Philanthropy: Bill Gates and Mortmain, Part Two

From www.mcgeepost.com .Copyright © 2013 Michael H. McGee. All rights reserved. Please feel free to share or re-post all or part non-commercially, hopefully with attribution.

We established in Part One of this series that the twentieth century concept of charitable giving was a most elegant and powerful way to address the problems of society. The blessings granted to our country and world-wide by charitable giving are without doubt of the highest order of magnitude. There was no caution, nor necessity for caution, in the unlimited and vast charitable giving to non-profits in the twentieth century.

We also asserted that at the present time in history, in the second decade of the twenty-first century, we must exercise great caution in the encouragement of individuals and companies to continue to contribute vast sums to non-profitable charitable institutions. The basic problem is that the size of the non-profit sector of the economy has grown so large that it threatens to put a drag on the free-enterprise capitalist economy, and on the ability of government to function.

With about 13.3 per cent of the Gross Domestic Product (GDP) of the United States now in the non-profit sector, we can identify some of the drags on the economy. One of these drags is that this portion of the economy is forever taken out of the tax-base of the nation, thus reducing the ability of the governments at all levels to raise money for necessary public purposes. For some givers there is great pleasure in the “tax dodge.” Unlimited tax dodging, though, will weaken our nation; and it is our nation which gives these privileged individuals the ability to make such lavish sums of money for themselves. Think about it.

Another drag on the economy is the mortmain, or “dead hand,” which I explained in Part One. An estimated 36-40 per cent of the GDP is currently pulled out of the private sector by the federal, state and local governments. When combined with the estimated 13.3 per cent of the GDP pulled out of the private sector by non-profits, the “dead hand” of frozen economic activity reaches an estimated 49.3 per cent of the GDP.

The government has been about the same size for a long time. Of course we should make sure that the government does not grow, and cut it back if possible. In this series, though it is the additional growth of huge and vast assets in the non-profit sector which is of concern, as it threatens to put us over the fifty per cent mark in the “dead hand” portion of the overall economy.

It’s as if during the twentieth century we were playing with a non-profit sector which was like a tiger cub; cute, playful and certainly not dangerous. Now, in the second decade of the twenty first century, the cub has grown into a full-size tiger; which will engulf us and tear us apart limb from limb if not kept caged. Yet most of those among us still see the non-profit sector as the playful cub; ignoring the growth in size, strength and unpredictable danger inherent in the full-grown beast.

I claim that the efforts of Warren Buffet and Bill and Melinda Gates to encourage the rich to give away the majority of their vast fortunes over into the non-profit sector, including and especially through their site http://www.givingpledge.org , are tantamount to playing with a dangerous grown tiger which has the strength to engulf the nation in a “dead hand.” No one wants to believe mortmain will occur, yet history tells us otherwise.

England over its existence of a thousand years has had to deal with the problem of mortmain, the “dead hand,” at many points in history. I assert that now may be the first time in the more than 200 year history of the United States when the question of mortmain really does need to be dealt with. English history confirms that the problem when it arises is serious and worthy of the most vigorous efforts to contain it. Such is the case in the United States right now.

Throughout the history of the country many of the wealthy have given large portions of their assets to charity. It’s just that until now there haven’t been quite so many wealthy persons; and those with wealth didn’t have so much money as now. The excessive accretion of assets in the non-profit sector over time has not been a problem. Well, all these things are a real problem now; and are beginning to threaten the very basis of private enterprise, and the growth of individual wealth by new and vigorous entrepreneurs.

Let’s look at two stories of storied philanthropists, to see how things have changed. The first is Andrew Carnegie, who grew to fortune in the last years of the nineteenth century. The second, Bill Gates, grew to fortune in the last years of the twentieth century.

I take much of my information about Andrew Carnegie from the 2002 book Carnegie, by Peter Krauss. He was not much of an admirer of the man, yet set aside the editorializing and his facts seem fairly accurate.

Carnegie made his fortune in the late nineteenth century steel industry. Almost all the forward innovations of this time required steel as their basis, so he was a primary technology provider of the day. He worked tens of thousands of men for long hours under dangerous and unsanitary conditions in his steel mills, and paid them the least amount he could get away with. Many of his best men lived in small shacks with hardly enough to support their families, and many died young from the stress of the steel mill.

Carnegie never wavered in his intent to keep wages and other costs down, and make the greatest profit possible for himself. He was known as one of the “robber barons” of his time. Yet the industries he built created the very soul of the modernization of America in the last decades of the nineteenth century. He was truly a great man and a very rare innovator, and of course he had a free-market right to make as much profit as he could squeeze from his businesses. He became one of the world’s wealthiest individuals of his time.

At about the end of the century Carnegie sold off all of his holdings, in return for $300 million dollars in gold-backed bonds, which he kept in a vault in New York. At the same time he announced that he intended to give away to charitable purposes almost all of this money he held in the vault.

Using only a CPI inflation measure from 1913 to the present, at www.inflationcalculator.com , the current value measure of his gold bonds would be more than $7 billion dollars. He did what he said he was going to do, establishing libraries and schools and other charitable endeavors all over the country. $300 million dollars was a fantastically huge amount of money at the time, so it took him a great deal of time and energy to find various ways to give most of it away. And as with everything else he did, he succeeded. His greatness as one of the mythic figures in the history of the United States is still at this time beyond debate.

And yet look at the paltry nature of the fortune he gave away, $7 billion in today’s dollars. In looking at the 2013 Forbes list of billionaires, he would be about number 153 on the list with the “great wealth” he possessed back in the year 1900. The world was very different back then, and really even throughout most of the twentieth century. Wealth and charitable giving had a much different meaning when one was giving such small sums of money to non-profit purposes. The non-profit, or mortmain, sector of the economy thus grew very slowly in the twentieth century.

The second storied philanthropist is Bill Gates, along with his wife Melinda. Gates made his fortune in the late twentieth century computer industry. Almost all the forward innovations of this time required computer technology and programming as their basis, so he was one of the primary technology providers of the late twentieth century.

He worked tens of thousands of men and women on comfortable Microsoft campuses around the country, and paid them very high wages. His bonuses to all employees were legendary. It is said that in one year in the 1990’s he paid out $25 billion in bonuses to his employees, and yet at the end of the same year his net worth had increased by $35 billion. His company still gives out over $1 billion a year in bonuses, and most of his company’s employees are loyal and also very comfortable in their personal circumstances. He’s fairly easy to get along with, and always has a smile.

Thus he is one of the legendary businessmen of the late twentieth century, and will remain so in the history of the times. The industry he built created the very soul of the modernization of America in the last decades of the twentieth century. He was truly a great man and a very rare innovator. He had a free-market right to make as much profit as he could squeeze from his businesses, yet he shared the wealth with his employees and kept down the prices of his products as much as possible. He remains one of the world’s wealthiest individuals of his time.

His present net worth, again according to Forbes, is $67 billion. Remember, this is his and Melinda’s personal net worth, not counting his charitable work. So over many years he shared the wealth with his employees and contributed heavily to charity, and he still has this much left over.

In the 1990’s he established what is now the Bill and Melinda Gates Foundation, a non-profit entity which grew until it now has about $37 billion in assets, according to the Foundation’s Consolidated Statements of Financial Position, dated December 31, 2012.

Early in the twenty first century he retired from Microsoft to devote most of his energies to charitable work. He and Melinda have joined together with Warren Buffet to manage the foundation. Buffet has already given money to the foundation, and has pledged to give much of his $53 billion net worth to the foundation at the time of his death.

Buffet’s addition will create what will undoubtedly be the world’s largest non-profit charitable organization. As I said earlier, this is a good thing. We need one or more über-foundations to take care of the largest problems in the modern world, which is now populated with 5 billion more people than at the turn of the twentieth century.

Look at how things have changed between the times of Carnegie and Gates. The amount set aside by Carnegie for charitable giving was a paltry $7 billion in today’s dollars, and this amount represented most of his personal net worth. The amount set aside by Gates for charitable giving is right now $37 billion, and he still retains a personal net worth of $67 billion.

Thus the stakes in the charitable giving game have gone up phenomenally throughout the twentieth century, until right now the amount of money currently set aside in the non-profit, or mortmain, sector of the economy is so significant that it could affect the future of capitalism and free enterprise, and erode the tax base of the nation.

So what can we suggest to do with all this money these billionaires obviously want to give away – if it’s not given to charities and other non-profits? There are two avenues of approach. First, tax legislation is probably quite necessary. Second, we must offer alternate means of giving which will serve some of the generous and eleemosynary intentions of wealthy givers. We’ll explore these questions in the next portion of this five-part series, at https://mcgeepost.com/2013/06/25/philanthropy-first-take-then-give/

Tags: Andrew Carneige, Bill Gates, Charitable Giving, mortmain, Non-Profits