Ben Franklin's Plans - Web Reading for Lab
This all actually happened!
financial mathematics with the
disciplines of history, economics,
political science, ethics and philosophy.
In addition, it gives you a chance to see how interest is actually earned
by a fund or a bank when they loan out money.
Ben Franklin's plans
In 1785 a French mathematician named Charles-Joseph Mathon de la Cour wrote a
mocking the spirit of American optimism represented by Franklin.
The Frenchman wrote a piece about Fortunate Richard leaving a small sum
of money in his will to be used only after it had collected interest
for 500 years.
Franklin, who was 79 years old at the time, wrote back to the Frenchman,
thanking him for a great idea and telling him that he had decided to leave a
bequest to his native Boston and his adopted Philadelphia of 1,000 pounds to
each on the condition that it be placed in a fund that would gather interest
over a period of 200 years.
"...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 both in Boston and Philadelphia.
To this end I devote Two thousand Pounds
Sterling, 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 and for the Uses, Interests and
Purposes herinafter mentioned and declared....."
Franklin's plan was to lend money to young apprentices.
The fund would charge a certain interest rate to the borrowers,
and would earn annual interest when
each borrower would pay back principal plus interest each year.
In addition, Franklin had plans for how the money would be used:
If this plan is executed and succeeds as projected without interruption for
one hundred Years,
the Sum will be one hundred and thirty-one thousand Pounds of which I would
the Managers of the Donation to the Inhabitants of 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....
of which I leave one million sixty-one thousand pounds to
the disposition of the inhabitants of the town...,
and three millions to the disposition of the government of the State,
not presuming to carry my views farther."
So Ben Franklin planned on
1000 pounds being invested for 100 years,
compounding yearly, and growing to
a balance of 131000 pounds after the first hundred years.
The borrowers are paying back money each year (so that the fund can earn interest), but the lump sum formula is still appropriate to use here
(Hint: think about how often Ben put money into the account and think about
how this relates
to the choice of the formula).
After the first hundred years,
Franklin planned that reinvesting 31,000 pounds
of the 131,000
pounds (the remaining 100,000 pounds would go to each town for "public works")
for the second
hundred years would result in 4,061,000 pounds.
Philadelphia and Boston During the Early Times
Information courtesy of ushistory.org
NOTE BY THE EDITOR.
The experiment of nearly half a century has not produced all the beneficial results, which were anticipated by Dr. Franklin, from his bequest to Boston and Philadelphia. The following is an extract from a printed Report of the Committee of Legacies and Trusts, made in the Common Council of Philadelphia April 27th, 1837, by Mr. John Thomason, chairman of the Committee.
"From official returns," says the Report, "it appears, that up to the 1st of January, 1837, the fund has been borrowed by one hundred and ninety-three individuals, in sums mostly of $ 260 each. At that date, the fund was in the hands of one hundred and twelve beneficiaries, of whom nineteen have paid neither principal nor interest, although the accounts of some of them have been open for a period of thirty-four years. Ninety other persons stand indebted in sums from $ 21 to $ 292; and three, having borrowed within the year, were not, at the last-mentioned date, liable to any demand by the trustees. Of these one hundred and nine cases of non-compliance with the terms of the will, fifty-eight bonds may be subject to a plea of the statute of limitation, and the rest are still valid. In this condition of the fund, it becomes difficult to estimate its present value. Should all the debts be recovered, the amount of the fund would be $ 23,627.09; but, from the length of time elapsed since the date of many of those bonds, such a result is hopeless; and even this latter sum, large as it is, is below the amount it would have attained at this time had the intentions of the testator been fully carried out. The original bequest of $4,444.44, at compound interest for forty-five years, would be $ 39,833.29 ; and, although the immediate conversion of interest into principal, as the former becomes due, is not always practicable, yet it is believed, that, with careful management, the fund would, at this time, have lacked but little of that amount. How far the fund falls short, may be partly judged from the actual receipts on account of this legacy for the last ten years. During that time the sum of $ 16,191.92 has been paid in. As this period included the term for lending out, and receiving back with interest, the whole fund, the receipts within that term may be taken as a safe approximation to its real value; to which must be added the sum to be obtained through the enforcing of payment, by legal process, from such securities as may be good at this late day. Had the fund been placed at simple interest, it would have amounted to the last-mentioned sum by this time.
"Had the requirements of the will been, in former years, fully complied with, the operation of the fund, at this day, would be sensibly felt by the mechanics of Philadelphia. Passing from one borrower to another, and increasing in a compound ratio, its effect would be to stimulate useful industry, which, without such capital, would have remained unproductive. It would have increased the number of those who do business on their own stock. It would be a standing lesson on the immutable connexion between capital and productive industry, thus constantly inciting to economy and prudence. It would have become the reward of every faithful apprentice, who could look forward to a participation in its benefit. It is deeply to be regretted, that this state of things, which had so captivated the imagination of Franklin that he devoted a portion of his hard-earned wealth to realize it for the mechanics of Philadelphia, should, in the emphatic language of his will, prove 'a vain fancy. ' "
By this statement it would seem, that there had been at some time a remarkable want of fidelity in administering the trust, especially in allowing so large a number of bonds to become worthless by the statute of limitation, and neglecting to make seasonable- demands upon the sureties.
Appended to the same report is a letter from Mr. William Minot, treasurer of the Franklin Fund in Boston, dated December 23d, 1836, which contains the following state, of the fund in that city.
"The whole number of loans from this Fund," Mr. Minot says, " from May, 1791, to the present time, has been 255, in sums varying from 70 to $ 266 up to the year 1800, since which time they have usually been 200.
"From July, 1811, to the present time, the number of loans has been 91, of which 50, at least have been repaid (in whole or in part) by sureties, and on four of these are balances which cannot be collected, both principals and sureties being insolvent.
"Dr. Franklin's donation was Pound 1,000 sterling. The present value of the Fund, is as follows;
|"Estimate of 13 bonds, considered good,
|"Amount deposited, on interest, in the office of the Massachusetts Hospital Life Insurance Company,
|Cash in the hands of the Treasurer
"It is apparent, from these facts, that the benevolent intentions of the donor have not been realized, and that, in the present condition of our country, it is not advantageous to married mechanics, under the age of twenty four years, to borrow money to be repaid in easy instalments, at a low rate of interest; and the improvidence of early marriages, among that class of men, may fairly be inferred.
"The great number of instances, in which sureties have been obliged to pay the loans, has rendered it not so easy, as formerly, for applicants to obtain the required security. This is proved by the small number of loans from the fund, averaging for the last five years, not more than one a year.
"Until within the last twenty years, no great care was taken in accumulating the fund. It is now carefully attended to; and money not required for actual use is placed in the Life Insurance Company, where it increases at the rate of about five an d one third per cent a year.
"The loans are made at the rate of five per cent, but, on instalments past due, six per cent is charged, from the time they were payable, and the bonds of delinquents are put in suit after reasonable notice. Two sureties, at least, are required on each bond."
According to the treasurer's return on the lot of January, 1840, the amount of the fund in Boston was at that time as follows.
|Deposited in the Life Insurance office,
|Bonds for Loans
Copyright 1999 by the Independence Hall Association, electronically publishing as ushistory.org.
Excerpts from Benjamin Franklin's Will and Codicil
I was born in Boston, New England, and owe my first instructions in literature to the free grammar-schools established there. I therefore give one hundred pounds sterling to my executors, to be by them, the survivors or survivor of them, paid over to the managers or directors of the free schools in my native town of Boston, to be by them, or those person or persons, who shall have the superintendence and management of the said schools, put out to interest, and so continued at interest for ever, which interest annually shall be laid out in silver medals, and given as honorary rewards annually by the directors of the said free schools, for the encouragement of scholarship in the said schools belonging to the said town, in such manner as to the discretion of the selectmen of the said. town shall seem meet.
I, BENJAMIN FRANKLIN, in the foregoing or annexed last will and testament named, having further considered the same, do think proper to make and publish the following codicil or addition thereto.
It having long been a fixed political opinion of mine, that, in a democratical state, there ought to be no offices of profit for the reasons I had given in an article of my drawing in our Constitution, it was my intention, when I accepted the office of President, to devote the appointed salary to some public, uses. Accordingly, I had already, before I made my will in July last, given large sums of it to colleges, schools, building of churches, &c,.; and in that will I bequeathed two thousand pounds more to the State for the purpose of making the Schuylkill navigable. But, understanding since, that such a sum will do but little towards accomplishing such a work, and that the project is not likely to be undertaken for many years to some, and having entertained another idea, that I hope may be more extensively useful, I do hereby revoke and annul that bequest, and direct that the certificates I have for what remains due to me of that salary be sold, towards raising the sum of two thousand pounds sterling, to be disposed of as I am now about to order.
It has been an opinion, that he who receives an estate from his ancestors is under some kind of obligation to transmit the same to their posterity. This obligation does not lie on me, who never inherited a shilling from any ancestor or relation. I shall, however, if it is not diminished by some accident before my death, leave a considerable estate among my descendants and relations. The above observation is made merely as some apology to my family for my making bequests, that do not appear to have any immediate relation to their advantage.
I was born in Boston, New England, and owe my first instructions in literature to the free grammar schools established there. I have, therefore, already considered those schools in my will. But I am also under obligations to the State of Massachusetts for having, unasked, appointed me formerly their agent in England, with a handsome salary, which continued some years; and, although I accidentally lost in their service, by transmitting Governor Hutchinson's letters, much more than the amount of what they gave me, I do not think that ought in the least to diminish my gratitude.
I have considered, that, among artisans, good apprentices are most likely to make good citizens, and, having myself been bred to a manual art, printing, in my native town, and afterwards assisted to set up my business in Philadelphia by kind loans of money from two friends there, which was the foundation of my fortune, and of all the utility in life that may be ascribed to me, 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 those 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 hereinafter 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 the selectmen, united with the ministers of the oldest Episcopalian, Congregational, and Presbyterian churches in that town, who are to let out the same upon interest, at five per cent per annum, to such young married artificers, under the ace of twenty-five year, as have served an apprenticeship in the said town, and faithfully fulfilled the duties required in their indentures, so as to obtain a good moral character from at least two respectable citizens, who are willing to become their sureties, in a bond with the applicants, for the repayment of the moneys so lent, with interest, according to the terms hereinafter prescribed; all which bonds are to be taken for Spanish milled dollars, or the value thereof in current gold coin; and the managers shall keep a bound book or books, wherein shall be entered the names of those who shall apply for and receive the benefits of this institution, and of their sureties, together with the sums lent, the dates, and other necessary and proper records respecting the business and concerns of this institution. And, as these loans are intended to assist young married artificers in setting up their business, they are to be proportioned, by the discretion of the managers, so as not to exceed sixty pounds sterling to one person, nor to be less than fifteen pounds; arid, if the number of appliers so entitled should he so large as that the sum will not suffice to afford to each as much as might otherwise not be improper, the proportion to each shall be diminished so as to afford to every one some assistance. These aids may, therefore, be small at first, but, as the capital increases by the accumulated interest, they will be more ample. 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, which sums of principal and interest, so paid in, shall be again let out to fresh borrowers.
And, as it is presumed that there will always be found in Boston virtuous and benevolent citizens, willing to bestow a part of their time in doing good to the rising generation, by superintending and managing this institution. gratis, it is hoped, that no part of the money will at any time be dead, or be diverted to other purposes, but be continually augmenting by the interest; in which case there may, in time, be more than the occasions in Boston shall require, and then some may be spared to the neighbouring or other towns in the said State of Massachusetts, who may desire to have it; such towns engaging to pay punctually the interest and the portions of the principal, annually, to the inhabitants of the town of Boston.
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, which may be judged of most general utility to the inhabitants; such as fortifications, bridges, aqueducts public buildings, baths, pavements, or whatever may make living in the town more convenient to its people, and render it more agreeable to strangers resorting thither for health or a temporary residence. 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, only, as Philadelphia is incorporated, I request the corporation of that city to undertake the management agreeably to the said directions; and I do hereby vest them with full and ample powers for that purpose. And, having considered that the covering a ground plat with buildings and pavements, which carry off most of the rain, and prevent its soaking into the earth and renewing and purifying the springs, whence the water of the wells must gradually grow worse, and in time be unfit for use, as I find has happened in all old cities, I recommend, that at the end of the first hundred years, if not done before, the corporation of the city employ a part of the hundred thousand pounds in bringing, by pipes, the water of Wissahickon Creek into the town, so as to supply the inhabitants, which I apprehend may be done without great difficulty, the level of that Creek being much above that of the city, and may be made higher by a dam. I also recommend making the Schuylkill completely navigable. At the end of the second hundred years, I would have the disposition of the four million and sixty one thousand pounds divided between the inhabitants of the city of Philadelphia and the government of Pennsylvania, in the same manner as herein directed with respect to that of the inhabitants of Boston and the government of Massachusetts.
It is my desire, that this institution should take place and begin to operate within one year after my decease; for which purpose, due notice should be publicly given previous to the expiration of that year, that, those for whose benefit this establishment is intended may make their respective applications. And I hereby direct, my executors, the survivors or survivor of them, within six months after my decease, to pay over the said sum of two thousand pounds sterling to such persons as shall be duly appointed by the selectmen of Boston, and the corporation of Philadelphia, to receive and take charge of their respective sums, of one thousand pounds each, for the purposes aforesaid.
Considering the accidents to which all human affairs and projects are subject in such a length of time, I have, perhaps, too much flattered myself with a vain fancy, that these dispositions, if carried into execution, will be continued without interruption and have the effects proposed. I hope, however, that if the inhabitants of the two cities should not think fit to undertake the execution, they will, at least, accept the offer of these donations as a mark of my good will, a token of my gratitude, and a testimony of my earnest desire to be useful to them after my departure. I wish, indeed, that they may both undertake to endeavour the execution of the project, because I think, that, though unforeseen difficulties may arise, expedients will be found to remove them, and the scheme be found practicable. If one of them accepts the money, with the conditions, and the other refuses, my will then is, that both sums be given to the inhabitants of the city accepting the whole, to be applied to the same purposes, and under the same regulations directed for the separate parts; and, if both refuse, the money of course remains in the mass of my estate, and is to be disposed of therewith according to my will made the seventeenth day of July, 1788.
I wish to be buried by the side of my wife, if it may be, and that a marble stone, to be made by Chambers, six feet long, four feet wide, plain, with only a small moulding round the upper edge, and this inscription,
to be placed over us both.
And lastly, it is my desire, that this my present codicil be annexed to, and considered as part of, my last will and testament to all intents and purposes.
In witness whereof, I have hereunto set my hand and sea this twenty-third day of June, anno Domini one thousand seven hundred and eighty-nine.
Signed, sealed, published, and declared by the abovenamed Benjamin Franklin to be a Codicil to his last will and testament, in the presence of us.
In real life, at the end of the second hundred years, Boston and Philly
had to decide what to do with their respective earnings.
Given Ben Franklin's goals and wishes,
what would you do with these funds for the cities of Philadelphia and Boston?
Think about this in preparation for lab. (In lab you will
relate your answer to his goals and wishes and explore what really happened
to his money.)