Tontine
Encyclopedia
A tontine is an investment scheme for raising capital, devised in the 17th century and relatively widespread in the 18th and 19th. It combines features of a group annuity and a lottery
. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases. On the death of the last member, the scheme is wound up. In a variant, which has provided the plot device for most fictional versions, on the death of the penultimate member the capital passes to the last survivor.
banker Lorenzo de Tonti
, who is credited with inventing it in France
in 1653, although it has been suggested that he merely modified existing Italian investment schemes. Tonti put his proposal to the French royal government, but after consideration it was rejected by the Parlement de Paris
. The first true tontine was therefore organised in the city of Kampen in the Netherlands in 1670. The French finally established a state tontine in 1689 (though it was not described by that name because Tonti had died in disgrace). The English government organised a tontine in 1693. Nine further government tontines were organised in France down to 1759; four more in Britain down to 1789; and others in the Netherlands and some of the German states. Those in Britain were not fully subscribed, and in general the British schemes tended to be less popular and successful than their continental counterparts.
By the end of the 18th century, the tontine had fallen out of favour as a revenue-raising instrument with governments, but smaller-scale and less formal tontines continued to be arranged between individuals or to raise funds for specific projects throughout the 19th century, and, in modified form, to the present day.
s on his capital
. As each investor dies, his or her share is reallocated among the surviving investors. This process continues until only one investor survives. Each subscriber receives only dividends; the capital is never paid back.
There are strictly speaking four different roles in the transaction: (1) the government or corporate body which organizes the scheme, receives the loans and manages the capital; (2) the subscribers who provide the capital; (3) the shareholders who receive the annual dividends; and (4) the nominees on whose lives the contracts are contingent. In most 18th and 19th-century schemes, parties 2-4 were the same individuals; but in a significant minority of schemes each initial subscriber-shareholder was permitted to invest in the name of another party (generally one of his or her own children), who would inherit that share on the subscriber's death.
Because younger nominees clearly had a longer life expectancy, the 17th and 18th-century tontines were normally divided into several "classes" by age (typically in bands of 5, 7 or 10 years): each class was effectively a separate tontine, with the shares of deceased members devolving to fellow-nominees within the same class.
In a later variation, the capital devolves upon the last survivor, so dissolving the trust and usually making the survivor very wealthy. It is this version that has often been the plot device for mysteries and detective stories.
.
Tontines soon caused problems for their issuing governments, as the organisers tended to underestimate the longevity
of the population. At first, tontine holders included men and women of all ages. However, by the mid-18th century, investors were beginning to understand how to play the system, and it became increasingly common to buy tontines for young children, especially for girls around the age of 5 (since girls lived longer than boys, and by which age they were less at risk of infant mortality). This created the possibility of significant returns for the shareholders, but significant losses for the governments. As a result, tontine schemes were eventually abandoned, and by the mid-1850s tontines had been replaced by other investment vehicles, such as "penny policies", a predecessor of the 20th-century pension
scheme.
Tontines became associated with life insurance in the United States in 1868 when Henry Baldwin Hyde
of the Equitable Life Assurance Society introduced tontines as a means to sell more life insurance, and meet the demands of competition.
While once very popular in France
, Britain, and the United States
, tontines have been banned in Britain and many jurisdictions in the United States, because many of these schemes were little more than swindles. Geneva, in Switzerland, was known for its active market in tontines in the 17th and 18th centuries. Nevertheless, there are underground organizations in the US that still use the tontine. The First Life Directive of the European Union specified tontines as a class of insurance business to be underwritten by authorised and regulated companies, but that part of the regulations was not enacted in the United Kingdom.
projects. These sometimes contained the word "tontine" in their name.
cultures, particularly in developing countries
, the meaning of the term "tontine" has broadened to encompass a wider range of semi-formal group savings and microcredit
schemes. The crucial difference between these and tontines in the traditional sense is that benefits do not depend on the deaths of other members.
As a type of rotating savings and credit association
(ROSCA), tontines are well established as a savings instrument in central Africa, and in this case function as savings clubs in which each member makes regular payments and is lent the kitty in turn. They are wound up after each cycle of loans.
Informal group savings and loan associations are also traditional in many east Asian societies, and under the name of tontines are found in Cambodia
, and among emigrant Cambodian communities.
Lottery
A lottery is a form of gambling which involves the drawing of lots for a prize.Lottery is outlawed by some governments, while others endorse it to the extent of organizing a national or state lottery. It is common to find some degree of regulation of lottery by governments...
. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases. On the death of the last member, the scheme is wound up. In a variant, which has provided the plot device for most fictional versions, on the death of the penultimate member the capital passes to the last survivor.
History
The scheme is named after NeapolitanNaples
Naples is a city in Southern Italy, situated on the country's west coast by the Gulf of Naples. Lying between two notable volcanic regions, Mount Vesuvius and the Phlegraean Fields, it is the capital of the region of Campania and of the province of Naples...
banker Lorenzo de Tonti
Lorenzo de Tonti
Lorenzo de Tonti was a governor of Gaeta, Italy and a Neapolitan banker. He invented the tontine, a form of life insurance.Around 1650, he and his wife, Isabelle di Lietto, gave birth to their first son, the future explorer Henri de Tonti...
, who is credited with inventing it in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
in 1653, although it has been suggested that he merely modified existing Italian investment schemes. Tonti put his proposal to the French royal government, but after consideration it was rejected by the Parlement de Paris
Parlement
Parlements were regional legislative bodies in Ancien Régime France.The political institutions of the Parlement in Ancien Régime France developed out of the previous council of the king, the Conseil du roi or curia regis, and consequently had ancient and customary rights of consultation and...
. The first true tontine was therefore organised in the city of Kampen in the Netherlands in 1670. The French finally established a state tontine in 1689 (though it was not described by that name because Tonti had died in disgrace). The English government organised a tontine in 1693. Nine further government tontines were organised in France down to 1759; four more in Britain down to 1789; and others in the Netherlands and some of the German states. Those in Britain were not fully subscribed, and in general the British schemes tended to be less popular and successful than their continental counterparts.
By the end of the 18th century, the tontine had fallen out of favour as a revenue-raising instrument with governments, but smaller-scale and less formal tontines continued to be arranged between individuals or to raise funds for specific projects throughout the 19th century, and, in modified form, to the present day.
Concept
Each indigenous investor pays a sum into the tontine. Each investor then receives annual dividendDividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s on his capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
. As each investor dies, his or her share is reallocated among the surviving investors. This process continues until only one investor survives. Each subscriber receives only dividends; the capital is never paid back.
There are strictly speaking four different roles in the transaction: (1) the government or corporate body which organizes the scheme, receives the loans and manages the capital; (2) the subscribers who provide the capital; (3) the shareholders who receive the annual dividends; and (4) the nominees on whose lives the contracts are contingent. In most 18th and 19th-century schemes, parties 2-4 were the same individuals; but in a significant minority of schemes each initial subscriber-shareholder was permitted to invest in the name of another party (generally one of his or her own children), who would inherit that share on the subscriber's death.
Because younger nominees clearly had a longer life expectancy, the 17th and 18th-century tontines were normally divided into several "classes" by age (typically in bands of 5, 7 or 10 years): each class was effectively a separate tontine, with the shares of deceased members devolving to fellow-nominees within the same class.
In a later variation, the capital devolves upon the last survivor, so dissolving the trust and usually making the survivor very wealthy. It is this version that has often been the plot device for mysteries and detective stories.
Patents
Financial inventions were patentable under French law from January 1791 until September 1792. In June 1792 a patent was issued to inventor F. P. Dousset for a new type of tontine in combination with a lotteryLottery
A lottery is a form of gambling which involves the drawing of lots for a prize.Lottery is outlawed by some governments, while others endorse it to the extent of organizing a national or state lottery. It is common to find some degree of regulation of lottery by governments...
.
Uses and abuses
Louis XIV first made use of tontines in 1689 to fund military operations when he could not otherwise raise the money. The initial subscribers each put in 300 livres, and, unlike most later schemes, this one was run honestly; the last survivor, the widow, Charlotte Barbier, who died in 1726 at the age of 96, received 73,000 livres in her last payment. The British government first issued tontines in 1693 to fund a war against France, part of the Nine Years' War.Tontines soon caused problems for their issuing governments, as the organisers tended to underestimate the longevity
Longevity
The word "longevity" is sometimes used as a synonym for "life expectancy" in demography or known as "long life", especially when it concerns someone or something lasting longer than expected ....
of the population. At first, tontine holders included men and women of all ages. However, by the mid-18th century, investors were beginning to understand how to play the system, and it became increasingly common to buy tontines for young children, especially for girls around the age of 5 (since girls lived longer than boys, and by which age they were less at risk of infant mortality). This created the possibility of significant returns for the shareholders, but significant losses for the governments. As a result, tontine schemes were eventually abandoned, and by the mid-1850s tontines had been replaced by other investment vehicles, such as "penny policies", a predecessor of the 20th-century pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
scheme.
Tontines became associated with life insurance in the United States in 1868 when Henry Baldwin Hyde
Henry Baldwin Hyde
Henry Baldwin Hyde, , founded The Equitable Life Assurance Society of the United States in 1859. It became, by the year of Hyde's death, the largest life insurance company in the world....
of the Equitable Life Assurance Society introduced tontines as a means to sell more life insurance, and meet the demands of competition.
While once very popular in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Britain, and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, tontines have been banned in Britain and many jurisdictions in the United States, because many of these schemes were little more than swindles. Geneva, in Switzerland, was known for its active market in tontines in the 17th and 18th centuries. Nevertheless, there are underground organizations in the US that still use the tontine. The First Life Directive of the European Union specified tontines as a class of insurance business to be underwritten by authorised and regulated companies, but that part of the regulations was not enacted in the United Kingdom.
Tontine projects
The proceeds of the subscription were often used to fund private or public worksPublic works
Public works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...
projects. These sometimes contained the word "tontine" in their name.
- The Tontine Hotel in IronbridgeIronbridgeIronbridge is a settlement on the River Severn, at the heart of the Ironbridge Gorge, in Shropshire, England. It lies in the civil parish of The Gorge, in the borough of Telford and Wrekin...
, Shropshire, stands prominently at one end of the Iron BridgeThe Iron BridgeThe Iron Bridge crosses the River Severn at the Ironbridge Gorge, by the village of Ironbridge, in Shropshire, England. It was the first arch bridge in the world to be made out of cast iron, a material which was previously far too expensive to use for large structures...
from which the town takes its name: it was built in 1780-84 by the proprietors of the bridge to accommodate tourists who came to view this wonder of the industrial age.
- The Tontine Coffee HouseTontine Coffee HouseThe Tontine Coffee House was a New York City coffee house established in early 1793. Situated on the north-west corner of Wall and Water Street, it was built by a group of brokers to serve as a meeting place for trade and correspondence...
on Wall StreetWall StreetWall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
in New York CityNew York CityNew York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
, built in 1792, was the first home of the New York Stock ExchangeNew York Stock ExchangeThe New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
.
- Fortune's Tontine Tavern on Princes StreetPrinces StreetPrinces Street is one of the major thoroughfares in central Edinburgh, Scotland, UK, and its main shopping street. It is the southernmost street of Edinburgh's New Town, stretching around 1 mile from Lothian Road in the west to Leith Street in the east. The street is mostly closed to private...
, EdinburghEdinburghEdinburgh is the capital city of Scotland, the second largest city in Scotland, and the eighth most populous in the United Kingdom. The City of Edinburgh Council governs one of Scotland's 32 local government council areas. The council area includes urban Edinburgh and a rural area...
, Scotland, was built in 1796, and was Edinburgh's first proper hotel. Matthew Fortune's father John had previously run Fortune's Tavern in Old Stamp Office Close in the High Street in the Old TownOld TownOld Town is the typical designation of a historic or original core of a city or town. Although the city may be larger in its present form, many cities have redesignated this part of the city to commemorate its origins after thorough renovations...
, a favourite of the upper classes. The tontine which owned this moved the business to the newly created and fashionable New Town. The five star Balmoral Hotel, built in 1902, stands on the site today.
Tontines in other cultures
In FrancophoneFrancophone
The adjective francophone means French-speaking, typically as primary language, whether referring to individuals, groups, or places. Often, the word is used as a noun to describe a natively French-speaking person....
cultures, particularly in developing countries
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
, the meaning of the term "tontine" has broadened to encompass a wider range of semi-formal group savings and microcredit
Microcredit
Microcredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...
schemes. The crucial difference between these and tontines in the traditional sense is that benefits do not depend on the deaths of other members.
As a type of rotating savings and credit association
Rotating Savings and Credit Association
A Rotating Savings and Credit Association or ROSCA is a group of individuals who agree to meet for a defined period of time in order to save and borrow together...
(ROSCA), tontines are well established as a savings instrument in central Africa, and in this case function as savings clubs in which each member makes regular payments and is lent the kitty in turn. They are wound up after each cycle of loans.
Informal group savings and loan associations are also traditional in many east Asian societies, and under the name of tontines are found in Cambodia
Cambodia
Cambodia , officially known as the Kingdom of Cambodia, is a country located in the southern portion of the Indochina Peninsula in Southeast Asia...
, and among emigrant Cambodian communities.
Tontines in popular culture
Tontines have been featured in:- La Tontine (1708), a comic play by Alain-René LesageAlain-René LesageAlain-René Lesage was a French novelist and playwright. Lesage is best known for his comic novel The Devil upon Two Sticks , his comedy Turcaret , and his picaresque novel Gil Blas .-Youth and education:Claude Lesage, the father of the novelist, held the united...
. A physician hoping to raise the funds to give his daughter a dowry buys a tontine on the life of an elderly peasant, who he then strives to keep alive. - The Great Tontine (1881), a novel by Hawley Smart.
- The Wrong BoxThe Wrong Box (novel)The Wrong Box is a black comedy novel co-written by Robert Louis Stevenson and Lloyd Osbourne, first published in 1889. The story is about two brothers who are the last two surviving members of a tontine....
(1889), a comic novel by Robert Louis StevensonRobert Louis StevensonRobert Louis Balfour Stevenson was a Scottish novelist, poet, essayist and travel writer. His best-known books include Treasure Island, Kidnapped, and Strange Case of Dr Jekyll and Mr Hyde....
and Lloyd OsbourneLloyd OsbourneSamuel Lloyd Osbourne was an American author and the stepson of Scottish author Robert Louis Stevenson with whom he would co-author three books and provide input and ideas on others.-Early life:...
. The plot revolves around a tontine originally taken out for some wealthy English children, and the shenanigans resulting as younger family members of the two final survivors vie to secure the final payout. The book was adapted as a filmThe Wrong BoxThe Wrong Box is a British comedy film made by Salamander Film Productions and distributed by Columbia Pictures. It was produced and directed by Bryan Forbes from a screenplay by Larry Gelbart and Burt Shevelove, based on the novel by Robert Louis Stevenson and Lloyd Osbourne.The cast includes a...
(produced and directed by Bryan ForbesBryan ForbesBryan Forbes, CBE is an English film director, actor and writer.-Career:Bryan Forbes was born John Theobald Clarke on 22 July 1926 in Queen Mary's Hospital, Stratford, West Ham, Essex , and grew up at 43 Cranmer Road, Forest Gate, West Ham, Essex .Forbes trained as an actor at the Royal Academy of...
) in 1966, thought by many to be as successful as the highly successful novel, which has hardly ever been out of print. - The Tontine (1955), a novel by Thomas B. CostainThomas B. CostainThomas Bertram Costain was a Canadian journalist who became a best-selling author of historical novels at the age of 57.-Life:...
. Set in nineteenth-century England, the story centres around the fictional "Waterloo" tontine, established to benefit veterans of the Napoleonic wars. Among other plot twists, shareholders hire an actor to impersonate a dead nominee, and conspire to murder another member. - In 4.50 from Paddington4.50 From Paddington4.50 from PaddingtonThe article time reads: Four-fifty from Paddington. In the United Kingdom's time notation, hours and minutes may be separated by a dot rather than a colon sign...
(1957), a Miss MarpleMiss MarpleJane Marple, usually referred to as Miss Marple, is a fictional character appearing in twelve of Agatha Christie's crime novels and in twenty short stories. Miss Marple is an elderly spinster who lives in the village of St. Mary Mead and acts as an amateur detective. She is one of the most famous...
mystery by Agatha ChristieAgatha ChristieDame Agatha Christie DBE was a British crime writer of novels, short stories, and plays. She also wrote romances under the name Mary Westmacott, but she is best remembered for her 66 detective novels and 14 short story collections , and her successful West End plays.According to...
, a modified tontine secures the fortunes of a family to the grandchildren of the founder. All grandchildren and their spouses have a share in the fortune, as long as they arrive at the family mansion once each year. The share is passed on to the great-grandchildren (should they exist). If a grandchild dies without issue, their share is split among the survivors. A murderer attempts to 'game' the plan by reducing the number of grandchildren. - The Wild, Wild WestThe Wild, Wild WestWild Wild West or The Wild Wild West may refer to:In film and television:*The Wild Wild West , a 1921 film starring Hoot Gibson*The Wild Wild West, a CBS television show, 1965-1969...
Episode 16 of season two, "The Night of the Tottering Tontine" finds James WestJames WestJames West or Jim West may refer to:* James West , Australian journalist and author* James West , English politician and antiquary; president of the Royal Society...
and Artemus Gordon protecting a man who is a member of a tontine whose members are being murdered one by one. - M*A*S*H - Col. Sherman Potter was the last survivor among several of his World War IWorld War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
U.S. Army buddies, and thus inherited a confiscated bottle of French cognacCognacCognac is a commune in the Charente department in southwestern France. It is a sub-prefecture of the department.-Geography:Cognac is situated on the river Charente between the towns of Angoulême and Saintes. The majority of the town has been built on the river's left bank, with the smaller right...
. - Barney MillerBarney MillerBarney Miller is a situation comedy television series set in a New York City police station in Greenwich Village. The series originally was broadcast from January 23, 1975 to May 20, 1982 on ABC. It was created by Danny Arnold and Theodore J. Flicker...
- This practice is explained and used in the episode "The Tontine". - The SimpsonsThe SimpsonsThe Simpsons is an American animated sitcom created by Matt Groening for the Fox Broadcasting Company. The series is a satirical parody of a middle class American lifestyle epitomized by its family of the same name, which consists of Homer, Marge, Bart, Lisa and Maggie...
- In "Raging Abe Simpson and His Grumbling Grandson in "The Curse of the Flying Hellfish"," Grandpa Simpson and Mr. Burns are the final survivors of a tontine to determine ownership of art looted during World War IIWorld War IIWorld War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
. - ArcherArcher (TV series)Archer is an American animated television series created by Adam Reed for the FX network. A preview of the series aired on September 17, 2009. The first season premiered on January 14, 2010. The show carries a TV-MA-LSV rating....
- In "The Double Deuce", it's revealed Archer's butler Woodhouse is one of three final survivors of a group of World War I Royal Flying CorpsRoyal Flying CorpsThe Royal Flying Corps was the over-land air arm of the British military during most of the First World War. During the early part of the war, the RFC's responsibilities were centred on support of the British Army, via artillery co-operation and photographic reconnaissance...
squadronmates who each put £Pound sterlingThe pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
50 into an interest-bearing account which is worth nearly a million dollarsUnited States dollarThe United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
at present. The office workers at ISIS HQ, realizing that a new tontine could capitalize on the high mortality rate of field agents, began persuading people to join while remaining safely behind a desk. - Lillian de la Torre, in the short story "The Tontine Curse," features mysterious deaths related to a tontine in 1779, being investigated by Samuel JohnsonSamuel JohnsonSamuel Johnson , often referred to as Dr. Johnson, was an English author who made lasting contributions to English literature as a poet, essayist, moralist, literary critic, biographer, editor and lexicographer...
. - The 2001 comedy film TomcatsTomcats (film)Tomcats is a 2001 American comedy film written and directed by Gregory Poirier.- Plot :The story concerns a group of guys who have made a deal to each invest in a fund, which would be paid to the last remaining bachelor of the group...
features a variation on a tontine where the last investor to get married gets the full amount of the invested funds
External links
- Three Wright Brothers and A "Last Man's" Club
- The Great Tontine Gamble, one of a series of articles by Burton J. HendrickBurton J. HendrickBurton Jesse Hendrick born in New Haven, Connecticut. While attending Yale University, Hendrick was editor of both The Yale Courant and The Yale Literary Magazine. He received his BA in 1895 and his master's in 1897 from Yale. After completing his degree work, Hendrick became editor of the New...
appearing in McClure's Magazine in 1906. - The Straight Dope: What's with tontines, the odd annuities in which you benefit when others die?
- The Wild Wild West: The Night of the Tottering Tontine.
- Tontines for the Young Invincibles