"Forever is a Long Time": Reconsidering Universities’ Perpetual Endowment Policies in the Twenty-First Century

Abstract

College and university officials in the United States have long invoked a combination of Anglo-Saxon legal precedents, plus the obligations of responsible philanthropic stewardship, to justify policies of perpetual endowments. Closely related to this general principle has been the practice of not spending more than the annual earnings (in other words, interest and dividends) from an endowment. Our historical analysis provides a counter to this contemporary conventional wisdom that has been accepted with little critical consideration in American higher education. Rediscovery of philosophical arguments, and actual cases of foundations and philanthropists who placed limits on the life span of gifts, demonstrates how historical research can provide an informed base for reconsideration of government and institutional policies and practices that shape giving and spending at colleges and universities in the twenty-first century.

The grounding in economics for our study is Howard Bowen’s 1980 “revenue theory" of college costs. The historical precedent for our policy analysis comes from eighteenth-century France, as advanced by A.J. Turgot, to shape national economic development. Its implications for higher education in the United States is illustrated by philanthropist John D. Rockefeller’s reservations about a perpetual endowment for an educational project: “Forever is a long time . . .” Our historical research addresses the consequences — pro and con — of government policies requiring colleges to spend endowments at more than a marginal annual rate and in a fixed period of time; and, secondly, are there good reasons for donors to colleges to voluntarily opt to increase spending and place time limits on gifts?