Immortals and Compound Interest

A number of people have asked, both in comments and in emails, why compound interest isn’t the solution to all of our immortals’ money problems. It’s not a bad question, and it’s shown up in a number of places.

It turns out that this isn’t nearly as workable a solution in practice as it is on paper. There are two main reasons for this. The first is historical, and the second economic, but together they conspire to make living off your interest a little harder than it sounds.

I. The History of Banking

Deposit a thousand dollars in a bank today, make 3% a year, and in a hundred years you’ll have $19,218.63. Not bad, eh? That’s the theory, anyway. But there are a couple of historical problems with this. The first is that the oldest currently-operating bank is Monte_dei_Paschi_di_Siena, founded in Siena, Italy, in 1472. Which is a long time ago, to be sure, but for someone like Apocalypse or Mr. Immortal, that’s not actually a very long time. There is one other bank that’s been around for that long–also Italian–but the modern banking system really only seems to have gotten started in the seventeenth century.

The other main historical problem is long-term stability. The financial industry is remarkably stable over a period of a few years, and the past few decades–2008 notwithstanding–have shown that they can be pretty stable over the intermediate term, but over the really long term? Much, much rarer. There were periods further back in history that did have something like a financial sector to the economy–Roman banks seem to have been pretty sophisticated in historical terms–but they have all, for one reason or another, collapsed. Since deposit insurance is a creature of the twentieth century, this means that if you were an immortal who lived through the end of a major civilization or even a decent financial panic, there was a good shot that you’d lose everything. So if you were depending on your deposits to keep you going, well, that’s maybe okay for a few decades, but not on the century timescale, let alone millennia.

To make matters even worse, for a huge chunk of history, the charging of interest was considered ethically problematic. The prohibition against usury still applies in the Muslim world, which is why Islamic banking looks so deeply strange to Western audiences. Western banks used a rather complicated legal arrangement to get around usury prohibitions in the Middle Ages, but the plain fact is that interest-bearing savings accounts the way we think of them really didn’t exist until the twentieth century. You could certainly invest your money, but now we’re talking about something different from simple compound interest.

II. Inflation

But even if there was an unbroken continuity of depository institutions that has existed or is likely to exist for more than a few centuries, there’s another problem: inflation.

To make a reference outside our normal genre, consider Mr. Darcy of Jane Austen’s Pride and Prejudice, who is said to have had an income, i.e. money he didn’t have to work for, of £10,000 annually. Which even in current terms is pretty cool, but most Brits with a job make way more than that. But when the book was published in 1813, that represented a sum closer to £6.5 million in today’s currency. Which is substantially cooler. But it also goes to illustrate just how badly individual units of currency have deflated over the years. One observer suggests that the effective inflation rate from 1913 to today is about 3.5% a year, something in the neighborhood of 1929% over the whole time period. So someone trying to live purely of interest is going to have one hell of a time keeping up with that. They’d need to make 3.5% just to break even, so they’d need to make about 7% total just to have something to live on.

If you can find a relatively safe investment (i.e. a place you can put money that will give a return without you needing to work at it, that makes 7% a year), consistently, for more than a few years in a row, please, please tell us what it is. Our portfolios, such as they are, are looking pretty sorry these days. The only way to make more than that is to either 1) own stuff yourself, be it land, a factory, IP, whatever, or 2) get a day job. Rich people choose the former; most people choose the latter. But the idea that you can just have a bunch of money, let it essentially sit, and expect to make a decent living for any serious period of time is problematic. Throughout history, the people in the world that have gotten rich have done so not on the basis of interest. Inflation, combined with long-term instability, makes that kind of thing truly implausible.

Don’t believe us? Think about the ancient royal houses of Europe. If compound interest works the way it’s supposed to under the myth, they should be the richest people in the world. And make no mistake: the royal houses that have managed to survive are pretty well off. But they’re far from being the richest people in the world, and a lot of their current wealth comes from marrying people who got wealthy in other ways, e.g. oil barons, shipping magnates, etc. One might realistically ask if they’d be wealthy at all if they’d had to rely solely upon their own fortunes. Others are officially supported by national governments, which is an awesome gig if you can get it, but does tend to preclude the kind of hiding-in-the-shadows, living-a-life-without-obligations thing that Duncan MacLeod and most other immortal characters tend towards.

One might be tempted to say “ah, but what about the stock market?” Unfortunately, it presents many of the same problems: stock markets haven’t been around much longer than banks (the NYSE only goes back to 1817), they suffer the same long-term instability problems, and positive returns on one’s investment are impossible to guarantee. Inflation applies to securities exchanges too. Adjusted for inflation, the DJIA would currently be trading around 900, and in the early 1980s would have actually been at a level deep into the plunge of the 1930s! What’s more, stock markets and their participants tend to be even more heavily scrutinized than banks these days–complying with SEC regulations is a significant burden on publicly traded corporations and their directors–so in some ways they’re an even worse choice for an immortal trying to lay low. You can open a bank account without attracting any regulatory scrutiny, but securities trading is a lot harder to disguise for very long. No, buying stock on public exchanges is no substitute for private ownership, nor is it a plausible way of putting compound interest or something like it to work.

III. Conclusion

So how are we to advise immortals on how to set themselves up so that they don’t have to work any more? A number of possibilities present themselves, the most obvious of which is to start buying real estate, don’t stop, and periodically fake your own death, reappearing as your own adopted child, so you can “inherit” it. This has its problems, but it’s not impossible, particularly if you aren’t terribly scrupulous about trying to stay within the bounds of the law. But simple deposits probably won’t cut it.

37 responses to “Immortals and Compound Interest

  1. Don’t forget Antiques. In the Higlander continuity, the majority of the immortals’ wealth was a product selling antiques and real estate.

    • True, but for a lot of them that started to look more like a traditional job than a source of passive income. They could make money buying and selling antiques, not necessarily because they owned a lot of them, but because they could almost instantly tell genuine antiques from both fakes and stuff that simply wasn’t as old as it looked.

      That’s a fantastic way for an immortal to make money, but again, compound interest it isn’t.

  2. Seems the easier solution would be to just found your own bank. Just make sure it’s too big to fail.

    • But a bank has to invest its money somewhere in order to generate returns, and that basically comes back ’round to square one (i.e. long-term instability, inconsistent returns). And if you’re actively running a bank then you really start to run into the problem of people noticing your immortality.

      Another problem not explicitly mentioned in the post is long-term political instability. In addition to financial instability, you might find your bank nationalized, seized, or destroyed by war. “There are [in 1994] just eight states on earth which have existed since 1914 and not had their form of government changed by violence since then. These are the United Kingdom, four present or former members of the Commonwealth, the United States, Sweden, and Switzerland.” –Daniel Patrick Moynihan in Pandaemonium. Of those you can only go back a few hundred years before they, too, had a violent change in government (e.g. the US revolution, the 1798 conquest of Switzerland by France, the English Civil War).

      So the immortal (whether banker or investor) must be not only financially savvy but politically savvy as well. Diversification can help somewhat, but it’s mostly a hedge against risk (i.e. a way to prevent loss) not necessarily a strategy for consistent and substantial gains.

      • Canada would, I think, be one of those four Commonwealth nations cited. Willing to bet two of the others would be Australia and New Zealand…?

      • Well, the meaning of ‘independence’ is a bit slippery in the Empire/Commonwealth system… Arguably, in 1914 Canada was an independent state, but it’s much less clear that the same could be said of Australia and New Zealand.

    • Besides political instability, there’s always the risk of hyperinflation – which is especially bad these latter few centuries. (Debasing the coinage is a lot easier to deal with – your good specie can always be melted down into bullion and minted into a more trustworthy currency.)

      Pity any immortal in Germany or Japan or China who held significant currency during the 20th century!

      • Or a Zimbabwean immortal!

      • kingmonkey, hopefully any Zimbabwean immortal has learned from the incredible instability of Africa over the last century or two and kept as little of his assets as possible in Zimbabwean currency.

        I pointed to China & Japan & Germany because their individual regimes & currencies had lasted, with relatively little inflation, for quite while (centuries for the Qing or Tokugawa/Meji) before suddenly blowing up with WWII or earlier problems.

  3. I don’t know if the ancient royal houses of Europe are a good example of the problems of the compound interest strategy. They never had much of their wealth in bank deposits. Most of it was traditionally tied up in land, particularly farmland. This became proportionately less valuable with the industrial revolution and the availability of cheap food imports from outside of Europe.

  4. Gold and Silver

    1 Aureus ~ 1/4 an ounce of gold
    1 Million Aureus ~ 8 Tonnes of gold (which fits in a small room BTW) ~ 250K ounces ~ 340 Million USD at todays prices.

    • It’s important to be aware of hindsight bias here. The current high prices of precious metals make them seem like a good investment, but an immortal getting started hundreds or thousands of years ago may not have had the foresight to start hoarding gold or silver (platinum hasn’t been available in significant quantities for long enough to be of interest). Further, the prices of gold and silver have fluctuated significantly over the years, and it would have been awfully tempting to get out of those markets at various points in the past.

      Another problem: 8 tons of gold may fit in a room, but it’s still weighs 8 tons, so it’s not particularly portable. Given the aforementioned problems with long-term political stability, portable wealth is important.

      And of course, what happens when a superpowered being with the power of alchemy or transmutation comes along and wrecks the market?

      • First of all precious metals were *the* money 2000 years ago. Paper money was invented in the 17th century. And indeed the first paper money was simply and IOU for precious metals. There was simply no other way of accumulating wealth other than precious metals, real estate, businesses and possibly art, antiquities, etc. (This goes for your first argument)

        Second, even considering exiting at a lower price it would make sense to hold precious metals. For example inflation since the beginning of the 20th century has reduced the price of the dollar to around 2%. Selling 1 ounce at 35$ in 1909 would be equivalent to 800$ today:
        (for the second argument)

        And about the third argument, gold is certainly more portable than real estate or pretty much anything else except for bits. As a matter of fact 1 ounce of gold certainly takes less space than 1400 $ in 20s.

        I am afraid thought that I can’t argue against the transmutation argument. If someone was truly able to create as much gold as necessary and did so indiscriminately that would certainly drive the price of gold down to the point of making it worthless (now back to the Federal Reserve…).

      • Aluminum was a precious metal a not long ago, and now is virtually worthless. Silver used to be worth a 1/6 the value of gold and is now significantly cheaper. Diamonds are now manufactured.

      • 1. There’s a difference between using precious metals as currency and hoarding literally tons of them. For one thing, think about all the treasure hunters and even wars that have been prompted by the thoughts of large quantities of gold. Long-term security is going to be a big problem. Any cash-strapped government that caught wind of the immortal’s hoard would have no compunctions about seizing it.

        2. Gold has been a hedge against inflation in the past couple of hundred years, but not historically. The discovery of massive amounts of precious metals in the Americas led to significant inflation in Spain. Anyway, we’re talking about ways for an immortal to amass wealth without working (much) for it. Precious metals are a decent long-term store of value, but they are not a good long-term investment, historically-speaking.

      • Other sources conflict with the three cubic acres figure (which I take to mean 3 cubes, each an acre on a side). This image suggests a depth of 90 ft, and pictures of the outside of the vault suggest it is roughly 3 times as tall as it is wide. That gives 81,000 cubic feet. I’ll spare you the math, but coins can be packed at about 90% efficiency. Going from that volume to the density of gold and the current price gives a rough value of $1.9 trillion. A truly stupendous sum, though it would’ve been worth only about a third to a quarter of that a few years ago, which makes it a believable amount of money compared to other wealthy figures from history (at its height John D. Rockefeller’s fortune was worth about $663 billion in today’s money).

        If it were actually 3 cubes, each an acre on a side, then it would be several orders of magnitude greater than that. It would also be far more gold than has ever been mined in the real world.

        Of course, this is all assuming the vault is primarily filled with gold. If there’s a lot of silver or precious gems in there then the calculations change a lot.

  5. The biggest problem is that the world keeps on changing. If, say, the world was perpetually locked in the high middle ages, being a minor noble or running a monastery would be safe long term bets. A secretary can do all the administration, and it’d be easy enough to fake a new identity every 50 years. However, the middle ages ended.

    Immortals would need to keep changing their strategy to match the changing world, which requires a considerable genius or actual precognition. It’s one thing to pick out a safe investment strategy for 1800-2000 with the benefit of hindsight, but quite another to do so in 1800, with no warning of what is to come.

    An immortal wouldn’t need to work constantly though. Spend 30-40 years working and accumulating investments, live off them for another 30-40, then fake their death and repeat the cycle. They wouldn’t be able to be too reclusive during the retirement phase though, or they’d lose touch with the state of the world – an immortal has spent the last 30 years in seclusion won’t be able to get many jobs now with their 1980 skills – which in turn makes hiding their immortality harder.

  6. Really, the best way for an immortal to make any serious money is to go public as being an ageless, deathless being and create your own religion. That’s bound to be good for some serious long-term income.

  7. To all the people saying that gold is the solution: not really.

    Gold and other precious metals may work reasonably well as a store of value–though the Ottoman Empire declined in no small part due to inflation in silver pricing–but gold, as such, does not earn interest, because it’s a commodity, not money. Only money earns interest. And once one starts using gold as money instead of a commodity, i.e. do anything with it other than bury it in the back yard, one becomes vulnerable to precisely the problems discussed in the post and Mr. Daily’s subsequent comment on long-term political instability. What’s even worse than a bank failure? Having the currency in which your fortune is denominated cease to exist.

    What the gold-partisan commenters are basically describing is long-term commodity speculation. That can be a decent way to make a living, but it isn’t compound interest, it’s buying low and selling high, i.e. a real job.

  8. I’d think that, for those with the talent, being an artist would be the best bet. Historically, you get a “patron” who covers costs, who could very well be someone as deep-pocketed as the government or church. Today, you have Intellectual Property rights that let you license and sue forever.

    All you need is insight into what the public likes, which if you have centuries of trial and error, starts to look like good odds.

    Plus, music and literature are as portable as anything. So portable, in fact, that you could probably gain patronage from a few scattered minor noblemen for the same story, either across decades or through agents.

    • Not really. The arts are some of the most competitive and desperate fields to be in.
      To start you have to have some talent which is by no means guaranteed. Seriously, try taking classes in painting, singing, or acting. I can say from experience that they’re incredibly difficult. People can study for decades and devote themselves to an art and still be terrible at it. Even in today’s American music and movie industries where looks are heavily weighed if you don’t have talent then you’ll only last a decade at the absolute best.

      Following that is the issue of patrons. My knowledge of art history isn’t that great but I do know that systems of how art was supported have changed quite a bit. Just look at the differences between French art schools in the late 19th century and compare them to today. Things are rather different in terms of galleries, sales and standards. Then consider that even today art can still face a great deal of censorship based on religious, national and political policies and actually selling anything could be a problem.

      Intellectual property as we understand it is actually fairly new for music. Several famous jazz artists at the start of the 20th century died without a penny to their name. As for anything created before the 20th century, forget it. That definitely will be in public domain. How long something remains out of public domain I don’t know but often it’s decades after the death of the artist. That might sound like a lot but for an immortal it’s a short time, and if immortals were known to exist it’s entirely possible intellectual property laws would be altered to only apply for a certain amount of time. Even there, that’s assuming that the public still likes your stuff a decade later. Not everyone is a Beatle or Picasso after all.

      Then there’s decay. Say you make a painting or hymn in the 14th century. How well will it survive the next five hundred years? If you’re unlucky it might be in pieces before ten years have passed.

      While I don’t believe the doomsday scenarios given about illegal downloading I have no doubt that it takes a significant portion of money away from companies and artists. An artist with only a cult following might make no money at all.

      Finally there’s the question of how you’re going to get the money. Claiming to be your own descendant might mean you’ll run into a lot of people who knew you and thought you were dead.

      • I agree with your points, Grant, but interpret many of them differently. Volatility, censorship, and so forth means that you can sell successful works many times over. That forgotten hymn can find another patron. Better, someone else’s forgotten hymn can find another patron in your name. It doesn’t need to be new, just new to the client to whom you’ll be dedicating it.

        The recency of Intellectual Property as a concept even means that you’re not breaking laws. And it’s probably not even very high risk: Consider that people pore over Shakespeare’s works and its sources and such, but nobody even pretends to believe that Shakespeare might have been Jorge de Montemayor or any of the other writers whose ideas (and text) he borrowed.

        It’s true that you need the talent (even if you’re plagiarizing) and a way of disguising your identity (or move frequently), but enough immortal characters talk about how they’ve been “the man behind the man” that neither seems like a huge stretch.

        And hey, once upon a time, you weren’t considered educated unless you could paint, sing multi-part harmonies, and write poetry in multiple languages. So we may well be underestimating our immortal friend.

      • > An artist with only a cult following might make no money at all.

        The case has been made that artists with cult followings are the best off, proportionately speaking, in the downloading doomsday:

        And many small musicians reportedly live off t-shirt and other such merchandise sales (like webcomic artists do), and for that you need cults that will attend in person.

  9. As a side note to the gold discussion that may be relelvant to immortals — one author, Jeremy Siegel, notes that if you had the choice in 1802 between buying gold and keeping your cash in paper currency, the better long-term solution was actually to hold on to the paper. Today, the “collectible” currency is actually worth more than the gold it would have bought.

  10. One way this might work is by directly lending to people. If you say, “pay me back in fifty years,” or “put me in your will”, you might be able to convince people to 7% interest, because people think short term

  11. What about permanent life insurance policies? Of course, the immortal would have to lie about his/her ability to die (which probably void the contract), but most whole-life policies are required by law to provide some form of cash value increase annually, and most life insurance policies pay out the cash value and death benefit if the insured reaches a certain age (between 100 and 120 years old).

    Just like the banking system, however, life insurance is a relatively young notion and applying for/collecting on the policies would require more than a few slights of hand.

  12. But how would you go about putting yourself in your own will and then faking your own death without people getting suspicious? You tell people that you have a long lost son in Switzerland that nobody knows about and when you die you go to Switzerland and try to act surprised when lawyers tell you you’ve inherited all this money? But then you would have had to have set up this second identity in advance which seems a bit problematic. Maybe it would be better to simply sell your property and move on to somewhere else and buy new property from the proceeds.

  13. Great post! I actually recalled this situation first from Futurama. I’ve actually never considered inflation in the “interest scheme”.

  14. Matthew Borcherding

    From all this, its doesn’t look like (near?) immortals are going to do consistently well as just plain investors.

    Sure, invest in stocks, commodities, real property, bank accounts, etc. and try to profit. But you’re better off using your real advantages over us “foolish mortals.”

    As noted above, you make a great antiques dealer — you’ve been there. You have hundreds (thousands?) of years of experience. (You’d might also be really good at restoring antiques, faking antiques, etc. You may have actually been the original artist in one of you myriad identities…)

    Same with teacher, professor, especially of anything old to really old. (Vandal Savage would make a great paleo-anthropologist, if he ever decided to give up on the whole general conquest thing. And let’s get Apocalypse, Black Adam, or Rama-tut as Professor of Egyptology.)

    But probably your best job — and one most of the immortal types in fiction seem to do on and off — is be a mercenary. If you you are (near?) impossible to kill, have hundreds to thousands of years of experience, probably have super-human endurance, don’t suffer from disease, etc. — you make one amazing soldier, warrior, and/or assassin. Travel the world from conflict to conflict and you’ll nearly always do well. And if you do well enough, become a warlord. And if well enough at that a (god) king. Or the power behind a throne controlling public mortal figureheads. And then you might be set for hundreds of years if things go well.

    But yeah, keep diversifying. And since banks don’t exist much of the time, that also means treasure caches. Keep them hidden. Having them at places that mere mortals can’t easily reach would probably help (bottoms of lakes, high mountain tops, caves with toxic fumes, arctic or desert wastes, etc.). You know the good times won’t last forever — you’ve seen it happen too many times. You’ve helped destroy a few kings/pharaohs/pashas/sultans/dictators/etc. yourself. Always be ready to bug out and anonymously resurface elsewhere with whatever wealth you can carry/salvage.

  15. How about this: If immortals were publicly known to exist, it’s possible that society might want them to be in charge of the banks and financial institutions, because they would have the greatest vested interest in maintaining the long-term stability of those institutions. Also, maybe they’d be less likely to forget the lessons of the past and repeat its mistakes. (Though on the other hand, they could just as easily become so hidebound that they’d keep on repeating the same mistakes over and over.)

  16. I think the best option is to set up a capital management firm as an LLC or some other form of non-publicly traded company, so as to avoid SEC oversight, and appoint a trusted minion as president of the company. As long as you pay your taxes and keep a diversified portfolio you should be able to maintain a comfortable lifestyle while keeping the IRS off your back. Appoint a trusted minion to be president of the company. Basically he serves as a face for the company and collects a pay check but has no real power. This way people won’t get suspicious that you haven’t aged because you’re the silent partner. When he’s ready to retire he can “sell” the company to your hand picked replacement. Lestat in the Vampire Chronicles has a similar scheme though his financial advisor doesn’t know his immortal secret. Also Lestat is able to charm people into giving him their wealth and he also takes it from his victims so he doesn’t need to work to accumulate wealth. An immortal hero on the other hand would probably want to accumulate wealth in a more ethical manner and then invest it.

  17. Pingback: Getting Rich with Superpowers, Part 1: Insider Trading | Law and the Multiverse

  18. You forget that most banks will force your account into an inactive status after 6 months of inactivity, a dormant status after 12 months, then turn it over to the government as unclaimed property after 2 years. No more interest after 6 months.

    • If that’s true–and I’m not entirely sure it is–that’s an internal bank procedure, made possible by the laws but not necessarily required by it. Further, there are investment accounts which probably don’t require the same level of activity.

      Besides, if you’re really trying to make money on interest, the one place you aren’t going to put your money is a checking account, or even a savings account. The interest on those is so bad that, when you take inflation into account, it’s actually negative. No, you’d be putting it in some kind of brokerage account. Some of those can go undisturbed for years.

  19. What about growing in the army ranks, performing a coup and then becoming a benevolent dictator for life? (Can’t be an evil dictator ’cause that will make people wanna get you off the throne)

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