Mr. Hillendahl is Vice President and Director of the Department of Business Research, Bank of Hawaii. This article is from an address of October 22,1977, at the 101st Annual Meeting of the American Humane Association, Honolulu, Hawaii.
Just what is happening to old-fashioned charity and why? Perhaps we can gain an insight by looking into current economic and political trends.
In preparing for a discussion of subjects such as philanthropy and charity, which are outside my principal field of economics, I find it informative to go to the dictionary. For "charity" Webster offers "love" as one of the synonyms. Love—a most personal concept. Continuing, Webster offers "kindness" and "help for the needy or the suffering." This definition describes charity as a most personal, individual, and voluntary concept. Turning to "philanthropy," Webster offers "the active effort to promote human welfare." Note the change in emphasis. The term "welfare" in turn is defined as "good fortune, happiness, well-being or prosperity." Philanthropy moved up a notch from needy and suffering to well-being and prosperity. This concept conveys benevolence, and to a certain extent, individual and voluntary, but tends to be impersonal and a lot less urgent.
In reviewing the first 150 years of this country’s history, I would say that Americans could be characterized by terms such as "industrious, productive, self-reliant, independent, humane, kind and charitable."
The Freedom Ethic
Americans operated under what has been called the freedom ethic: the freedom to choose, the freedom to try, the freedom to sell, to buy, and even the freedom to fail. Being a compassionate people, they built thin cushions into the system to prevent absolutes. Absolute failure was guarded against through various forms of personal charitable aid.
Today, however, we seem to be faltering; we seem to be confused. In a misdirection of compassion we are substituting for the "freedom to" philosophy, a coercive "freedom from" system. Not only must we prevent people from failing, they must not be permitted to be underprivileged. So we are adopting a series of "freedoms from." For failure we have substituted social welfare, or freedom from insecurity. For buying, we have substituted consumerism, or freedom from exploitation, real or imagined. For selling, the substitute is regulation, or freedom from competition; and for trying, is the freedom from striving which is at the root of the welfare state.
In their compassion, politicians have become adroit at gaining favors for special interest groups. They are fattening the cushions against failure, using taxpayers’ money to the point where increasing numbers of people are preferring to fail. For example, compared to a tax-free unemployment or welfare income of $120 a week, a worker’s income of about $255 a week is required to break even after deducting withholding taxes, the cost of transportation, parking, clothing, and all the various items which must be paid in order to work. So if a person can’t find a job at $255 a week, why work? Increasing numbers of people are choosing idleness. Why not, when one can make more money by failing? The ability to fail in comfort, of course, requires a bureaucracy to enforce the collection and disbursement of tax money from the workers.
The Welfare Ethic
This is the welfare state in action. The welfare state is commonly accepted today as the preferred form of government throughout much of the world. England, France, Sweden, the United States, and to an increasing extent Germany and Japan are prime examples. Webster defines the welfare state as one in which the state assumes responsibility for individual and social welfare of its citizens. Note the change in structure. The welfare state bureaucracy enforces a cold, impersonal, involuntary, forceful redistribution of wealth.
Many economists see the welfare state as society in transition. Ludwig von Mises and Nobel laureate Friedrich von Hayek, for example, have pointed out that such a society must eventually dissolve into a totalitarian command society. You may wonder why they take such a position. They would agree that in contrast to a constitutionally restricted republic wherein the government can do only that which is spelled out in the constitution, under the welfare state there are no constitutional restraints and we can make the government do what we want it to do virtually without limit. This form of government encourages pressure groups to form in society, each seeking a piece of the action. There are endless causes around which pressure groups can rally. The point is that the process only ends when everything is under the control of the bureaucracy which passes out the loot from the public treasury.
As background to the question as to what is happening to charity, once government takes over a particular responsibility, it is a matter of record that the individual citizens are relieved of that responsibility. Individuals are only too glad to relinquish responsibilities so they can devote more time and money to their other responsibilities. Take for example OSHA legislation which administers industrial safety. In Washington last year, a member of the President’s Council of Economic Advisors told me the CEA had just completed a study of the impact of OSHA on industrial accidents. They found the program to be contra-productive; the accident rate was increasing. Why? After years and years of decline, industrial accidents were increasing because industry was turning over the responsibility for controlling industrial accidents to the government. Business, just like an individual, is only too happy to relinquish responsibilities, including accident prevention.
This is precisely what is happening to old-fashioned charity. The welfare state is crowding out charity and philanthropy by systematically taking over responsibilities from individual citizens. Let’s look at the record of private philanthropy in the United States over the last 15 or 20 years. The statistics are meager, but during the period between 1960 and 1976 total voluntary contributions in the United States are reported to have increased from about $8.9 billion to about $29 billion. The total has been growing in recent years at a rate of about 7 per cent annually, a little more than the current rate of inflation. Over the same period, total personal income in the United States has been expanding at around 9 per cent a year. Seven doesn’t keep up with nine by a considerable amount when comparing compound growth rates.
It is clear that the growth in private philanthropy is lagging behind personal income in the United States. The same is true of Hawaii. The Aloha United Way has increased from $3.8 million in 1968 to $6.9 million last year, for an average annual growth rate of about 7.5 per cent. Personal income in Hawaii has been growing at 10.5 per cent. United Way giving is lagging 3 whole percentage points behind the growth in personal income. These comparisons are significant because individuals account for almost 80 per cent of the contributions to charitable organizations.
Social Welfare vs. Voluntary Giving
Comparing reported private philanthropy with government programs in the United States, social welfare payments have risen from a total of about $24 billion in 1950, to $286 billion in 1975, and are currently increasing at almost 15 per cent a year. Such payments have accounted for more than half of federal outlays and almost two-thirds of state and local outlays over the last 15 or 20 years. Compared with total personal income in the United States, which has been increasing at 9 per cent annually, welfare payments are skyrocketing. In 1950, total social welfare payments accounted for about 10 per cent of personal income payments in the United States. They now account for close to 25 per cent of personal income, and continuing another 15years at the same rate will account for 50 per cent of personal income. This means that the government will pay out 50 per cent of the incomes of individuals who are working to individuals who are outside the workforce. Presently, one can readily account for some 60 million people who are receiving some form of state, county or federal aid.
How do the social welfare programs compare with the voluntary programs? In 1950 philanthropy represented almost 20 per cent of the total welfare payments. Today, philanthropy accounts for a little more than 9 per cent. Continuing these trends another 10 to 15 years, the share will drop to 3.5 per cent. Individual charity and philanthropy are clearly being crowded out by the welfare state.
Morality at Stake
Of prime importance is the impact of these trends on individual morality. What is happening to the morality of the individual welfare recipient, and the compassionate social welfare worker who advises ways for the recipient to cheat on welfare? What’s happening to the self-reliant individual who was in the mainstream of the American way of life 50 to 100 years ago? Illustrative of the transformation, Community Action Programs actively promulgate the doctrine that an individual is legally and morally entitled to receive welfare today. It has become one’s legal and moral right to accept legal plunder. On the other hand, unless one is willing to accept jail or penalties, the taxpayer is forced to pay his or her taxes. In contrast to the voluntary payments of an earlier period, taxes today are collected coercively.
As the level of taxes and spending by government approaches 50 per cent of the total income of working people, what effect do we observe the tax and welfare burden is having on the attitudes of individuals toward voluntary giving? Indifference and apathy. After all, if the government is taking care of the problem with our tax dollars, why should one bother to contribute to Aloha United Way? At a 10-to-1 ratio, the government is vastly outperforming the private organizations, and with the people’s own tax dollars.
Roots of the Problem
An examination of the root causes of the problem would start with the underlying economy which consists of millions of individuals each trying to produce a service or product taken to market to sell to a buyer. In the process, savings or profits are generated, the combination of which are the lubricators of the economic system. These profits go into financial institutions, such as banks, savings and loan associations, and insurance companies. Savings and profits are transformed into loans for houses, and plant and equipment where people can live and work. Some of these savings and profits become charitable contributions. The amount depends to a large extent on the level of taxes for operation of the various levels of government.
In 1900, taxes paid to federal, state and county governments amounted to only 9 per cent of personal income, leaving 91 per cent for people to spend as they chose. Individuals had a great deal of latitude as to where they could spend or invest their incomes. Today, government takes almost half of the earnings of the working people. That leaves only half to spend. The effect on savings and profits should be obvious. Savings and profits are being taxed away. As a result, companies can’t retain enough profits and they are forced to borrow. Interest rates have risen in the face of the shortage of capital. This makes it difficult for an individual to buy a house when he has to compete with General Motors and all the other industrial borrowers.
Yet, many in their ignorance are prone to call "profit" a dirty word. Their ignorance is -compounded by the appearance that there is an abundance of money all around. This in turn gives the appearance of an adequate flow of savings and pro fits. The apparent abundance of money is made possible by the nature of the central bank or the Federal Reserve System, which in effect has a license to print money as a substitute for genuine savings. When it prints money faster than the expansion of goods and services in the market, the excess money competes with money and credit already available. The result is a dilution of purchasing power in the form of rising prices. This is what we call price inflation. The accelerating inflation in recent years is clear evidence that savings and profits are too low and the Federal Reserve is being forced to make up the deficit by printing money at accelerating rates.
Continuation of present trends would result in a tax level which will eventually confiscate all of the income of the workers and redistribute it to those on some form of welfare. At some point the system would collapse as more and more workers would refuse to work or pay taxes. The imposition of government controls would become necessary and would likely spell the end of private philanthropy.
In order to avoid such an eventuality, these trends must be reversed, if not for ourselves for future generations who must live in the aftermath of the economic and political collapse. We must first identify the problem and then select a course of action. Charles Mackay wrote Extraordinary Popular Delusions and the Madness of Crowds 135 years ago. A chapter describes what he called "money mania" in France in the 1720′s, the classic example of modern inflation.
John Law had a prescription to make France prosperous. His prescription was a central bank which could issue paper money. His proposal was enthusiastically accepted, and for a few years France prospered. However, the bank inflated the money supply to accommodate the speculative Mississippi Bubble. The inflation and bursting "bubble" spread ruin throughout Europe. Again, during the 1790′s immediately following the violent French Revolution, the French assign at was printed in unlimited quantities with the idea of restoring prosperity. For a second time "money mania" led to an inflation which bankrupted France and led to the takeover by Napoleon in 1799. In the early 1920′s the destruction of the German middle class through monetary inflation brought about the Third Reich.
A total transformation of the economy and political structure occurred each time monetary inflation was attempted. Today, "money mania," a disease of the last three centuries, is running rampant not in just one country as earlier, but is sweeping the world.
"Money mania" is at the core of the prevailing notion that government can pass laws, increase the money supply endlessly, and spend tax dollars to solve all of society’s problems.
A Return to Freedom The Critical Choice
Since government has demonstrated that it compounds every problem it has ever undertaken to solve, the choice is obvious: turn away from this madness and return to the freedom philosophy where individuals are free to solve their own problems. The resultant tax reduction would expand consumer demand to the point where even those reluctant to work would find challenging opportunities. While a remnant of a free society remains, we have a choice. Once the total welfare state is imposed, we will no longer have the choice. So the time to choose is now.
The job of restoring the freedom philosophy seems difficult, but the alternative is unthinkable—history abounds with the record of failures. Success will provide the opportunity to gain the kind of moral and economic prosperity experienced only in brief periods of history. The release of the creative spirit from its present bondage would carry society to a productive level where the need for charity and philanthropy would become minimal. By the same token, resources would be so bountiful that problems of charitable fundraising would become inconsequential. Such was the faith and dreams of our Founding Fathers. Let each of us start to do his part to insure that this faith is preserved. Let’s start now!
If We Need Laws…
If we need laws to make people treat men of other faiths and races as friends; if we need the police power of the secular state to take money from men for human need; if it is believed that the only hope of a city of God is to seek the alternative of a collectivized mass leveled to the lowest common denominator of mentality and ability—if all this be the limit of our hope for mankind, then even such activity is sheer futility, for even if such an effort could be achieved it would have no meaning at all for mankind. This rejection of personal responsibility would prove only that it is possible to make men live like whipped dogs, and the proving of it would be hell.
RUSSELL J. CLINCHY, "Charity, Biblical and Political"