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Trust Issues

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His heirs did not take the news well: one took out a pistol and shot the old man’s portrait.

It was the opening salvo of an immense legal battle. The Thellusson will occupied courts for decades, involving the country’s top legal talent; law professor Patrick Polden of Brunel University, who authored a monograph on the case, has tallied over one hundred lawyers involved in the judgment. Politicians and gentry waded in out of concerns far beyond the heirs’ resentments. “There was a major political dimension too,” he explains. “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.”

If Peter Thellusson left any real legacy, it was in inspiring Charles Dickens to create the endless case of Jarndyce v. Jarndyce in his 1853 novel Bleak House:

This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means…Innumerable children have been born into the cause…Innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce, without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant, who was promised a new rocking horse when Jarndyce and Jarndyce should be settled, has grown up, possessed himself of a real horse, and trotted away into the other world.

The unimpeded growth of a huge sum of money, central to the Thellusson case, was even more fascinating to authors. The 1899 H. G. Wells novel When the Sleeper Wakes features a wealthy young man who sleeps for 203 years after an 1897 drug overdose, only to discover upon his revival that his unattended bank account has funded an entire totalitarian society. Like the bank account and the society it created, Wells later deemed the story “one of the most ambitious and least satisfactory of my books.” That didn’t keep the eccentric pulp writer Harry S. Keeler from going even further with the 1914 story “John Jones’ Dollar,” in which a solar system’s economy is built around a single silver dollar left to accumulate until the year 2921 to the astounding sum of $6.3 trillion—an amount deemed roughly equal to “the wealth on Neptune, Uran­us, Saturn, Jupiter, Mars, Venus, Mercury, and likewise Earth, together with an accurate calculation of the remaining heat in the sun and an appraisement of that heat at a very decent valuation per calorie.” Instead of bankrupting the solar system, though, it finances an interplanetary socialist paradise.

The story may be absurd, but it was just that kind of mathematical absurdity that had captured Franklin’s fancy in the first place. A few years before Franklin drafted his will, philosopher Richard Price rhapsodized in a sober treatise on the national debt, “One penny, put out at our Savior’s birth to 5 percent compound interest, would, in the present year 1781, have increased to a greater sum than would be contained in two hundred millions of earths, all solid gold. But, if put out to simple interest, it would, in the same time, have amounted to no more than seven shillings and sixpence.”

When the first century of Franklin’s rather more practical plan arrived in 1891, it bore $572,000 for Boston and Philadelphia. That was hardly one earth of solid gold, let alone 200 million of them, but Franklin had made his point—and in particular, he’d made it to a New York lawyer named Jonathan Holden.

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  • Heh. You've forgotten the, pun intended, other side of the coin which has *also* been commented on in science/speculative fiction stories.
    "My interest has matured, and I now have five million dollars!"
    "Just enough to by a small soda, huh?"

    Posted by ChrisForsyth on Fri 16 Sep 2011

  • I am a former student at Hartwick and I am pretty sure that the Resident Hall That is now called "Wilder" was up until around 2001 or 2002 called Holden Hall, I could be wrong but I am pretty sure I remember it being Holden when I came in and them Changing it my Junior or Senior year. http://www.hartwick.edu/admissions/virtual-tour/interactive-map

    Posted by Colin M Dougherty on Fri 16 Sep 2011

  • sorry, my mistake. old name for Wilder was "Alumni"

    Posted by Colin M Dougherty on Fri 16 Sep 2011

  • Another amusing example of compound interest in fiction occurs in Douglas Adams' Restaurant at the End of the Universe, the second book in the "Hitch-Hiker's Guide to the Galaxy" series. To pay for a dinner reservation at the end of all time and creation, "All you have to do is deposit one penny in a savings account in your own era, and when you arrive at the End of Time the operations of compound interest means that the fabulous cost of your meal has been paid for."

    Posted by Scott Fitzgerald Gray on Mon 19 Sep 2011

  • From this account, we can see the conceptual problem with trusts: they allow the dead to continue to live. And control wealth. That's stupid (and potentially mindbogglingly mischievous in effect). That was the criticism of trusts that led to there being perpetuities laws. All states (and, in fact, there should be a federal law) should have laws requiring that trusts terminate after a "reasonable" term, and I mean reasonable to mean short.

    Posted by Ted Fontenot on Mon 19 Sep 2011

  • Maybe the best example of a Jarndyce v. Jarndyce case occurred this year in Michigan, when a 19th century timber millionaire finally settled his estate ... 21 years after the death of his last grandchild. The key thing is, his trust actually did its job superbly in his absence, growing a $100 million legacy while generations of relatives fought to break the will.

    http://today.msnbc.msn.com/id/43098220/ns/today-today_people/t/after-years-millionaire-misers-heirs-finally-split-m/

    Posted by Dave on Mon 19 Sep 2011

  • The idea that you can create a perpetual trust and somehow it will accumulate enough money to take over the world shows a severe lack of economic literacy, both on the part of this article's author and also 19th century English lawmakers... to say nothing of the claims of the supposed economist Jack Rothwell (I've studied economics for 12 years and never heard of him, nor has Google) and "economic forecaster" Michael Evans (also never heard of him. You should treat his 1000 year "forecast" with about as much seriousness as a weather forecaster's prediction of partial cloudiness 1,000 years from today).

    Interest just doesn't magically accrue, it is a payment from someone for the use of capital. That capital will be in the economy, being lent and used to grow the economy. Over that long of a time span, any trust or fund would be hard pressed to grow at a rate faster than the real growth rate of the economy. Quadrillions of dollars, if they do manage to accumulate (I am dubious of everything in this article because of its conceptual misunderstanding of interest), will be a hefty sum, but inflation will make it seem much less daunting.

    Posted by Peter on Mon 19 Sep 2011

  • Dear Peter,

    Jack Rothwell was a VP and economist at the New England Merchants National Bank. Michael Evans was the president of the Chase Econometrics unit of Chase Manhattan Bank.

    I wish you all the best in your future Google searches.

    -- PC

    Posted by Paul Collins on Mon 19 Sep 2011

  • Peter's response is correct. The fear that this trust would take over the world is an extreme case of money illusion (http://en.wikipedia.org/wiki/Money_illusion) brought about by the very long time horizon.

    I bought some items off of McDonald's dollar menu today. If the inflation rate is 3% per year, do you know how much those dollar menu items will cost in 1,000 years? $6.9 trillion dollars each! That certainly is an enormous sum of money in today's dollars, but remember, all it gets you in 1,000 years is about 5 chicken nuggets.

    The economists who argued against the trust were either incompetent or were well paid by someone who wanted to bust the trusts.

    Posted by Matt on Mon 19 Sep 2011

  • This story and the saga of the Barnes foundation should remind anyone with delusions of perpetuity that if you leave a really worthwhile sum in trust, it will be taken, if not by your heirs, then by somebody.

    Posted by Walter Sobchak on Mon 19 Sep 2011

  • Eugene Sue's 1844 novel "The Wandering Jew" uses the same plot, with the Vatican plotting to get its hands on the trust.

    Posted by Bruno Cattivabrutto on Tue 20 Sep 2011

  • If the trust is with my bank, there'll be nothing there after the bank deducts its various fees, charges and miscellaneous items.

    Posted by LenL on Wed 21 Sep 2011

  • Obviously, as pointed out above, the calculations have not taken account of inflation. I would guess the reason being that inflation under the gold standard was pretty much nonexistent.

    Between the Great Re-coinage of Sir Isaac Newton in 1707, and the end of the gold standard in 1913, inflation of the pound sterling was around 30% spanning two hundred years.

    Posted by MadNumismatist on Thu 22 Sep 2011

  • Franklin's trust paid for an IMAX theater at the Franklin Institute as well as an 8 minute IMAX film that was quite lavish in deed. In 1989, I worked on that film, and I racal unloading the film stock off the truck and looking at the manifest and seeing that the film stock was $40,000. It was a great gig. There was no fussy client present (Ben having passed away 200 years earlier). It was the only job I ever worked on where we had Heineken as the lunch beverage.

    Posted by Bradley on Fri 23 Sep 2011

  • I'm not an economist, but as far as I know, you can't just set up a trust and demand that it earn a certain amount every year. If you could, we'd all take whatever cash we've got lying around and put it in trust at a million percent interest. To outpace inflation, the trust's investments (which, as noted above, would be circulating through the economy) would have to have a risk premium, i.e. they would sometimes lose as well as gain. So the trust's actual value would accumulate much more slowly than these straight-line compounding calculations suggest.

    And then, even if a quadrillion dollars suddenly emerged out of a bank vault someday (and even if by that time a quadrillion dollars hadn't been reduced by inflation to today's equivalent of a million dollars), it could not be spent without inflating the economy then. In other words, its very existence would drastically lower its value. I'm reminded of an idiotic thing some interviewee once said on Thom Hartmann's radio show. He said the solution to poverty was for everyone to do what he (the interviewee) had done: start a business and become a millionaire. It hadn't dawned on the guy that that solution is not scalable, because if everyone suddenly had a million dollars, prices would rise so that "a million dollars" wouldn't buy any more than a few thousand dollars does today.

    Posted by Jeff on Sat 24 Sep 2011

  • In the late 1920s there was an article in some women's magazine (I forget the name) which is now considered to be an indication of how idiotic the bubble had become. The title was "Everyone can become a "millionaire" and explained in all seriousness how if she saved a certain reasonable amount every week the magic of compound interest would make any woman super rich. The problem of course that the total wealth of the economy is equal to the total amount of production, and if being rich means being able to consume more than anyone else, than it is impossible for us all to be rich.

    This article exhibits the same kind of misunderstanding. To see why let us put in trust $1 dollar for every man women and child on earth (with 9 billion that is easy enough to do).. Since we may be well at our capacity population level, it isn't too crazy to assume for the sake of argument that our population stays sort of constant. Can it really be true that after X number of years every one of us will be fabulously wealthy and will, presumably, have no need to work? How, by the way, would we acquire our servants? There's no point in being fabulously wealthy if you don't have someone to prepare your food and clean your clothes, is there?

    Posted by TedSteipke on Mon 26 Sep 2011

  • My name is Lynn Holden MacPherson. Haldis Holden was my grandmother. The Holdeen trust fund allowed me to attend the College of William & Mary. You may have heard of it. Jonathon may have been a businessman, but he was also a family man. He established the trust fund in part so that no Holden descendent could ever be denied a good education. The "dream" is still very much alive; I graduated Phi Beta Kappa with a 3.97. I will be certain to share this article with my Holden cousins. Good day.

    Posted by Lynn MacPherson on Sat 18 May 2013

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Paul Collins teaches creative writing at Portland State University, appears on NPR as its “literary detective,” and is the author of The Murder of The Century, published in June by Crown Books. His last essay for Lapham’s Quarterly appeared in the Winter 2011 issue, Celebrity.

The day the world ends, no one will be there, just as no one was there when it began. This is a scandal. Such a scandal for the human race that it is indeed capable collectively, out of spite, of hastening the end of the world by all means just so it can enjoy the show.
Jean Baudrillard, 1987
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