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| Philanthropy |
The Paradox of Perpetuities
Matthew Schuerman
01/01/2004
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John M. Olin invented different kinds of bullets. He ran a company that made Winchester rifles. He bred Labrador retrievers, and his horse once won the Kentucky Derby. He made millions of dollars, had four homes and received the Chevalier de la Legion d’Honneur from France. But toward the end of his life, according to his associates, Olin developed one nagging fear: that his money would end up in the hands of liberals.
 He had seen this fate befall others. In 1977, Henry Ford II quit the board of his grandfather’s foundation, complaining that it had abandoned the free-market principles responsible for its huge endowment. When Olin recognized what happened to the Ford legacy, he instructed the trustees of his own foundation to spend it down within a generation after his death. Olin believed he could trust the men he himself appointed to promote his conservative interests, yet his faith in the fealty of their appointees proved less stalwart. And so in keeping with his wishes, the John M. Olin Foundation, one of the most prominent foundations on the political right, will cease to exist in 2005, 23 years after its founder’s death.
The idea of a foundation spending itself down is inimical to the going philanthropic wisdom. If one is able to retain some income from the foundation’s investments, the endowment grows. This produces more income in the future, which will eventually be paid out in more grants. Tax laws in this country are designed with this theory in mind; foundations are required to spend a mere 5 percent of their assets each year, which should enable endowments to grow faster than inflation.
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