Billionaire largesse: if you die leaving a fortune, there's something wrong with you

Giving Back, Big Time
Today's billionaires are heeding Carnegie's idea that 'the man who dies thus rich dies disgraced.'
By David Nasaw/LA Times

It has taken almost 120 years, but millionaires are finally beginning to follow Andrew Carnegie's advice. Hundreds of articles have appeared in the last six months comparing Bill Gates and a variety of 21st century philanthropists to Carnegie. In June, Warren Buffett explicitly referred to Carnegie and his writings in explaining why he had decided to leave $31 billion in Berkshire Hathaway stock to the Bill & Melinda Gates Foundation.

In his 1889 "Gospel of Wealth" essays, Carnegie demanded that the wealthy give away their fortunes in their lifetimes. Those who did not would "pass away 'unwept, unhonored, and unsung'…. Of such as these the public verdict will then be: 'The man who dies thus rich dies disgraced.' "

By his own measure, Andrew Carnegie did not die disgraced.

He sold his steel company to J.P. Morgan in 1901 (Carnegie got $226 million), and Morgan proclaimed him "the richest man in the world." Carnegie was an unapologetic capitalist. He defended the right of businessmen to make the largest profit possible, and he wasn't ashamed of cutting his workers' wages, increasing their hours, crushing their unions or violently breaking strikes, as at his Homestead mill in 1892.

But Carnegie also heeded his own "gospel," developing a moral philosophy of capitalism that resonates today. He handed out more than $350 million (tens of billions in 2006 dollars) to small colleges, technical schools and libraries. He established a scientific research institution in Washington; provided trusts to pay students' tuition and professors' pensions; built a library/museum/concert hall complex in Pittsburgh; and gave millions of dollars to campaigns for world peace and to establish the Carnegie Corp., dedicated to the "advancement and diffusion of knowledge."

Even smart and hardworking millionaires did not, Carnegie argued, earn their fortunes by themselves. "Wealth," he declared, "is not chiefly the product of the individual, but largely the joint product of the community."

Buffet, in a Fortune interview in June, recalled Carnegie's words. He had, he explained, told his first wife in 1952 that he expected to get rich mostly "because I was born with the right skills in the right place at the right time. . . . We agreed with Andrew Carnegie, who said that huge fortunes that flow in large part from society should in large part be returned to society."

Buffett's understanding of the ways in which wealth falls into the hands of the lucky few accords entirely with Carnegie's. Buffett credited his wealth to being "wired at birth" with investment acumen, the help of parents and others, and the fact that he lived in "a rich, populous country in which enormous quantities of marketable securities were traded and were sometimes ridiculously mispriced." Carnegie similarly made his fortune because his Scottish immigrant parents settled in Pittsburgh, a city blessed with abundant coke and iron ore and located at the center of a westward-reaching rail network.

The two men also see eye to eye on at least one way that society ought to collect its due from the rich: the much attacked and debated estate tax.

"I would hate to see the estate tax gutted," Buffett said as he announced his gift to the Gates Foundation. "It's a very equitable tax. It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people."

Carnegie, who was opposed to income taxes and property taxes, nevertheless supported near 100% inheritance taxes on large estates. Those who held on to their money, he said, instead of distributing it for the good of society, had no moral right to decide what happened to it after their deaths: "By taxing estates heavily at death, the state marks its condemnation of the selfish millionaire's unworthy life."

Carnegie did not support estate taxes because he believed the state needed more money. (As a good Republican, he was in favor of smaller, not larger, government.) An inheritance tax was necessary because it preserved the ability of men like him to rise to the top through their wits. The hereditary transmission of wealth from generation to generation would create dynastic power over business and politics. This was bad for capitalism, bad for democracy, bad for the children of the rich who were handed leadership positions they had not earned and worse for the poor and middle classes that had to struggle against unreasonable odds to achieve leadership positions.

Carnegie's demand that the wealthy give away their riches — or lose them to inheritance taxes — remains an extreme idea. The fact that the Republican-led Congress has severely cut what it calls the "death tax" is evidence of that. So is the commotion that greeted Buffett's largesse — the gift of about 85% of his fortune.

But Buffett's acknowledgment of Carnegie's vision also is evidence that a good idea — however extreme — will survive. Carnegie's gospel is alive, and spreading.

(David Nasaw, a history professor at City University of New York Graduate Center, is the author of "Andrew Carnegie," published last week.)