David R. Henderson  

The Greatest Invention in History

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Great Moments (Almost) in Prop... Charles Cooke's lame dismissal...
In 1922 he [Sam Bronfman] was thirty-three years old, less than five feet six inches tall, with a receding chin, thinning hair, and a fortune among the largest of all in western Canada. He'd already had a liveried chauffeur for ten years, a Cadillac that turned heads as it cruised the streets of Winnipeg, and a temper that could peel paint. He believed that "you were somebody if you had money," his son Edgar said years later, "and if you had a lot of money you were more of a somebody." This would have explained his answer when he was asked what he believed was the greatest invention in the history of the world: "interest."
This is from Last Call: The Rise and Fall of Prohibition by Daniel Okrent.

I'm quoting it for three reasons, the first two of which are personal and the last of which is economic.

1. My father was born in Winnipeg in 1910. In 1921, the city's population was 179,000. My guess, therefore, is that my father, at times, would see Bronfman being driven around Winnipeg. It's even conceivable that my grandfather, Alfred George Henderson, who was born in 1855, moved to Winnipeg in the early 1900s, and was a relatively wealthy owner of apartment blocks, knew Bronfman. Not well, I would bet, because there was not a lot of mixing between Jews and non-Jews.

2. A few pages earlier in the book, Okrent introduces Bronfman by referring to his "120-mile trip by dogsled from Kenora to Lake of the Woods." As it happens, Kenora is about 25 miles, as the crow flies, south of where I am right now as I'm reading the book. Kenora is also right on the Lake of the Woods, and so I'm not quite sure how it could be a 120-mile trip. My guess is that he means that the trip by dogsled was 120 miles from Winnipeg to Kenora, which is about right. It's fascinating to read about the various liquor laws and Bronfman's entrepreneurialism when some of the events happened where I shop for food for my annual stay at Minaki.

3. The economic point: Interest. There's a story that I've thought for some time was apocryphal: that Albert Einstein, when asked what is the most powerful force in nature, answered: "Compound interest." When I google that, I find lots of people claiming it as Einstein's, but I can't find Einstein actually saying it. This reminds me of something that often happens when people quote a pithy line. They will often attribute it to some famous person--Mark Twain and George Bernard Shaw are two favorites--even if that person didn't say it. I'm starting to think that the quote has been changed over the years and that the original source was Bronfman. I can also believe that Bronfman got it from someone earlier.

BTW, as one commenter pointed out on one of my earlier posts, Russ Roberts did an Econtalk interview with Okrent.


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COMMENTS (5 to date)
ThomasH writes:

Compound interest is just arithmetic and would not seem any more important than many other series if it did not represent how people cooperating and sharing knowledge results in the ability to produce more stuff that those people value. In a world of no technical progress the optimal risk-free interest rate and net investment would be zero. Risky activities could be financed as profit sharing agreements. It is only when new technical possibilities give investment a positive return does interest start to make sense.

David Kwavnick writes:

It wasn't Einstein. It was Sam Bronfman who said that the greatest invention was compound interest.

LD Bottorff writes:

The fact that so many respected philosophers and religious leaders tried to forbid collection or payment of interest shows that for many, the concept appears to be hard to reconcile with justice. Of course, there is no such thing as a risk-free loan; there is always the risk that the borrower will fail to pay back the principal or that the collateral will turn out to be worthless or that the lender will die before the money is repaid. Since there is always risk, there should always be interest. The failure to understand the justness of interest has led to enormous hatred towards money lenders.

Hana writes:

I have always thought the quote regarding compound interest was attributable to to one of the Rothschilds, and was related to the Napoleonic Wars.

Mark writes:

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