Tag Archives: andrew carnegie

Philanthropy: First Take, then Give! Part Three

25 Jun

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.

How easy is it today to justify paying the lowest possible wages and charging the highest possible prices, only to accumulate a huge amount of money which you fully intend to give away? Take what you can, in the rough and dangerously competitive world of business. Then, later, be the benevolent and respected bearer of charity to those less fortunate than yourself.

This philosophy was developed in the nineteenth and twentieth centuries as the very model of a modern businessman and his relations with those around him. The principles did not derive from any natural law; they came from the fertile imaginations of the new rich of the nineteenth and early twentieth century. Some believed that they were following a “moral law,” yet there is no sustained basis for such a moral law as “take and give.” It was simply these men’s justifications for their actions in regard to their money.

Andrew Carnegie, described in my last post, was one of the authors and proponents of the described philosophy, which has endured until now. Now is the time to re-tool this able and yet entirely imagined (as opposed to, say, spiritual) philosophy, to be in tune with the needs of the twenty-first century.

Note well that the principles I’m proposing here are also entirely imagined. There needs to be a reasoned and wide-ranging debate over what new principles are appropriate for the twenty-first century. Obviously I don’t have all the answers. I’ll give you my take on things. I’m sure there are many others who are better informed than me who will have much to say. Any useful final well-imagined philosophy will be a synthesis of the best ideas from the best persons.

Please let me tell you a story which will illustrate the underlying capitalistic principle of the ownership of money, which I adhere to and which informs what follows. I was an arbitrator in a case where a man with an $85 million net worth had entered into a contract with a producer of goods who had little money. The deal was that the wealthy man would buy the entire output of the man for a good fixed price per unit, which would be beneficial to the producer.

Within a few months the producer was sending mostly lesser quality goods to fulfill his contract, and had arranged to sell his better quality goods on the open market outside the contract. At the arbitration the producer’s explanation was that the wealthy man didn’t really need the money, so he was justified in what he did, and the contract should continue. The wealthy man was very angry, and said that whatever money he had was his, down to the last dime. The producer had no right to assume he would not miss a few thousand dollars funneled outside the exclusive contract.

I ruled in favor of the wealthy man and against the small producer of goods, and the contract was voided. This producer was then angry at me, since he had a sense of entitlement to the right to siphon off part of the goods he’d contracted to provide to the wealthy man.

To this day I am confident that I made the correct decision. No one, and I mean no one, has the right to take another person’s money without that person’s permission: even down to the last dime. I use this rather commonplace case to let the reader know that even when I’m throwing out barbs, I’m not trying to say anything intended to take away the right of a person to decide how to use each and every dime he or she has. What I’m doing is suggesting new alternative uses for wealth, and encouraging new ideas. It’s entirely up to the person with the money to decide if he or she likes these ideas or not.

Let’s go back again to the nineteenth century. Another man who propounded the “take and give” imagined philosophy was the greatly respected New York industrialist and philanthropist Peter Cooper (1791 – 1883). Among other things his wealth came from designing and building the first steam locomotive in the U.S. He also founded the non-profit Cooper Union for the Advancement of Science and Art in Manhattan, New York City, which is still a major force for good.

In his own giving, he relied on the “take and give” principle of the time that it noble for a wealthy man to use “for the benefit of society” much of the wealth taken from the sweat of the brow of thousands who worked for him. Are those who depended on him for wages any less members of “society” than the beggar in the street?

Cooper and Carnegie, and thousands of others, had no hesitation in paying the lowest wages possible, so as to be able later in life to give it all away to other unfortunate persons. There is something vaguely capricious and mendacious about “taking” (low wages, no benefits) from those who rely on you, so that you can “give” (graciously charitably) to those who may not have the necessities of life because they were unable to get anything but low-paying jobs.

There is also something a little contradictory about an owner spending a lifetime earning great “profits” from the sweat of his own brow; and then turning his profitable results over to the “non-profit” sector. I can’t even begin to understand the psychology which generates such an incongruous and conflicting view of life. Yet it remains as soothing as mother’s milk to the wealthy.

Peter Cooper was not afraid to preach the imagined philanthropic philosophy, which also influenced men like Carnegie. Cooper probably didn’t, though, realize that in one of his more famous speeches he was pointing the way to the future.

In an 1871 address to Cooper Union students, Cooper said, “I cannot shut my eyes to the fact that the production of wealth is not the work of any one man and the acquisition of great fortunes is not possible without the cooperation of multitudes of men; and that therefore the individuals to whose lot these fortunes fall . . . should never lose sight of the fact that they hold them by the will of society expressed in statute law, so they should administer them as trustees for the benefit of society as inculcated by the moral law.” (Emphasis added)

There are two lasting concepts in this remarkable paragraph which we may be able to use for our instruction today in our new analysis of charitable giving. I will take the principles one at a time and analyze each separately.

First, Cooper said, “The production of wealth is not the work of any one man and the acquisition of great fortunes is not possible without the cooperation of multitudes of men.” Here is one of the principles which may well guide a twenty-first century philosophy of giving.

Bill Gates seems to have always worked from this principle. No matter how much he distributed terrific salaries and munificent bonuses to his many employees, people kept throwing money at him and his wealth grew in an almost uncontrollable manner. It is easy to see that Mr. Gates fully understood the principle that his fortune was based on the cooperation of multitudes of men (and women); whether they were employees, or contractors, or buyers of the product, or the lowly tax collectors.

Now let’s look at Warren Buffet. He is one of the richest and at the same time most beloved men in America. Warren Buffet has likely never mistreated an employee, and never paid them too little for them to live comfortably; even though on the surface he seems more beholding to the old “take and give” philosophy.

I doubt there are very many who begrudge him his wealth. He earned it the old fashioned way, and he approaches the world with a deep humility and a ready smile. So as you might imagine, my discussion of his alternatives comes only from respect and admiration.

He’s already announced that at his death most of his $53 billion dollar fortune will go to charity. Specifically, his money will combine with that of Bill and Melinda Gates to make a formidable world-wide non-profit institution. As I’ve said, this is a good thing for him to do. His brilliant idea of combining assets should go through, in a modified form. As I’ve also said, we should not encourage other billionaires to follow his example.

This description is intended to introduce some of the new principles which should be applied to twenty-first century charitable giving, and give them form by applying them to one man’s situation.

I feel that Mr. Buffet has lived his whole life in an attempt to avoid public praise which would result in too many people idolizing his works and treating him like a rock star. In that respect he is a little like the most fabled detective of the nineteenth century, Sherlock Holmes. Sir Arthur Conan Doyle had Dr. Watson describe Sherlock Holmes as follows:

In recording from time to time some of the curious experiences and interesting recollections which I associate with my long and intimate friendship with Mr. Sherlock Holmes, I have continually been faced by difficulties caused by his own aversion to publicity. To his somber and cynical spirit all popular applause was always abhorrent, and nothing amused him more at the end of a successful case than to hand over the actual exposure [of the perpetrator] to some orthodox official, and to listen with a mocking smile to the general chorus of misplaced congratulation…. My participation in some of his adventures was always a privilege which entailed discretion and reticence upon me.

So I feel that Mr. Buffet has avoided the blatant giving away of money to charity because he couldn’t handle the praise and the acclaim which would follow his doing so. His emotional makeup is such that he really can’t handle a lot of personal praise. He wants the praise deflected to others, while he goes about being the genius behind the scenes.

Among other things he created GEICO, which has offered unusually low auto insurance rates to consumers, and at the same time forced down the insurance rates charged by other insurance carriers. He’s handed over the actual credit and public exposure for this activity to a green gecko, and carried a mocking smile at the degree to which consumers actually identify this green gecko as the source of their lower rates.

Likewise, all throughout his career the employees and managers of the companies he owns have been paid enough that they are almost always glad to work for him, or for Berkshire Hathaway. He can explain to his stockholders that it was the financial markets which were responsible for the increase in the value of their stock, not his own personal genius.

All this dodging and humility have kept him out of the limelight except as a mythical figure who still lives in the same house he started in, and who takes a hamburger takeout bag to a dinner among the movers and shakers; and who never takes personal credit for what he quietly does from day to day. He’s not a miser; he is just constitutionally unable to accept praise for giving things away.

So he wants to give to charity, and yet he can’t bring himself to give anything away during his lifetime. After he dies he won’t have to recoil in horror at the honors stacked to his name by his generosity. He can go in peace, and only after going let the chips fall where they may.

So, using twenty-first century principles of charity, and combining these principles with a desire to avoid personal glory (as well as preserving the existing Gates-Buffet charitable partnership) what can you do right now, Mr. Buffet?

Take about half of your personal fortune and parcel it out to your various operating companies. Your instructions will be that this money is to be given by the companies (not by you) as bonuses and service rewards over a two or three year period to the employees of these companies at every level, from top to bottom. This money should be tax-deductible to you as going toward the operating expenses of your companies.

In this manner you will be able to implement the timeless principle expressed by Peter Cooper: “The production of wealth is not the work of any one man and the acquisition of great fortunes is not possible without the cooperation of multitudes of men.” In addition, this money will return to the private sector and be recirculated in the private taxable economy, and not be held out as a non-profit burden on the profit-making sector.

Then, set aside a meaningful amount, several billion, of your remaining personal wealth. Make either gifts or bequests to your family and friends and others closest to you, along with those you have admired who may have fallen on hard times (think Muhammad Ali). If you give it to them directly you may have to endure their voluptuous admiration and thanks; so you may want to make some of this in the form of bequests.

To avoid direct giving, set up a separate company, now, to hold the funds involved in present-day gifts to family and friends and those you admire. The corporation would make the gifts anonymously and pay the gift tax.

Your separate company could even make gifts to individuals to whom you have no connection. I’m sure you remember the 1950’s TV show The Millionaire. Each week John Beresford Tipton, whose face was never seen, gave Michael Anthony a check for a million dollars to deliver to a stranger. (One million dollars in 1955 had the same buying power as 8.45 million dollars has today.)

Then, once all these things are done, bequeath the rest of your estate, maybe $22 billion, to the Bill and Melinda Gates Foundation. Remember, earlier I stated that in the future, billionaires should not give the majority of their estates to non-profit purposes. However, the partnership already forged with the Gates Foundation is a necessary part of creating a world-wide charity which can take on the really big problems of our time. I’m sure they will be happy to get $22 billion, instead of $53 billion. This will still be one of the world’s largest philanthropic organizations, even if you cut your bequest in half.

With respect, one small final thing, Mr. Buffet. My consultant’s fee for this assistance to you in dividing your assets according to modern principles is 22 million dollars. You may email me at mm@mcgeehome.com to get the mailing address to send your check to me. I will use much of what you send to expand the minuscule writing and scientific projects I’m currently working on, and to help my daughter, and to attain the freedom for me and my family to do as we want to do. Yes, I’m a good person, so there will be no waste. And I won’t gush. You’ll get a two-line handwritten thank you note for whatever you send, as is required by propriety, for helping to fulfill my daydreams.

We’ll continue in the second of five parts of this essay, at https://mcgeepost.com/2013/07/01/philanthropy-what-to-do-in-its-place-part-four/