Charitable endowments and other passive investments exceed $425 billion. Why do many donors require that the principal of their contribution must be held in perpetuity, and that only the income may be used for charitable purposes? Why do most charity managers voluntarily accumulate operating surpluses, and reinvest a portion of real endowment income? This Article suggests that rather than looking at how charities use their endowment income, we should focus on what happens to the endowment principal. It appears that the taste for perpetual charitable endowments persists as the happy co-incidence of donors' desire for immortality for themselves and their cultural beliefs, the professional staff's desire for employment and authority, and society's (apparent) desire for narrowly controlled investment capital. To explain charitable endowments, however, is not to justify them. If society views these as wasteful, it can reduce subsidies to them. Moreover, society might better direct subsidies to any provider of public goods, regardless of the organizational form of the provider.
Charitable Endowments and the Democratization of Dynasty,
Ariz. L. Rev.
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