History Lesson

Looking the Carnegie Gift Horse in the Mouth

The 19th-century critique of big philanthropy.

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Warren Buffett’s announcement in June that he was giving $31 billion in Berkshire Hathaway stock to the Bill and Melinda Gates Foundation was greeted with near universal acclaim. About 120 years ago, when Andrew Carnegie declared in his “Gospel of Wealth” essays that he was going to give away his entire fortune and asserted that it was the duty of other rich men to give away theirs, his announcement provoked as much criticism as praise. Labor leaders condemned Carnegie for giving away money that did not rightfully belong to him. Prominent churchmen, including Methodist Bishop Hugh Price Hughes, characterized him as “an anti-Christian phenomenon, a social monstrosity, and a grave political peril.”

Hughes insisted that millionaires, even those who agreed to give away their fortunes, were “the unnatural product of artificial social regulations.” He believed that Carnegie’s accumulation of millions had come at the expense of his less fortunate countrymen. “Millionaires at one end of the scale involved paupers at the other end, and even so excellent a man as Mr. Carnegie is too dear at that price,” he argued. His point was well-taken. One doesn’t have to a Socialist—and Bishop Hughes certainly was not —to wonder whether a more equitable distribution of wealth might be better for society than the idiosyncrasies of large-scale philanthropy.

Questions about Carnegie’s millions multiplied over the years, especially after the summer of 1892, when armed Pinkerton guards intervened to break a strike at his Homestead steel mill. Workingmen on both sides of the Atlantic questioned whether the Pittsburgh steelmaker’s huge charitable donations would have been better spent on higher wages, improved working conditions, and an eight- rather than 12-hour workday. Carnegie responded in a speech in Pittsburgh that he kept wages low to remain competitive, and that even had it been possible for him to share some of his profits with his workers, it would have been neither “justifiable or wise” to do so. “Trifling sums given to each every week or month … would be frittered away, nine times out of ten, in things which pertain to the body and not to the spirit; upon richer food and drink, better clothing, more extravagant living, which are beneficial neither to rich nor poor.” The lower the costs of labor, the higher the profits. Far better, in his view, to squeeze money from workers’ paychecks, aggregate it, and give back to the community in the form of public libraries and concert halls.

Yet by 1915, the outcry against the efforts of Carnegie, John D. Rockefeller, and Russell Sage to protect and sanitize what many saw as their ill-gotten fortunes had swelled to the point where Congress and the executive branch agreed to organize a federal Commission on Industrial Relations. Its charge was to investigate whether self-perpetuating private foundations posed “a menace to the Republic’s future.” The private foundation, it was claimed, was a profoundly anti-democratic institution, one that concentrated too much wealth—and power—in the hands of trustees who were neither elected nor accountable to the public. Frank Walsh, the chairman of the commission, recalled the complaint of a Colorado coal miner about $250,000 of Rockefeller Foundation money that had been allocated for a retreat for migratory birds. That money, the miner insisted, had come from the labor of men like him who should have had a say in how it was spent. “He protested against this apportionment of the wealth to the migratory birds,” Walsh remembered. “He said he wanted first to see established a safe retreat for his babies and his wife.”

In the era of industrial capitalism, it was far easier to trace the movement of dollars from exploited factory workers to the Rockefeller and Carnegie foundations. It is infinitely more difficult in the age of financial capitalism to follow the money trail that leads to the cash and securities that today’s billionaires have accumulated. Still, there are significant similarities in the way yesterday’s millionaires and today’s billionaires accumulated their fortunes. And it is no less important for us than it was for the politicians, professors, labor leaders, and church leaders a century ago to question how it came to be that so much money (millions then, billions today) ended up in so few hands.

One similarity in the process of wealth accumulation then and now is the importance of luck. Today, as in the 19th century, it takes a great deal of it to accumulate a large fortune. As Jacob Weisberg wrote in June, Warren Buffett calls himself “a member of the lucky sperm club.” Carnegie made much the same point. He emphasized his good fortune in having moved to Pittsburgh with his family at precisely the moment the city was becoming a center of iron and steel manufacturing because of its ideal location on the East-West railway network and its proximity to iron ore and coal deposits. Both men recognized that they had not earned their fortunes by themselves and thus had no right to spend them on themselves or on their families. As Carnegie put it, it was not any individual—talented and hard-working though he might be—but the community that was the true source of wealth. And it was to the community that the millionaire’s dollars should be returned.

A second similarity that drives the accumulation of wealth in the ages both of Carnegie and Buffett is the role of what Bishop Hughes called “artificial social regulations.” Hughes was referring to the government regulations—high protective tariffs on steel imports—that contributed to Carnegie’s fortune. Protective tariffs made it possible for Carnegie and other steel manufacturers to price their goods comparatively high without having to worry about foreign competition. Carnegie and his fellow millionaires were assisted as well by the Supreme Court, which ruled in 1895 that the federal income tax was unconstitutional; by the lack of minimum or living-wage laws; by the absence of legal protection for organized labor; and by the government’s unwillingness to stop employers from hiring private armies of Pinkerton strike breakers.

Today’s megarich philanthropists have similarly been helped along by an absurdly low federal minimum wage, the lack of enforceable living-wage laws, and the precipitous drop in income-tax rates that began during the Reagan years. In 1954, when Eisenhower was president, the maximum tax rate was 87 percent of taxable income for individuals, 52 percent for corporations, and 25 percent for long-term capital gains. By 1988, the last year of the Reagan administration, the rates had fallen to 28 percent for individuals, 35 percent for corporations, and 28 percent for long-term capital gains. This year, the highest tax rates will be 35 percent for individuals and corporations and only 15 percent for long-term capital gains.

We have grown so accustomed to the accumulation of wealth in the hands of the few—and the deletion of “progressive” from what used to be called the progressive income tax—that we no longer ask where Gates’ and Buffett’s money comes from. Instead, we celebrate the fact that they and a few others like them have given away their fortunes to good causes. Shouldn’t we also be asking, as Carnegie’s critics did 120 years ago, about the health of a society that looks to handouts from the wealthy to alleviate poverty, cure disease, and make the schools work?

Philanthropic foundations will certainly never accomplish what they set out to do without a greater infusion of dollars. There is, however, no evidence that such dollars are forthcoming from Buffett’s and Gates’ fellow billionaires. On the contrary, the richest Americans appear to have cut back their spending on philanthropies. In 1995, estates worth $20 million or more gave away 25.3 percent of their wealth; by 2004, that figure had dropped to 20.8 percent. At the same time, the percentage of $20 million-plus estates that gave nothing to philanthropy increased more than 5 percent, to a total of 47.7 percent. Think about it—more than half the families worth more than $20 million do not give a dime to charity of any kind.

Even if all the billionaires somehow followed Buffett’s example and gave their money to tax-free foundations, the growth of the foundation sector might be a mixed blessing. No one wants to criticize generosity or look a gift horse in the mouth. But there are large questions of social policy here that go unconfronted. Private foundations can do virtually anything they please with their billions, tax-free and with little regulation. I might applaud the work of the Rockefeller, Carnegie, and Gates foundations. But I might be considerably less enthusiastic about a torrent of private money unleashed on educational campaigns to outlaw abortion and birth control, defund the public schools, abolish inheritance and income taxes, end gun control, and withdraw funding from the United Nations and international organizations. You might disagree; either way neither of us should be sanguine about a future in which billionaires play a larger and larger role in determining social policy without any say from the rest of us.

So, pardon me for clapping with one hand only when Warren Buffett, Bill Gates, and the billionaires who follow their example preserve their fortunes by transferring them to private foundations. I’d rather see their gifts greeted with the same scrutiny visited a century ago upon the donations made by Andrew Carnegie and John D. Rockefeller. William Jewett Tucker, a reverend and future president of Dartmouth College, put it this way in 1891: Critiquing Carnegie’s “Gospel of Wealth” he declared that a society could make no greater mistake than asking charity to do the work of social justice.