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Philanthropy

The root of the word philanthropy means “love of” (philo-) “mankind” (anthropos), but in practice, it has a more restricted definition: the voluntary giving of private wealth for the public good.

The novelty of modern philanthropy is its impersonality; while people have helped their kin and neighbors for as long as human societies have existed, the voluntary transfer of money to strangers is quintessentially modern. Historians have documented the existence of personal almsgiving back to the ancient Egyptians, and every major religion encourages philanthropy. However, the institution of philanthropy did not gain legal status until the Charitable Uses Act of 1601 in Tudor England, and its widespread popularity was not secured until the Victorian era, when philanthropy became a prominent means of responding to the needs of the new urban poor that resulted from the Industrial Revolution.

Contemporary Relevance of Philanthropy

Modern philanthropy has reached its current apogee in the United States, where most of the world's largest charitable foundations are located. According to the Charities Aid Foundation, in 2006, the United States had the highest level of giving as a percentage of gross domestic product (GDP); at around 2 percent per annum, it is more than double the next most generous society, the United Kingdom, where philanthropic giving hovers around 0.7 percent of GDP. However, even in the United States, levels of philanthropic spending are low in comparison to the amount that individuals spend on goods and services for their own consumption and in comparison to government expenditure on public services. Yet the quantity of philanthropy is arguably less significant than the qualities it represents. Modern consumer societies are characterized as governed by self- interest and profit maximization; therefore, nonmarket driven actions are of particular interest and importance. One commentator likened the emergence of philanthropy to another strange and improbable creature, the giraffe—in both the literal jungle and the jungle of capitalism, neither could possibly exist, and yet they do.

Philanthropic gifts are often designed to be permanent to maximize their impact and to ensure the donor's enduring legacy. For example, philanthropists in previous centuries have built many of the public facilities still in use, including schools, hospitals, libraries, parks, and theaters, and philanthropic funding of scientific and medical advances benefits later generations. Contemporary philanthropy continues to facilitate the private funding of a vast and diverse array of activities in areas ranging from the arts to social welfare to educational provision given via one-off gifts, regular donations, philanthropic foundations, and charitable bequests.

Theories and Debates

Economists have a particular interest in the “puzzle” of philanthropy because it challenges the fundamental tenets of a science based on assumptions regarding self-interested behavior. The incorporation of philanthropy into neoclassical economic models has been achieved by claiming that philanthropy is like any other form of consumption that people have a taste for. The axiom of rationality that is central to economic theory is maintained by emphasizing the “purchase” of donor benefits, such as a desire for more of the service that is funded. This proposition was first articulated in the public good theory of philanthropy. Examples of consumption philanthropy include donating to a church one attends or supporting medical research in a disease one might someday contract. Some philanthropy involves neither tangible nor potential benefits, notably support for international development, which requires stretching the definition of consumption to include intrinsic benefits, such as the satisfaction and pleasure gained by making a gift.

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