of the “original” DNA is gradually reduced as the “account” grows.

Over time, as with Ben Franklin’s bequests, the cumulative effect can be quite significant. Even the different results in the two cities Franklin endowed can be analogized to evolution, but this essay is already long enough.

So the next time a creationist says that he believes in micro-evolution, but not macro-evolution, you can tell him about Ben Franklin, and then ask: Do you believe only in simple interest, but not compound interest?

Copyright © 2008. The Sensuous Curmudgeon. All rights reserved.

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