The Gospel According to Bill and Warren

Robert Shiller for Project Syndicate on "The Gospel of Wealth":

Gospel according to Gates urges spending on the needy, by Robert J Shiller, Project Syndicate: Bill Gates and Warren Buffett, the richest and second-richest persons in America, and perhaps the world, are often described as admirers of Andrew Carnegie's famous 1889 essay, "The Gospel of Wealth." Carnegie's treatise, an American classic, provides a moral justification for the concentration of wealth by arguing that immense wealth leads to well-spent charitable contributions and support of the arts and sciences.

"The Gospel of Wealth" is based on the premise that business competition results in "survival of the fittest" - the fittest being those endowed with the most "talent for organization." Carnegie argued that those who thrive in business and acquire huge personal fortunes are better at judging how the world really works, and thus are better qualified to judge where resources should be directed.

Carnegie also advocated an inheritance tax as an incentive, arguing that it would "induce the rich man to attend to the administration of wealth during his life." Encouraging the rich to spend their fortunes on good causes while still alive, Carnegie maintained, is far better than leaving the disposition of their wealth to the care of their (probably untalented) children.

Last month, Bill Gates announced that he would do what Carnegie recommended: In two years, he will ... devote his life to spending his huge fortune on philanthropy. Warren Buffett, by contrast, is 76, so he has missed his chance to apply his talents to running a charitable foundation. But, by leaving the bulk of his fortune, about US$31 billion, to the Gates Foundation, he will have done the next best thing. ...

[W]hereas Carnegie's theory makes some sense (which is why his essay is remembered so well more than a century later), it isn't obvious that he was right to believe that successful business people are the best administrators of charitable foundations.

Useful traits in business, like aggressiveness or political savvy, might be poorly suited to philanthropy. Likewise, running a foundation may well require studying social problems or the arts and sciences - activities that may not accord with former capitalists' inclinations and talents.

The deeper flaw in Carnegie's theory may be that it is just too difficult psychologically for business people to make the mid-life career transition to philanthropy. Having accumulated great wealth as "survivors" of the business world, will they really turn their talents to the task of giving it away? ...

The public-spirited justification of the concentration of wealth offered in "The Gospel of Wealth" has more support in the United States than elsewhere, which reflects Americans' relatively greater admiration of business people.

But Carnegie's argument never became received doctrine even in America, because most people reject the view that rich business people are smarter and morally superior. Certainly, Gates and Buffett claim nothing of the sort. ...

And yet there is more charitable giving in the United States than in other countries, reflecting a greater sense in America that private benevolence is an obligation. ... Excluding donations to churches, such contributions amount to 1 percent of GDP in the United States, which is six times higher than in Germany or Japan... However, 1 percent of GDP is still not a very big number, and the Gates Foundation, with about US$60 billion after Buffett's bequest, now accounts for a substantial share of the total.

Of course, Gates and Buffett deserve praise, and we should certainly wish them well. But we should not yet consider their example a vindication of "The Gospel of Wealth."

Extending this logic, we should identify the richest person in the kingdom, concentrate all wealth in their hands, and let him or her function as our benevolent dictator since that person would be, more than anyone else, "better at judging how the world really works, and thus ... better qualified to judge where resources should be directed." Sounds a bit like the Gates Foundation in two years.

The question is whether the concentration of wealth is justified. If it is, the wealthy can spend the money as they wish, on the Gates Foundation or whatever, though giving back is certainly honorable. But I don't buy "The Gospel of Wealth" as a reason to concentrate wealth, or as necessarily the best way to allocate charitable contributions.