The magic of compound interest?

Because thanks to an eccentric New York lawyer in the 1930s, this college [Hartwick] in a corner of the Catskills inherited a thousand-year trust that would not mature until the year 2936: a gift whose accumulated compound interest, the New York Times reported in 1961, “could ultimately shatter the nation’s financial structure.”

The real rate of compound interest may or may not in the long run exceed the rate of economic growth, so the size of the trust could be enormous in the 29th century but still small or mid-sized relative to the size of the economy.

The problem becomes especially acute when existential or catastrophic risk is significant.  Long-term savers then earn a higher risk premium and the compounding is more intense.  It is possible that the rate of return on these investments — if the world survives — is quite high relative to the rate of economic growth.  In effect, existential risk means the long-term savers will rule the world, if there is a world to rule of course.

The article is here — interesting throughout — and for the pointer I thank Umung Varma.

Addendum: Robin Hanson offers comment.


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