Julius Rosenwald first met Edwin Embree through their connections to the Rockefeller Foundation. JR served on the board, Embree on the staff, and they both feared that the foundation had begun to lack imagination and enterprise. When JR decided he wanted to revamp his own foundation, known as the Rosenwald Fund, he asked Embree to take charge of it. Both men wanted the Fund to break new ground in the philanthropic world, not just follow in the wake of the larger foundations, funding what was currently fashionable.
Embree and JR decided to expand the Fund’s board, and the first formal meeting of the new board took place on April 30, 1928. JR started the proceedings with a bombshell. He told the trustees that he was giving the Fund an additional 200,000 shares of Sears stock, worth approximately $2 million. This brought the total assets of the Fund up to $20 million, making it one of the ten largest foundations in the country. The rest of JR’s announcement reflected his philosophy of philanthropy, which he had long held and was shortly to articulate to a much wider audience. He told the board:
My experience is that trustees controlling large funds are not only desirous of conserving principal but often favor adding to it from surplus income. I am not in sympathy with this policy of perpetuating endowment and believe that more good can be accomplished by expending funds as trustees find opportunities for constructive work than by storing a large sum of money for long periods of time. By adopting the policy of using the Fund within this generation, we may avoid these tendencies toward bureaucracy and a formal of perfunctory attitude toward the work which almost invariably develops in organizations which prolong their existences indefinitely. Coming generations can be relied upon to provide for their own needs as they arise.
JR also stipulated that the Fund must spend all of both principal and interest within 25 years of his death, thereby going out of existence.
News of JR’s gift and time limit was released to the press and published across the country. One other fact was also added: JR (age 66) and Embree (age 45) had decided that no trustee except themselves could serve on the foundation’s board for more than six consecutive years. These steps were taken to reduce the risks of “bureaucracy.”
Articles and editorials appeared in papers all over the United States, including the New York Times and the Christian Science Monitor. The Chicago Tribune opined, “It is to be hoped that [Julius Rosenwald’s] example will be followed by other men of wealth who expect to make the world a better place to live in.” Individuals wrote letters of enthusiastic support. Bernard Sunny, a fellow University of Chicago trustee, told JR that he had “read of the additional contribution to the Rosenwald Trust [sic] in tonight’s newspaper” and could see that “the Trust is not to be an everlasting loafing place for smug and complacent trustees.” Because foundations were a relatively new aspect of American philanthropy, many of JR’s ideas, including term limits for trustees, were considered novel by contemporaries.
Defending His Own Gospel of Wealth
Because of the publicity surrounding his additional contribution to the Fund, JR was asked to write articles explaining his ideas on philanthropy. He accepted two of these offers in magazines with entirely different audiences: one was the Saturday Evening Post, with a large and popular readership; the other was the Atlantic Monthly, appealing more to intellectuals.
Not since Andrew Carnegie espoused his “Gospel of Wealth” had a major American philanthropist seriously set out to explain his philosophy of giving. JR used these articles to propound ideas he had been developing and speaking on for the past 20 years, principally his dislike of endowments, which he called “perpetuities.”
The Saturday Evening Post article appeared on January 5, 1929. Perhaps because of its desire to appeal to a mass audience, the article in many respects offers its author’s ideas more clearly than the more scholarly Atlantic Monthly essay.
The article begins with what JR calls “intimate personal details.” He was 40 years old when he first started giving away large sums of money, and he had been surprised to find himself in the class of multimillionaire. He also said that he did not dream of his fortune; his dreams were of his youth. This clever opening made JR sound like an ordinary man, the friendly old fellow next door. JR candidly admits that he uses these “personal details” to supply “a background for the views which I hold concerning fortunes and their social and philanthropic uses.”
The folksy tone struck at the beginning of the article recurs throughout the essay. Also present are some clever phrases that embody JR’s philosophy: “I can testify that it is nearly always easier to make $1,000,000 honestly than to dispose of it wisely,” or “My credo with regard to rich men is that they are neither better nor worse than all other humans and that they contribute to greatness or mediocrity, strength of character or weakness in exactly the same proportion as persons in all other walks of life do.”
After the personal details, JR proceeded directly to the idea he had been espousing for years—that contributed money, whether in the form of foundation endowments or gifts to organizations such as universities, should not be confined by restrictions, especially those that required only the spending of interest, not principal. Tying up money in this fashion, perhaps for centuries, he argued, was an act of folly for two reasons: (1) it implied a lack of confidence in the future; and (2) it would “inject the great fortunes of the day into the affairs of the nation 500 or a thousand years hence.” With rapid changes occurring in every aspect of life, no one could predict what the United States would be like in 500 years, and it was likely that the concerns of today would be completely superseded by other concerns in the far distant future. “These views,” JR continued, “are not mere intellectual speculation with me. They are the basis of the program for public welfare for which I stand sponsor and which provides for the spending of a sum, in round figures, both capital and interest, of at least 75 million dollars.” Where JR came up with this figure is not known. The foundation held $20 million, and his personal fortune was nearing its zenith before the stock market crash that would occur less than a year after this article was published. Presumably, JR imagined that this was a reasonable calculation of what he and the foundation were likely to give away during his lifetime and the 25 years after his death.
In a phrase that seems quite contemporary, JR noted that “benevolence today has become altogether too huge an undertaking to be conducted otherwise than on business lines. . .. Opportunities for philanthropic investment are subjected to careful scrutiny by individual donors or governing boards.” Among the items that should be examined are obsolete ideas; here JR reverts to his theme of the absurdity of tying up money for yesterday’s causes. He provides numerous examples. One is a charity founded to alleviate a problem that no longer exists, the fund established by Brian Mullanphy to aid travelers on their way west. The fund had been established when the main mode of transportation westward was covered wagon. Travelers were often stranded in St. Louis attempting vainly to assemble the necessary equipment and supplies for the journey. Mullanphy did not foresee the coming of the railroad. Thus thousands of dollars were simply sitting unused in a vault and could not be spent legally because of the terms under which the charity had been established.
To solve this problem, JR proposes two remedies. The first solution he suggests is to amend laws so that the strictures on these obsolete charities can be changed. The second is to change the public’s attitude toward the future establishment of endowments, which was what this article was designed to do. Indeed, beyond merely writing articles, JR personally sought to persuade wealthy individuals to adopt his viewpoint. In June 1929, he spent a day in Rochester with George Eastman, expounding his views in hopes that Eastman would agree with him. This visit proved successful.
In the articles’ next section, JR provides some of the principles that guide his philanthropy. One is timeliness, which he calls “one of the basic prerequisites of worthwhile philanthropy.” Timeliness ties in with the idea that each generation should donate its money to the projects that concern its members.
The second principle that JR enunciates is also one that he had long believed: “people do not value that which is given to them. I have tried to veer my philanthropies around to basic rather than palliative measures. I am a great believer in the influence of one man upon other men for good or bad, and I give not only with the idea of stimulating others to giving, but to proper giving.” In other words, JR believes that his example and reputation, and his use of challenge grants that require grantees to raise comparable sums from other donors, will stimulate others to support the causes he believes in.
“The Principles of Public Giving” appeared in the May 1929 issue of the Atlantic, and JR sent numerous copies to friends and acquaintances throughout the country. This Atlantic essay, far more scholarly than the Post article, amplified the number of examples of foolish endowments. Benjamin Franklin joined Bryan Mullanphy as an example of someone who had established a charitable fund without thinking of the consequences. Franklin had set up endowed funds in both Boston and Philadelphia to aid “artificers not over the age of 25 who have served their apprenticeship.” Now the class of people Franklin had wanted to aid no longer existed.
Little in this article went beyond the material presented in the Post essay, but it did provide a forceful statement of JR’s position: “I am opposed to gifts in perpetuity for any purpose. I do not advocate profligate spending of principal. . .. I advocate the gift which provides that the trustees may spend a small portion of the capital—say, not to exceed 5 or 10 percent—in any one year in addition to the income if, in their judgment, there is good use at hand for the additional sums.”
JR provides examples from his own philanthropy. He describes the “Suspense Account” fund he established at the University of Chicago, and he publishes the letter he sent to the trustees of his foundation regarding its re-organization. He then cites another personal experience. When he was active on the Tuskegee board before Booker T. Washington’s death, he persuaded board chairman Seth Low to write to Andrew Carnegie to request a change in the rules regarding the endowment money that the steel magnate had given the school. According to the letter Low received from Carnegie’s secretary, the Pittsburgh philanthropist was happy to consider changing the terms of the endowment so that some of the principal could be spent. JR’s point was not only that someone of the stature of Carnegie agreed with him but also that most trustees were too timid and should not be afraid to ask enlightened donors to change the terms of their endowment grants. He reiterated the view that donors of tightly restricted endowments were essentially insulting their trustees by displaying a lack of confidence in those trustees to manage the funds wisely.
JR received a great deal of mail as a result of his Atlantic article. Almost all the correspondents agreed with JR’s position. Friends from JR’s distant past, such as his former business partner, Mo Newborg, suddenly surfaced. Abraham Flexner wrote a letter filled with praise. The presidents of Harvard, Yale, and Princeton all wrote. George Eastman noted his approval. George Vincent, president of the Rockefeller Foundation, and Henry Pritchett, president of the Carnegie Foundation for the Advancement of Teaching, wrote approvingly. JR replied to almost every single letter, often noting that he had received much correspondence about his article, but that the writer’s letter was the best he had seen.
Some people wrote that JR’s article had induced them to change the terms of a gift they were contemplating. From the tone of these letters, it would seem that the article was the talk of clubs and boardrooms, and that may have been the case. Amidst the flood of praise, there were some notes of criticism. Harvard president A. Lawrence Lowell said he was not as certain as JR that future generations could be relied upon to be as generous as contemporaries. A gentleman named Bernhard Osterlonk touched on the motivation of the donor. What, he asked, if the donor were not as enlightened as JR? “Of necessity you ignore the large group of givers to whom the gift is secondary to the creation of a sort of monument to themselves, a monument to their philanthropy. To them, the endowments, which they hope will be in perpetuity associated with their names, are the chief attraction. I fear that your lucid reasoning and wealth of illustration will have little effect on them.”
A couple of months after the Atlantic article appeared, Rosenwald was invited to write a follow-up. JR agreed, saying that he wanted to approach the subject from a different angle and wished to quote from some of the numerous letters he had received agreeing with his position. Although JR promised the article for autumn 1929, it was not finished until almost a year later. It appeared in the December 1930 issue under the title “The Trend Away from Perpetuities” and was designed to demonstrate that JR’s one-man crusade against endowments was having an effect: Not only did prominent people in the philanthropic world agree with him, but numerous people were changing their wills or creating foundations in ways that complied with JR’s suggestions. The entire article comes across as self-serving. It did not generate the volume of mail that the first essay did, for it broke no new ground.
Lasting Change?
It is only fair to ask: Did JR’s crusade meet with real success or have any lasting impact? In the short term, there seems to have been a brief flurry of activity. Various wealthy donors changed the terms of their contributions to make them more flexible and include the use of principal as well as income. These included George Eastman, Edward Filene, and Robert Brookings, founder of the Brookings Institution. John D. Rockefeller Sr. was persuaded to change the terms of his endowment to the University of Chicago in a similar fashion. In the long run, however, it must be admitted that although JR’s arguments are powerful, they have not been adopted by many people. Endowments are generally not set up in a flexible manner, and they are as avidly sought after by nonprofits as they ever were in JR’s day. Part of the explanation may be that, since the Depression and the changes it brought to the banking industry and the stock market, endowment money invested in securities is no longer the risky proposition that it seemed to be in 1929.
As for foundations spending themselves out of existence, historian Martin Morse Wooster is correct that JR has had some imitators, including Maurice Falk, founder of a Pittsburgh company that smelted copper and other metals. The Maurice and Laura Falk Foundation intentionally went out of existence in 1965. In 1969 in a famous debate in Congress on tax reform, Representative Wright Patman and Senator Albert Gore Sr. “proposed that the life span of new foundations be limited to 25 years beyond the donor’s death,” an exact reflection of JR’s idea. Although this suggestion was not adopted, foundations such as the Aaron Diamond Foundation of New York, the Lucille P. Markey Charitable Trust of California, the Field Foundation of New York, the John M. Olin Foundation of New York, and others have recently ceased to exist in accord with the expressed wishes of their founders.
In his book Inside American Philanthropy, foundation expert Waldemar Nielsen provides a modern endorsement of JR’s views. In words that Rosenwald would have welcomed, Nielsen states that “time is not the friend of foundation vigor and effectiveness. In fact with the passing of years, decay and stagnation are quite common, if not epidemic.”
Nevertheless, considering the vast number of foundations being created, it is clear that those who choose to follow the path of consciously setting a time limit to their own foundation are the exception rather than the rule. Most donors, unlike JR, wish to perpetuate their name or that of their family. Unfortunately, in my view, JR’s crusade against endowments has had little real impact.
Peter Ascoli, grandson of the prominent donor Julius Rosenwald and faculty member of the Spertus Institute of Jewish studies, has just written a biography of his grandfather, whom he calls “JR.” The above is adapted from Julius Rosenwald: The Man Who Built Sears, Roebuck and Advanced the Cause of Black Education in the American South (Indiana University Press).
This article was the cover story in the May / June 2006 issue of Philanthropy magazine.
