JULIUS ROSENWALD (1862-1932) IS PERHAPS the most important philanthropist ever to warn about the dangers of perpetuity in foundations. His essay Principles of Public Giving, first published in the May 1929 Atlantic Monthly, is an important milestone in the history of philanthropy that still provides valuable advice to grantmakers.
Unlike most great philanthropists, Julius Rosenwald was not an entrepreneur. His wealth derived from his longtime position as president of Sears, Roebuck and Co., founded in 1889 by Richard Sears and Alvah Roebuck. In 1895 Roebuck retired, exhausted by the long hours and fearing liability for debts should the company fail. Sears, realizing he could not run the firm alone, looked for another partner.
He eventually found Rosenwald, who had started a company that made men’s suits. Sears was one of Rosenwald’s best customers, and in 1895 Rosenwald became one of Sears’s partners. Thirteen years later, Sears was forced out of the firm he had created, and Rosenwald became chairman of the board, a position he held until his death.
Once Rosenwald had consolidated control over Sears, he began a second career as a philanthropist. He led the effort to create a science museum in Chicago. He was active in Jewish causes, including efforts to aid Jewish settlers in Palestine. He also was a major benefactor of various efforts to aid African Americans. His contributions helped to establish scores of YMCAs as well as 5,357 schools in the South.
Rosenwald’s philanthropic career is of interest for yet another reason: he consistently warned of the dangers of perpetuity in foundations. As early as 1909, in an address to the Associated Jewish Charities of Chicago, Rosenwald warned about the dangers of charities that might have “outlived their usefulness.”
“I am opposed to the permanent or what might be styled the never-ending endowment,” said Rosenwald in a 1913 address to the American Academy of Political and Social Science. “Permanent endowment tends to lessen the amount available for immediate needs; and our immediate needs are too plain and too urgent to allow us to do the work of future generations.”
Rosenwald also made sure that his own philanthropy had a strict time limit. In 1917, he created the Julius Rosenwald Fund. The fund stayed small until 1927, when Rosenwald increased the fund’s endowment to $20 million by adding 20,000 shares of Sears, Roebuck and Co. stock to the fund. But in giving this money, Rosenwald imposed one condition — that the Julius Rosenwald Fund spend itself out of existence 25 years after his death.
“I am not in sympathy with this policy of perpetuating endowments,” Rosenwald wrote in a letter deeding the Sears stock, “and believe that more good can be accomplished by expending funds as Trustees find opportunities for constructive work than by storing up large sums of money for long periods of time. By adopting a policy of using the Fund within this generation, we may avoid those tendencies toward bureaucracy and a formal or perfunctory attitude toward the work which almost inevitably develop in organizations which prolong their existence indefinitely. Coming generations can be relied upon to provide for their own needs as they arise.”
In 1929 Rosenwald took his case against perpetuity to the press with the publication of Principles of Public Giving. The article created a sensation in the philanthropic world — Rosenwald received hundreds of letters from colleagues who headed philanthropies and universities, a surprising number of whom agreed with him. Rockefeller Foundation president George Vincent, for example, wrote that the case against “specific permanent endowments” has “been proved over and over again.” Edward A. Filene, the department store magnate who founded the Twentieth Century Fund, declared Rosenwald one of America’s ten most important business executives because his “business experience has led him to see through the shams of philanthropy and the pretenses of greatness which so often go with the accidental accumulation of great wealth.” Robert Brookings, founder of the Brookings Institution, told Rosenwald that the wealth he had given away “was insignificant” compared to “the value of this idea” of term limits for foundations.
Rosenwald himself contributed to the liquidation of the philanthropic assets of one donor. Conrad Hubert invented the electric flashlight in 1898 and founded American Ever-ready (now Eveready Battery) to market his many inventions. When he died in 1928, Hubert willed one-quarter of his estate to relatives and the remaining three-quarters to charity, leaving it to his executor to appoint three prominent Americans to oversee the disposition of the $6 million estate. In 1929 the executor, Bankers Trust, chose former President Calvin Coolidge, former New York governor Al Smith, and Julius Rosenwald, who convinced his colleagues to disburse most of the funds as matching gifts.
Perhaps Rosenwald’s most important disciple was Maurice Falk (1866-1946), founder of Duquesne Reduction, a firm that smelted copper and other metals. When the Pittsburgh industrialist decided to create a foundation in 1929, Rosenwald influenced him to impose a 35-year time limit on the resulting entity — the Maurice and Laura Falk Foundation. The Falk Foundation spent most of its funds on Pittsburgh charities and various good government programs; it was a major contributor to the Brookings Institution, which has named its auditorium after the Falk family. The foundation ceased to exist in December 1965.
Rosenwald’s views also influenced his family. Both Rosenwald’s daughter, Edith Rosenwald Stern, and her son, Philip Stern, created foundations with time limits. But aside from the Hubert estate, Maurice Falk, and Rosenwald’s own heirs, Rosenwald’s ideas had relatively little influence at the time. Rosenwald did persuade John D. Rockefeller to loosen some restrictions on grants he made to the University of Chicago so it could remove the funds from its endowment and spend them immediately. And the Rockefeller Foundation spent some of its endowment for a few years during the Depression.
But however much Edward Filene, Robert Brookings, or George Vincent professed to agree with Rosenwald, they did nothing to end the lives of the Twentieth Century Fund, the Brookings Institution, or the Rockefeller Foundation, all of which still exist (so too does New York City’s Commonwealth Fund, despite Rosenwald’s 1929 prediction that the fund would soon shut down).
Rosenwald did, however, influence the trustees of his own foundation. The Julius Rosenwald Fund spent itself out of existence in 1948, a decade before it was legally required to do so. “At the close of the work,” noted the fund’s historians, Edwin R. Embree and Julia Waxman, “the trustees and officers were more convinced than ever that Mr. Rosenwald had been wise in his stipulation that the foundation should complete its work in a generation. They felt that the Fund had been more effective with a short life than it could have been as a perpetual endowment. Its officers and trustees were not preoccupied with saving funds and conserving capital. They did not have time to grow stale nor to build themselves into a routinized bureaucracy.”
Julius Rosenwald died in 1932, having spent $63 million on good works. But though the Julius Rosenwald Fund has been equally dead for the past 50 years, and many of the schools built with Rosenwald’s assistance have long since been replaced with other structures, the thoughtful and provocative criticisms Rosenwald made against perpetual endowments are ones that each generation of donors must consider anew.
“Real endowments are not money, but ideas,” Rosenwald wrote in 1930. “Desirable and feasible ideas are of much more value than money, and when their usefulness has once been established they may be expected to receive ready support as long as they justify themselves.”
Martin Morse Wooster is a visiting fellow at the Capital Research Center and the author of Should Foundations Live Forever?: The Question of Perpetuity, published by the Center, from which this article was adapted.