Thomas E. Finser
sCOTtish ministers' wIDOWS' FUND HISTORY
The founding of the Scottish Ministers’ Widows’ Fund in 1744 marked a turning point in global financial history (Ferguson 195). While the generalized concept of insurance was hardly new to the scene of 18th century European finance, the Widows’ Fund was unique in its mathematical and actuarial modeling. The Scottish historian, Niall Ferguson noted that while there was evidence of life insurance plans in the mid 15th century, in most every documented instance, insurance was a crude form of gambling (Ferguson 187).
The Scottish Ministers’ Widows’ Fund was created to address a critical societal-cultural issue which confronted the Church of Scotland in the late 17th century. How should the Church provide for widows and orphans of deceased ministers? In the event of the untimely death of the minister, the family would fall into poverty, becoming dependent on alms and meager charitable contributions from the Church (Perman 44). In 1672, the problem became more important for church administrators after Parliament approved a law mandating financial provision for widows (Ferguson 191).
Presbyterian minister Alexander Webster of Tolbooth Kirk in Edinburgh sought a permanent solution. In 1742 he made a daring proposal before the General Assembly of the Church: create a fund to offer annuities for the benefit of the widows of clergymen. Rather than relying on ad-hoc charity, the Church could and should “Make Provision for the Widows and Children” through a fund managed by the Church (Youngson 198).
With the help of his colleague, Robert Wallace of Greyfriars Church in Edinburgh, Webster devised a clever solution to this problem. The Church ought to create an evergreen investment fund where the ministers would make periodic financial contributions. This fund would, according to Webster and Wallace, earn interest on principal investment by loaning money at an attractive 4% rate of interest to university professors and ministers (Perman 48). Premiums could therefore be invested profitably and used to compensate widows and orphans. If the two Presbyterian ministers did the math correctly, the fund should theoretically last into perpetuity without running out of money.
For this noble cause to work as intended, Webster and Wallace needed precise calculations based on accurate data—a tall order for 18th century society. Webster once more seized the initiative. He surveyed all Church parishes of Scotland and gathered the first dataset of Scotland’s population. In so doing, Webster not only established the bases of modern demography, he also created data for mathematical analysis. With that information in tow, the ministers applied concepts from French mathematician Blaise Pascal's, theory of probability, Edmund Halley’s documentation of life expectancy, Jacob Bernoulli’s law of large numbers in 1705, Abraham de Moivre’s work on normal distributions and bell curves, and Thomas Bayes theories on inference (Ferguson 188). For support, the two ministers solicited the aid of fellow Scotsman and professor of mathematics, Colin Maclaurin. Maclaurin tested the actuarial models from Wallace and found sound reasoning, though a few faulty assumptions, which if compounded over many decades, would have led to the eventual demise of the fund. Fortunately these errors were corrected, with humility, to the great satisfaction of the meticulous Maclaurin (Dow 202).
Maclaurin’s modifications proved to be remarkably accurate. Due, in no small part to his efforts, the Fund garnered reputational support sufficient to pass it into law in 1744 (Grabiner 847). By 1758 the Widows’ Fund principal balance amounted to £47,313 compared to his original forecast of £58,348 (Dow 205). As a testament to the collective aptitudes and efforts of Webster, Wallace and Maclaurin, the Widows’ Fund endured into the 21st century. It is currently funded. As of 1993 it is no longer accepting new participants.
Maclaurin’s modifications proved to be remarkably accurate. Due, in no small part to his efforts, the Fund garnered reputational support sufficient to pass it into law in 1744 (Grabiner 847). By 1758 the Widows’ Fund principal balance amounted to £47,313 compared to his original forecast of £58,348 (Dow 205). As a testament to the collective aptitudes and efforts of Webster, Wallace and Maclaurin, the Widows’ Fund endured into the 21st century. It is currently funded. As of 1993 it is no longer accepting new participants.
Humility and "Doing the right thing"
Alexander Webster embodied the Enlightenment values of humility. His mission was clear: create and durable and solvent fund for the benefit of others. In 1773, Webster make corrections, "suggested alterations in the scheme and this resulted in a new Act, 19 Geo. III cap. 20, 1778, which repealed the first two Acts" and now, entrants over the age of 40 would pay an "entry tax of two and a half annual rates" (Dunlap 20). In a move that was unlikely to garner popular support from his fellow clergy, Webster proposed that the Widows' Fund cease lending capital to contributors. However, if the Fund exceeded the threshold of GBP 97,000 in capital, proceeds would be distributed to beneficiaries (20).
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David Pitt-Watson on the legacy of Wallace and Webster and the challenge of "doing the right thing" in fund management.
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