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Most of the tenacious problems that furrow a Harvard executive's brow-tenure, housing, food, to mention only a few-could be solved speedily by a single, simple means: more money. Funds are lacking here, funds are lacking there, until it is fairly evident that the rich man among America's universities knows that pinch of scarcity far better than many suspect. The fact is that with its enormous endowment of $146,000,000, Harvard is financially pressed. It grows poorer at a rate that justifies that gravest fears for its future. It is threatened with eventual starvation in a full-stocked pantry.
How is this paradox possible? The answer lies in the nature of the endowed institution. Harvard does not live on its endowments but on the interest which they earn. Thus, as the interest rate falls its income dwindles proportionately; so that to maintain income at a stable level, the downward trend of the interest rate would have to be offset by a proportional growth of endowments. And unfortunately there is little hope for endowments to increase: steeply progressive taxes prevent the accumulation of fabulous fortunes, and low interest rates discourage donations of large capital funds. The endowed college is hemmed in on all sides.
To cope with the steadily increasing host of problems whose only solution is "more money," Harvard will eventually have to adapt its financial position to the need of the day. This it could probably do by following the plan which Chicago's enterprising President Hutchins advanced last year. Mr. Hutchins proposed that endowments should be made available to the college for every-day expenses instead of being stocked up as untouchable funds "to be preserved forever." Heretofore it has been the custom of most donors to stipulate that the principal of their gift be left intact; but this is precisely what Mr. Hutchins's plan would eliminate. His theory is that the endowed college should maintain its present prestige instead of sacrificing it to an uncertain future in which inflation may wipe out all its holdings. The dove in the hand is better than the sparrow on the roof. Apres nous le deluge.
However, such grim fatalism is unlikely to appeal to conservative financiers, even though no more radical an organization than the Rockefeller Foundation has recently begun to spend its capital funds. Most universities are still unwilling to impair their financial integrity for the sake of academic standing. But the solons of university finance would do wrong to reject Mr. Hutchins' proposal in toto, without scanning it for possibilities of compromise. It might, for instance, be an excellent idea to preserve existing endowments intact while spending those which are made in the future. Whatever the economic wisdom of Mr. Hutchins's plan, educational institutions will be forced to adopt it if the investment market continues in its present passivity. Confronted with an ever diminishing income, the endowed college will start to nibble from its capital; shyly and furtively first, and more boldly as time progresses.
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