Einstein, compound interest: Does not compute


Earlier, in the thread about bad quotes, bad scholarship and Ann Coulter, a person asked about another quote that has dogged speech writers and investment seminars for years:

I am trying to discern the author of the quote “compound interest is the greatest invention of the 20th century.” Since you mention neither Twain nor Einstein remarked this, do you know who did?? I would be very grateful.

Comment by fact checker 07.11.06 [emphasis added]

Twain’s words are well enough cataloged that, had he said it, one would be able to track it down. Think for a few minutes about Twain’s finance issues, however, and you realize it is highly unlikely that he would have said it. Twain invested heavily in a machine to mechanically set type, to publish the memoirs of former-President Ulysses Grant; the machine did not work, and Twain lost his fortune. He undertook a grueling lecture tour to make money back. Later financial setbacks forced another long lecture tour. It is not probable that Mark Twain (Samuel Clemens) would ever have said anything about simple compound interest. It was not his style to invest passively, or for long-term returns.

The line about compound interest being the “best invention” of mathematics, or of the 20th century, or whatever, is more often attributed to Albert Einstein. Google “compound interest” and “Einstein” and you get tens of thousands of hits.

It’s a good line, a snappy introduction to the Rule of 72 for a presentation to potential investment clients or for the introduction to the rule in a high school classroom. I have a short PowerPoint presentation on the Rule of 72 for economics classes, and I would have used the quote — had it checked out. My experience as a journalist and speechwriter urged caution.

I wrote to the Albert Einstein Institute, to the American Institute of Physics, and to other places where people might know obscure sources of Einstein’s sayings and writings, to try to verify the quote. It surely did not turn up in Bartlett’s Familiar Quotations, nor in the Oxford Dictionary of Quotations. Those specialists in Einstein data and history could not verify the quote (which is the careful way of phrasing it). One fellow I spoke with said if he had a nickel for every time he was asked to verify the compound interest quote, he would have no need for compound interest.

I can say with confidence that Albert Einstein never wrote or said anything about compound interest. While Einstein wrote about a wide variety of topics, compound interest is not among them.

Fatherflot at Daily Kos wrote about this quote in early 2005, after several advocates of privatizing Social Security had used the quote in one version or another to introduce their own remarks. A lot more people read that blog, but no one there could verify it, either. There are several variants on the quote illustrated there. I think that an alleged quote’s lack of veracity is often demonstrated by mutations. For real quotes from real people, generally someone knows the original work and starts writing about what it’s supposed to be — at many cocktail parties a line about “consistency being the hobgoblin of small minds” will be corrected (Emerson said it is “a foolish consistency,” and it is “little minds”), for one example.

Einstein didn't say what this poster claims he said, either.

Einstein didn’t say what this poster claims he said, either.

As I told fact checker, I think the line was invented 40 or 50 years ago. From my checking, I would bet it was a copywriter or speechwriter working for some investment house. We may hope to someday track down the origin of the quote, and if the originator is still alive, ask her or him why the line was attributed to Einstein.

Fillmore’s bathtub runneth over with bad quotes, hoaxes gone amok, and other errors. We just try to flush a few down the drain.

33 Responses to Einstein, compound interest: Does not compute

  1. […] Einstein, compound interest: Does not compute | Millard … – 22/7/2006 · Earlier, in the thread about bad quotes, bad scholarship and Ann Coulter, a person asked about another quote that has dogged speech writers and investment …… […]

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  2. […] Einstein, compound interest: does not compute | millard […]

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  3. […] 钱生钱。“凡是多的,还要给他,叫他多多益善;凡是少的,就连他所有的,也要夺过来”( “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them” (Matthew 25:29)”)爱因斯坦也观察到了同样的事情,他说复合利率(compound interest)是世界第八大奇迹,是全人类历史上最伟大的数学发现,甚至是宇宙中最有力量的事情。无论你喜欢哪个版本,你都不会错过他想表达的信息:不要低估指数的力量。实际上并没有证据表明,爱因斯坦是否讲过上述的那些话——所有的那些引用大部分都是可疑的。(译注:我查了一下,似乎是谣言,建议点进链接看)但是这种误导性的话加强了如下这个信息:虽然爱因斯坦已经去世很多年了,但那些他没说过的话,仍然给他带去了持续的影响力。 […]

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  4. […] Will Rogers). Einstein is the only scientist in that group. So, for example, we can be quite sure Einstein never claimed that compound interest was the best idea of the 20th century. This phenomenon is symbolic of the high regard people have for the man, even though so few […]

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  5. […] Will Rogers). Einstein is the only scientist in that group. So, for example, we can be quite sure Einstein never claimed that compound interest was the best idea of the 20th century. This phenomenon is symbolic of the high regard people have for the man, even though so few […]

    Like

  6. […] Will Rogers). Einstein is the only scientist in that group. So, for example, we can be quite sure Einstein never claimed that compound interest was the best idea of the 20th century. This phenomenon is symbolic of the high regard people have for the man, even though so few […]

    Like

  7. Ed Darrell says:

    It might have been within his nature; he might have been aided by some tycoon late in life. The Einstein biographers and historians cannot find any reference to this quote in Einstein’s papers nor in articles written about him. Do you have a citation that would verify the quote?

    Like

  8. Bjorn says:

    You are absolutely wrong.

    When Einstein was supposed to have said this about compound interest, was after he had been taken under the wing by a finance tycoon, late in his life. Not as much being bankrolled by the tycoon, but to straighten out his books and give advice. I would say, it would be perfectly in his nature to provide such a quote, marveling at the financial wisdom his new benefactor showered him with, after a long life of financial disaster.

    If you just went by his early life, befire he was “rescued” I would agree such a statement was a bit out of nature.

    Like

  9. […] is charging you an assets under management fee. About that famous compound interest quote – Einstein did not actually pen any quote about compound interest. Which is good, you need to think for yourself sometimes and realize that compound interest is […]

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  10. Ed Darrell says:

    I too emailed them and my response was vastely different to yours.

    Please share that information with us.

    Like

  11. Ed Darrell says:

    The Qu’ran is opposed to compound interest, yes? Not sure that counts.

    Since this post, I’ve confirmed through other sources that Einstein didn’t say it. I’m sticking by my guns.

    Like

  12. Pastel says:

    Not all urban legends or conspiracy theories are bulls—, many of them have truth at their core and just get changed around or altered a bit as the years go by, similar to chinese whispers.

    Like

  13. Pastel says:

    Erm not as cut and dry as you may think, and there are many credible sites that track it way back. Because compound interest is a really marvellous invention. – Albert Einstein (1879 – 1955) called it the 8th Wonder – It can work for you, or against you. When you invest it works for you. When you borrow it works against you! You can play word games all you want, a variation of it was said. And if you even probe further, you can’t say 100 percent that he didn’t say it, but the chance he did say it, is less. This is fact. A lot of the things he said were not full sentences, some of his answers were just ‘compound interest’ so that is more of an answer than a quote.

    In any event, the Quran mentioned compound interest and negative side of it, over 1400 years ago, so it predates Einstein. Also your Research Institute link is broken. http://www.aeinstein.org/ is the site and not everything on the site is one hundred percent sacred as not everything regarding Albert is on there, whether intentionally or just by information being lost over time, editing, not being included whatever. I too emailed them and my response was vastely different to yours. My conclusion after all has been said and done is, inconclusive, but more than not Einstein did mention it.

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  14. Thank you for your research. I will mention your name in my upcoming blog about compound interest. :)

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  15. Ed Darrell says:

    It’s still a good point — just don’t attribute it to Einstein.

    Like

  16. incometaxguy says:

    I find that a lot of people have used this quote in the past,including me. Unknowingly we have been incorrect. Good article very informative

    Like

  17. […] to think about anything else.” A similar idea is expressed more succinctly by a quote usually (but falsely, in all likelihood) attributed to Albert Einstein: “The most powerful force in the universe is compound […]

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  18. James Andrews says:

    I found this site useful for teaching my class about compounding http://www.inspiredtosave.com.

    Like

  19. poop says:

    This did not answer my question!!!:/

    Like

  20. Double A Penny A Day! Its AWESOME!!!

    Compound interest is the greatest money making discovery in the universe!

    Like

  21. Ransome says:

    I think he might have said it.

    “The most powerful force in the universe is compound interest”.

    It’s a joke. You are getting something for “free” (extended long term unearned income) or you are losing more than you can imagine, becoming a debt-slave.

    Take credit cards, you can pay a small debt for 40 years because of compound interest. Compound interest moves money from the borrower to the lender in a miraculous way. Compare borrowing $100 and paying back $110 to borrowing with compound interest, where you can borrow $100 and pay back $250. The difference is time. You can borrow a shovel and return a shovel, but with compound interest, you loan a shovel and get back three. Money, as an exchange medium becomes an end in itself that defies the laws of nature. If you plant a crop and don’t harvest, it doesn’t increase three-fold.

    For a guy that looked at energy as being zero sum, this was a man-made “Law” or “Rule” that was indeed powerful. So powerful that extreme compound interest can disrupt or control a society as much as a war, due to unequal distribution of wealth and never ending debt. (King Leopold and the Congo)

    It is not clear if compound interest is the essence of capitalism or the curse.

    Einstein would be equally amazed at the concept of leveraging derivatives where both sides of a deal are virtual, purchased with virtual leveraged money, yet the difference between perceived value produces real capital. Where does this go? To Second City where everything is virtual, yet real to the extent you can “earn” real money and sell virtual assets.

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  22. Ofonime Andrew says:

    Can you please send me your “Rule of 72″ presentation from your economics classes?
    I hope to do something for some members of my investment group.

    Thanks

    Like

  23. […] turns out that according to this blogger, even the Albert Einstein Institute says that Einstein never said anything about compound interest. […]

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  24. Gogo says:

    Can you please send me your “Rule of 72” presentation from your economics classes?
    I hope to do something for some members of my church coaching group.

    Thanks

    Like

  25. […] as having declared compound interest to be “the most powerful force in the universe”. It is an urban myth, but it seems to have taken on a life of its own, so I had no choice but to also mention the quote […]

    Like

  26. urby says:

    Actually the origin is the Johny Carson in the 80s: ‘scientist created a new weapon destroying people and leaving houses standing, the compound (17%) interest rate’

    Like

  27. markharrison says:

    Hi,

    I had to investigate the same “Did Einstein say that?” question for a piece on my blog.

    As far as I could tell, the phrase was first used in a 1983 article in the New York Times.

    Like

  28. Yew says:

    Can you please send me the powerpoint presentation also to share with others?

    Like

  29. Jim says:

    Please send me the powerpoint presentation also to share with an economics class

    Like

  30. Ed Darrell says:

    I’ll snag your e-mail address and send it to you — they are slides I pirated from a Primerica presentation on line. It’s not difficult.

    For example, here’s a Rule of 72 calculator:
    http://www.moneychimp.com/features/rule72.htm

    Here’s the Wikipedia article on the Rule of 72, plus some other stuff:
    http://en.wikipedia.org/wiki/Rule_of_72

    And here’s the Investopedia article on compounding:
    http://www.investopedia.com/university/beginner/beginner2.asp

    I think kids get a kick out of mastering the math to do the calculations for the Rule of 72 (“How long will it take to double your money at 9% interest?” “8 years.” How about 6%? “12 years.”) But the real value is to convince them of the power of saving and especially of saving early. Primerica poses two brothers one of whom starts putting away $2,000 a year at age 18, and stops at age 28, and his brother who starts putting away $2,000 a year, but at age 28, and keeps it up until he’s 65. Which one has more money at 65? The gaps are large enough to get interest of kids.

    I had a student last school year who told me one morning he had an extra $800 and was going to get a pair of “clean” rims for his car. I asked him to calculate how much that $800 would be if he invested it at 9% until he was 65. When he came up with the figure (in the hundreds of thousands of dollars), I asked him which he’d rather have. He postponed the purchase for the last six weeks of school, and I’ve often wondered which way he went.

    Like

  31. Dan says:

    can you send me that rule of 72 powerpoint you do for economics classes – I’d love to see it and share it with my fellow students

    Like

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