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Philanthropy in Democratic Societies
History, Institutions, Values
By Rob Reich, Chiara Cordelli, Lucy Bernholz The University of Chicago Press
Copyright © 2016 The University of Chicago
All rights reserved.
ISBN: 978-0-226-33578-0
CHAPTER 1
Altruism and the Origins of Nonprofit Philanthropy
Jonathan Levy
From left to right in figure 1.1, Joseph Keppler's Puck Magazine political cartoon "The Two Philanthropists," are Jay Gould, the great New York City financier, and William Vanderbilt, the son of recently deceased railroad magnate Cornelius Vanderbilt. At the time, Gould was competing with Vanderbilt for financial command over the corporation that controlled 90 percent of U.S. telegraphic service, the Western Union Telegraph Company. The Telegraph Act of 1866 had granted the U.S. government authority to purchase Western Union, to transform a private telecommunications network into effectively a public utility. Gould and Vanderbilt were bidding up the stock price, in competition with one another but with the consequence, intended or not, of forestalling an ever more expensive government purchase. But what does any of that have to do with philanthropy?
The question is not so easy to answer because at that time the meaning and institutional location associated with philanthropy across the twentieth century was not yet fixed. In the twentieth century, "philanthropy" would come to mean the private redistribution of wealth — usually first earned through private capitalist profit-making — through a "nonprofit sector." But that was not yet the case when Keppler drew "The Two Philanthropists" in 1881.
Philanthropy, perhaps by definition, is a form of private action. Yet, historically philanthropy has always been clothed with a public character, even if, over time, the clothes have changed. Ever since the permanent introduction of a federal income tax in 1913, tax exemption has made American philanthropy inescapably public. But before that, what originally made philanthropy public was its institutional organization by and through state-chartered corporations. If there is one continuity to the history of American philanthropy, it is that, from the first, it has been a corporate enterprise.
Gould and Vanderbilt claimed that their corporation, the Western Union Telegraph Company, benefited the public. They insisted that they were not engaging in financial buccaneering but instead laying the nation's first telegraphic network. The public would benefit most if that communications infrastructure remained under private charge rather than being ceded to the U.S. federal government. Keppler's caption mocked them: "Don't fret, Uncle Sam, We only want to make a bigger man of you!" In this, Keppler satirized one kind of philanthropic pretension. That is, the pretension that the outcome of private corporate profit-making was of great, even "philanthropic" benefit to the public — a familiar sentiment in the age not only of Gould, but also of Google.
In nineteenth-century America, however, that sentiment had a specific valence. The first generation of Americans, experimenting with republican government, had created one, mixed public/private corporate form, what might be called the republican corporation. While the propertied basis of the republican corporation was private, state legislatures chartered corporations on a discretionary basis, by up or down vote, to perform "public purposes." For a corporation was a "grant" or "concession" of popular sovereignty. Various public purposes were almost always construed as "benevolent" in character, benevolence being a concept that mixed, rather than distinguished, between private action and public purpose. To ensure these purposes, the private actions of corporations were constrained by the language of their state-granted charters, including the 1851 corporate charter New York State granted to what would become the Western Union Telegraph Company. It was this legacy — that all corporations, ranging from charities to universities to joint-stock companies — were mixed public/private entities, chartered for benevolent public purposes, that Gould sought to draw from to stave off a government takeover of Western Union.
Keppler believed Gould's appropriation of the republican legacy was cynical, and it was. "The Two Philanthropists" depicts the death throes of the old republican corporate order. And yet the cartoon, in subtle ways, says more. The American republic was by then a liberal capitalist democracy. Corporations, agents of that change, transformed themselves accordingly. "The Two Philanthropists" depicts not only the collapse of the old order. By another reading, it also uncannily deciphers the coming of a new corporate universe, the universe in which the modern relationship between philanthropy and democracy — at stake in every chapter to come in this book — would unfold.
Rather than consisting of one, republican corporate form, this was a private corporate universe of liberal corporations, for profit and nonprofit, a corporate universe, aspirationally, of moral and institutional binaries. In it, only private nonprofit corporations — not states or for-profit corporations like the Western Union — became appropriate vehicles of "philanthropy." Indeed, not until the 1870s was the very language and classification of "nonprofit" present. Only then did philanthropy begin to acquire one specific meaning — the private redistribution of wealth, often first earned through profit-making, through "nonprofit" institutional forms.
By the new criterion, Gould could not even pretend to be a philanthropist. (The Vanderbilts at least had founded Vanderbilt University in 1873. There is no such thing as Gould University.) Gould gave little of his wealth away, although his daughter, after inheriting his fortune, would. His greatest contribution to the history of philanthropy, in this new key, was probably the inclusion of his friend Russell Sage in many of his deals. Gould finally did take control of Western Union in 1881 and proceeded to place Sage on the board. Sage made a lot of money this way, but he too gave little of it away. Through his widow, however, his wealth would ultimately come to rest in the Russell Sage Foundation (1907), the first "general-purpose foundation." This and later general-purpose foundations afforded wide donor discretion, and the structure became modern philanthropy's most dominant nonprofit institutional form.
A lot had to change in the final decades of the nineteenth century, as this chapter demonstrates, for this dominance to occur. The passing of state-level general incorporation laws in the middle decades of that century first liberated access to incorporation. No longer a discretionary grant of sovereignty, a corporate charter became a free entitlement of citizenship. Rather than public purpose, state legislatures placed new stress on the private motivation to incorporate. It was the new accent on private motive that led to the creation of the for-profit/nonprofit binary. Critical was a new moral vocabulary, the gift of the English evolutionary thinker Herbert Spencer, of "egoism" and "altruism." The liberal keyword altruism, displacing the old republican keyword of benevolence, was as new to the latter half of the nineteenth century as the nonprofit corporation. The "discovery" of altruism, a private, purely other-regarding value, helped lend much-needed credit to philanthropy's new corporate home.
This chapter thus explores the late nineteenth-century historical connection between a moral idea, altruism, and the origins of a critical philanthropic institution, the nonprofit corporation. At stake, amidst competing efforts to mend the social cleavages and economic inequalities of industrial capitalism, was the relationship between public and private action, a new corporate ordering of the production and redistribution of wealth, and arguments that continue today — and in this volume — about the legitimacy of corporate philanthropy in a democracy.
On the question of democratic legitimacy, Keppler's "The Two Philanthropists" had its say as well. The cartoon was an early, soon-to-be familiar polemic against the private philanthropic redistribution of wealth — a critique of Gilded Age America's financial excess. In the first decades of the twentieth century, they would become Progressive political critiques of the great accumulations of philanthropic wealth in general-purpose foundations like the Russell Sage Foundation, the Carnegie Corporation (1911), or the Rockefeller Foundation (1913). But on closer examination, "The Two Philanthropists" also depicts a binary. The cartoon is divided in half, cut down the middle by the largest telegraph pole, with two railroad tracks flowing into one. Gould and Vanderbilt contest one another but pull on the same wires, strangling an emaciated body politic — a private stranglehold, so to speak, on the public good. Keppler not only mocked philanthropic pretensions. He criticized, prophetically, one conception of private morality, with its related institutional forms, that obfuscates the realities of corporate power. That conception is a moral universe of binaries, a contest between the private motives of egoism and altruism, institutionally residing in for-profit corporations and nonprofit corporations sharply distinguished from one another, but in the end two sides of the same corporate coin. This corporate universe, Keppler warned, might well leave but little room for the public good.
The Republican Corporation
In 1832 Joseph Angell and Samuel Ames published the first American legal treatise on corporations, Treatise on the Law of Private Corporations Aggregate. In it, there is no mention of a nonprofit corporation. Having evolved in the decades after the American Revolution, the "private corporation aggregate" was a specifically American corporate form, of mixed public/private character. Only later, in the decades after the Civil War, would the private corporation aggregate — the republican corporation — split into two liberal corporations, for-profit and nonprofit. Without first grasping the nature of the republican corporation, including its historical roots and working logic, it is impossible to understand the subsequent novelty and significance of nonprofit corporate philanthropy. This history of corporate form also provides a window onto shifting definitions of public and private action, including their disentanglement across the nineteenth century.
Angell and Ames cited the prior English classificatory scheme. For centuries in England, there were corporations "sole" and corporations "aggregate." Corporations sole consisted of one person, namely the sovereign (the king is dead, long live the king!) or individuals holding religious offices, like bishops. Corporations aggregate, associations of two or more persons, consisted of two types: "lay" and "ecclesiastical." In America, after the Revolution, both corporations sole and corporations aggregate ecclesiastical were no more. All that remained were corporations aggregate lay. Within lay, Angell and Ames explained, once more there were two forms, "civil" and "eleemosynary." Corporations aggregate lay civil consisted of both municipalities (future cities) and joint-stock trading companies (future for profit corporations). Corporations aggregate lay eleemosynary performed, broadly speaking, charitable tasks, including purposes proscribed in the preamble to the Elizabethan Charitable Uses Act of 1601, such as the "maintenance of sicke" and "education." The corporation aggregate lay eleemosynary would appear to be the most obvious candidate for the direct forebear of the American nonprofit corporation. But that was not the case.
Instead, Americans combined civil and eleemosynary corporations into one single form, the "private corporation aggregate" or, as it soon became known, given that corporations sole had ceased to exist, the "private corporation." Further, the United States created a new distinction, between "public" and "private" corporations. The action began in the courtrooms rather than the legislatures. The U.S. Supreme Court first began to articulate a public/private corporate distinction in Terret v. Taylor (1815). The case concerned Virginia's post-Revolutionary dissolution of a colonial corporation sole, the office of a bishop, or "persona ecclesiae," which had existed to convey property through a corporation aggregate ecclesiastical, the Episcopal Church. After the dissolution, Virginia expropriated the church's property. Justice Joseph Story, writing for the majority, ruled that the state could not do so. By judicial fiat, Story distinguished "public corporations," namely, those "which exist only for public purposes, such as counties, towns, cities, & c." from "private corporations." Justice Story declared that in 1776 the Episcopal Church had unwittingly transformed from a corporation aggregate ecclesiastical into a "private corporation." And as it was a "fundamental principle" of a republican government to protect "the right of the citizens to the free enjoyment of their property," Virginia therefore could not take the Episcopal Church's property.
The public/private distinction Story articulated in Terret ultimately would stick. What is potentially misleading is that Story was not saying that "private corporations" were not public too. That is, a "public corporation" was one that existed "only" for "public purposes." "Only" was a critical qualifier. All private corporations, Story knew well, then existed for private and public purposes. The difference was that the propertied basis of private corporations was private (which afforded the constitutional protections Story created in Terret v. Taylor). But, as the North Carolina Supreme Court put it in 1805 in Trustees of the University of North Carolina v. Foy (in a statement Story would have surely agreed with), "Indeed, it seems difficult to even conceive of a corporation established for merely private purposes. In every institution of this kind, the ground of the establishment is some public good or purpose intended to be promoted; but in many the members thereof have a private interest, coupled with the public object."
It was this mixed language of public and private that combined the English civil and eleemosynary corporations into a singular form, the American private corporation. The "private interest" might be to pay a dividend to a stockowner in a joint-stock company, or the Christian provision of alms to the poor. But to gain a corporate charter, each had to fulfill some "public purpose" — the construction of a turnpike open to the public, or the public maintenance of the sick. Thus, although Terret began to disentangle public and private, the two aspects were still fundamentally conflated in the "private corporation." Decades later, Angell and Ames echoed the same sentiment. States granted charters to corporations, they explained, whose "object tends to public advantage," whether it might be for purposes of "commerce," "literature," or "religion" (among other purposes). The "public benefit" was "deemed a sufficient consideration of a grant of corporate privilege" to private property holders.
The republican corporation expressed a long-enduring theory of corporate personality — that a corporation is a "grant" or "concession" of sovereignty. In England, corporations were grants of the monarch's sovereignty — "corporation" coming from the Latin word corpus, or "body," where the king's sovereignty resided. In the post-Revolutionary United States, as the "body politic" became "the people," corporations became grants of "popular sovereignty." Rather than Crown writ, U.S. corporate charters bore the imprimatur of popularly elected state assemblies. Citizens requested a charter from a state legislature. One by one, their elected representatives voted on them, scrutinizing the existence of a "public purpose." Not accidentally, the origins of the grant or concession theory of corporate personhood were Roman, and were appropriated by Americans during the broader revival of classical republicanism during and after the American Revolution. Eighteenth-century republicanism asserted that men of property must consent to the rule of their chosen representatives. That is why early nineteenth-century U.S. states placed property restrictions on the electoral franchise. Accordingly, in a quid pro quo, state legislators might grant corporate privileges, to carry out public tasks, to propertied citizens of the republic. (Without property, citizens could not vote or receive corporate privileges from their chosen representatives.) Meanwhile, if corporations subsequently failed to carry out their mandated public tasks, or exceeded limits set by the language of their charters, state attorneys general might bring them to heel, initiating quo warranto or ultra vires proceedings. Much like republican governments were bound by their own written constitutions, corporations, little "body politics," were to be governed by the language of their charters, their little constitutions.
(Continues...)
Excerpted from Philanthropy in Democratic Societies by Rob Reich, Chiara Cordelli, Lucy Bernholz. Copyright © 2016 The University of Chicago. Excerpted by permission of The University of Chicago Press.
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