Compound Interest Corrected: The Imaginative Mathematics of the Financial Future in Early Modern England

Abstract

What is money in the future worth today? In the seventeenth century, questionsabout the“present value”of future wealth became matters of practical concern, asbusinesspeople and governments deployed future-orientedfinancial technologieslike mortgages, bonds, and annuities. Those questions also attracted the attention ofmathematicians. This essay examines the excursions two English mathematicians,the indefatigable mathematical gossip John Collins (1625–83) and the lesser-knownThomas Watkins (fl. 1710s–20s), made into the mathematics offinancial time. Incapitalist practice today, present-value problems are invariably dealt with using asingle technique, compound-interest discounting, which has become deeply embed-ded in commercial, governmental, and legal infrastructures. Yet, for early modernthinkers, the question of how best to calculate thefinancial future was an open ques-tion. Both Collins and Watkins explored imaginative alternatives to what wouldbecome the compound-interest orthodoxy. With help from his network of corre-spondents, Collins explored simple-interest discounting, which provoked thornymathematical questions about harmonic series and hyperbolic curves; Watkinscrafted multiple mathematical techniques for“correcting”the compound-interestapproach to thefinancial future. Though both projects proved abortive, examiningthose forgone futures enables us to examine the development of a key element ofcapitalistic rationality before it became“black-boxed.”