All Commentary
Friday, June 1, 1990

Wealth, Freedom, and Philanthropy

Peter Frurnkin has written on philanthropy for National Review, The NonProfit Times, The Chronicle of Philanthropy, and other publications.

Egalitarians have long argued that the rich serve no real purpose in society, and that vast accumulations of wealth ought to be curtailed. These advocates of “social justice” maintain that the only way to achieve an equitable society is to alter the distribution of wealth substantially. Very often, they call for higher rates of marginal taxation, greater inheritance taxes, and even caps on personal wealth.

What egalitarians seem to forget is that a massive accumulation of personal wealth often leads to increased charity and assistance to those who are needy. In fact, most large philanthropic institutions in the United States were founded on the wealth of one individual who was free to amass a great personal fortune.

Philanthropy’s Unique Mission

In 1988, charitable giving in the U.S. to all fields, including religion, human services, health, and education, totaled more than $106 billion. By any measure, this is an impressive number. It is more than the total mount of money U.S. corporations distributed to their shareholders. It exceeds total Federal spending on non-defense goods and services. Over the past decade, as giving has increased, philanthropy has grown to play a critical, though often unrecognized, role in society.

Private giving is a powerful vehicle for change, one which often differs radically in approach from government. In fact, the private nature of philanthropy has long been viewed as one of its great virtues. It enables philanthropy to stand outside the pressures of public opinion and to engage in projects that government either will not or cannot undertake. Because of its often experimental and innovative nature, private philanthropy adds variety and competition to civic life.

In some cases, this competition can lead to the re-examination of government policy—especially in education where government’s track record in designing effective programs has been less than stellar. After philanthropist Eugene Lang “adopted” an entire class of inner-city school children in New York City and promised to pay for their college education if they kept their grades up and finished high school, New York State started its own program of scholarships, “Liberty Partnerships,” which were rather imperfectly modeled after Lang’s design. Other examples of privately funded programs which government later tried to emulate include care for the elderly, shelter for the needy, and drug treatment.

And yet, while government has learned a great deal about “what works” from philanthropy, the private agendas of foundations and philanthropists have long evoked suspicion. The proposal to create the Rockefeller Foundation, for example, was greeted with unmitigated contempt. President William Taft’s Attorney General viewed the plan to devote one of the world’s largest fortunes to promoting “the well-being of mankind throughout the world” as a dangerous conspiracy-what he called “an indefinite scheme for perpetuating vast wealth.”

To this day, vast wealth engenders a climate of envy and distrust: Why, many wonder, should private citizens be entrusted with distributing large sums of money? How can we be sure that philanthropists will give generously? To understand what drives private philanthropy and why it is crucial to a vibrant and diverse society, it is important to consider the way in which philanthropy and freedom are intertwined.

Freedom and Wealth Accumulation

In discussing what it means to be free, philosophers often differentiate between positive and negative freedom. To experience negative freedom, an individual needs only to be free from restraint, free from interference, or free from unwanted government meddling. Negative freedom is termed “negative” because it is defined by saying what an individual is “free from.”

The definition of positive freedom is more complex and elusive because it is built on a different and in some ways richer conception of freedom. Positive freedom is connected to an individual’s need to live a meaningful and fulfilled life. An individual experiences positive freedom when he is free to do what is right, to live the good life, or to be virtuous. Positive freedom is termed “positive” because it is defined in terms of what an individual is “free to do or be.” For people to have the chance to accumulate wealth and for philanthropy to flourish, negative and positive freedom must both be present.

Entrepreneurs and businessmen, who represent philanthropy’s future, need an economic environment free of barriers and constraints, one in which private property is protected and regulation is limited. Wealth accumulation is also tied to an equitable system of personal and corporate taxation. It should come as no surprise that philanthropy is far less developed in Europe and the Soviet Bloc than it is in the United States. Indeed, in Communist nations there is little or no independent philanthropy because large accumulations of personal wealth aren’t tolerated. That Americans are far and away the most charitable of all people bears witness to the fact that negative freedom, the freedom from unwarranted government interference which our Constitution comes closest to providing, is crucial to putting in place the conditions which make philanthropic giving possible.

But a free marketplace and limited regulation of business aren’t enough. Without a culture that recognizes and values benevolence, philanthropy’s moral roots cannot take hold. Charitable giving is thus intimately tied to a special kind of positive freedom, the freedom to be benevolent. This freedom rests, of course, on a whole series of other moral and religious freedoms. Philanthropy involves more than just wealth accumulation. It depends on an appreciation of the needs of others and an enlightened sense of self-interest. To be charitable implies that one is free to look beyond narrow self-interest in order to find a richer and fuller sense of the good.

A century ago, Andrew Carnegie explained the rationality behind benevolence, and his thoughts remain relevant to this day. Carnegie argued in The Gospel of Wealth that by giving away “surplus” wealth, the rich can do what is at once morally right and prudent. By investing their fortune rather than hoarding it, wealthy people, Carnegie believed, could defuse criticism of the economic system which made their success possible, as well as meet some pressing social concerns. Philanthropic investment not only would strengthen capitalism, but, if properly done, would also give others the opportunity to compete and succeed.

Since Carnegie’s day, philanthropy has grown by leaps and bounds. Not only have new and important foundations sprung up, but numerous wealthy individuals have also given generously to charity. The reason, as Carnegie pointed out, is that philanthropy enables the wealthy person to win the approval and admiration of others. “To die rich,” Carnegie warned, “is to die in disgrace.” As a result, the desire for respect which most successful people possess will continue to lead the wealthy toward philanthropy.

Without the economic freedom to gamer wealth and the moral freedom to act benevolently, philanthropy cannot survive. And without a vibrant philanthropic sector, a powerful force for social innovation and change will be compromised. To those who worry about the dangers of wealth accumulation, these two facts should give mouse to ponder. With its stringent economic and moral requirements, philanthropy lends crucial support to the values and principles which have made this nation prosperous and free for so many years.