Philanthropy, stock-picking, and Presbyterian frugality

By Felix Salmon
December 2, 2013

I love the story of Jack MacDonald, which is only becoming public now, after his death. The short version: MacDonald inherited a substantial fortune from his parents, the proprietors of MacDonald Meat Co. in Seattle. But he made the classic promise to himself, that he wasn’t going to let the money change his life — and he kept it. He worked as a government lawyer for 30 years, he clipped coupons, he wore tatty sweaters, and even at the end of his life he was imploring his doctor to treat him only with generic drugs. He died a happy man, and bequeathed his fortune to three charities: the law school from which he graduated in 1940; Seattle Children’s, a pediatric research institute beloved of his mother; and the Salvation Army, in memory of his father.

Or rather, he bequeathed the income from his fortune equally to all three charities. The fortune itself — valued at $188 million — will remain fully invested.

MacDonald did not like to spend his money, but he loved to invest it:

When it came to picking stocks, “he was amazing,” said his stepdaughter, Regen Dennis, of Utah. “He didn’t trust a lot of other people to do his research; he directed what he wanted bought, and he really knew what he wanted.” …

MacDonald and his wife moved in 1997 to the Horizon House retirement community, where Mary died in 1999. In the retirement home, MacDonald continued to keep his hand in the stock market while nurturing his image as a man without means, even wearing sweaters with holes in the elbows…

Picha, of Children’s, often visited MacDonald at Horizon House, where copies of The Wall Street Journal and Forbes magazine were stacked on both sides of his favorite chair. His routine included an early-morning workout, a visit to the grocery store and a walk to his stockbroker to check on his accounts, Picha said.

There are three things going on here of note. Firstly, there’s the idea of stock-picking as a hobby for men. MacDonald was a devotee of this particular hobby, and clearly loved it. His stepdaughter says that he was very good at it, too — but without knowing how much money he started with, or when the inheritance took place, it’s hard to tell exactly how good he was. MacDonald might not have been spending his money on consumption, but he was still getting pleasure from it.

Secondly, there’s the deeply Scottish/Presbyterian idea that saving is something you do in perpetuity — an idea which lies at the heart of the thousands of endowments which dominate the non-profit sector in the US. MacDonald was a steward for his parents’ savings, and, at the end of his life, he created a structure which attempted to ensure that those savings would remain intact for generations to come. This is, at heart, a deeply futile stance, a little bit like hoarding bitcoins and never spending them. I’m reminded of the story told by Mary Ann Glendon:

Bostonians still tell the story of the respectable society matron who was crossing the Common one day and ran into an old college chum she hadn’t seen for years. The matron was dismayed to see that her friend was obviously engaged in the world’s oldest profession. “My dear,” she said, “whatever has happened to you?” “Well,” said her friend, “it was either this or dip into capital.”

From a philanthropic perspective, the point here is that as a rule it makes sense to front-load donations, not to back-load them. I don’t know when MacDonald first inherited his fortune, but it might well have been 50 years ago. That’s 50 years’ worth of children who haven’t received the benefit of his generosity. What’s more, the world and Seattle have been getting richer and healthier all the while, which means that the future recipients of MacDonald’s money will be less needy than the hypothetical past recipients would have been.

And yet, even now that MacDonald has died, Seattle Children’s Research Institute will receive, annually, just 5% of its share of the bequest. That’s the bare minimum, under US law, that MacDonald can give away and still be counted as a charitable trust. I’m sure that if the law allowed the trust to give away even less than 5% per year, MacDonald would have chosen an even lower number. There’s lots of self-congratulatory back-slapping going on around this bequest, but the fact is that MacDonald isn’t really giving his money away: he’s controlling it, to the maximal extent possible, from beyond the grave.

Finally, it’s worth noting that Doug Picha, president of the Seattle Children’s Foundation, cultivated MacDonald for 30 years before finally achieving this donation. I’m sure that his motives weren’t entirely mercenary, and that the two men were genuine friends. But if you’re in the fundraising business, and you’re looking for really big donations from incredibly rich individuals, that means you’re going to be playing a very, very long game — and, quite possibly, having to wait until those individuals die.

MacDonald reportedly said he “wanted to be remembered as a philanthropist” — and he’s certainly less self-effacing now that he’s dead, slapping his name all over the central square of Elora, Canada, as well as the Jack MacDonald Endowed Chair at the University of Washington. But the fact is that if he were really philanthropically inclined, he would have given much more money away many decades ago. And he wouldn’t be giving away only the barest minimum now that he’s dead.

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Comments
11 comments so far

What a shitty human being you are, Felix.

And you’re not thinking it through.
By saving up for many years and then structuring it in a way so that his philanthropy will last for many generations, he will have done much better than just throwing it all down at once.

Also: Who says life in America is eternal progress? Maybe for well-to-do types like yourself. Stagnant middle class wages and increasing inequality doesn’t at all suggest that it would have been better had he just blown his bank account in a single frenzy like you suggest.

His long-term vision means there is a viable long-term goal. And your attacks on his character while he is dead, oh he has buildings named after him!, is just again more an indication of your general shittyness.
And who says he even insisted on it. Sounds more like something that is being done by default when given a large prize. Reading that story, he doesn’t come across as a very narcissitic guy. Maybe you should learn from that.

Felix, this is the first time I read your blog. You lost me right away. Maybe there’s a reason why you’re stuck in the same place.

Posted by WangZhu | Report as abusive

What a grumpy commenter you are, anonymous commenter. I think Felix is spot on. MacDonald could, and should have given his money away earlier, unless his real pleasure in life was being courted by would-be recipients of his largess. And trusts that allow the dead to control the living are ridiculous, monuments to human vanity and the ability of the rich to get their way in everything.

Posted by AlanVanneman | Report as abusive

So Felix, how much you have given over the years?
Do you actually follow what you preach?
I am curious to know.

Posted by SamYang | Report as abusive

A deeper question lurking here is: what discount rate ought we apply to charity? MacDonald (or at least Felix here) has the utilitarian objective of allocating capital towards the alleviation of human suffering. One has the choice of spending the marginal dollar on $1 of charity today or $1*(1+r) next year. Is the discount rate on future suffering higher or lower than the return on capital?

If MacDonald was in fact good at picking stocks and/or had little sentimentality towards the present, NOT giving to charity would be a rational moral imperative. The same holds true for his charitable trust. Is 10 vaccines today better than 20 a year from now? How about ten years from now? On what basis can we make this decision? And is implied discount rate mere personal preference?

Not trying to claim that MacDonald had gamed it all out like this, but these are important questions if you want to promote the “front-load charity” philosophy.

Also I don’t think rising average living standards are that relevant to the moral calculus. What’s important is the neediness of the actual recipients of charity, not the average person. A homeless, destitute person today may be as miserable as one fifty years ago despite an increase in car ownership per capita or what have you. This is especially true if targeting charity on a global scale.

Posted by Dean_Weez | Report as abusive

A deeper question lurking here is: what discount rate ought we apply to charity? MacDonald (or at least Felix here) has the utilitarian objective of allocating capital towards the alleviation of human suffering. One has the choice of spending the marginal dollar on $1 of charity today or $1*(1+r) next year. Is the discount rate on future suffering higher or lower than the return on capital?

If MacDonald was in fact good at picking stocks and/or had little sentimentality towards the present, NOT giving to charity would be a rational moral imperative. The same holds true for his charitable trust. Is 10 vaccines today better than 20 a year from now? How about ten years from now? On what basis can we make this decision? And is implied discount rate mere personal preference?

Not trying to claim that MacDonald had gamed it all out like this, but these are important questions if you want to promote the “front-load charity” philosophy.

Also I don’t think rising average living standards are that relevant to the moral calculus. What’s important is the neediness of the actual recipients of charity, not the average person. A homeless, destitute person today may be as miserable as one fifty years ago despite an increase in car ownership per capita or what have you. This is especially true if targeting charity on a global scale.

Posted by Dean_Weez | Report as abusive

Felix, I love your counter-intuitiveness takes, but I think you’re way off base here for a few reasons:

1. Shouldn’t you respect the notion that this man probably doesn’t believe in a strong Efficient Market Theory? True, we don’t know where he started, or even if he did beat the market whether it was from blind luck or better-than-average picking. But it doesn’t matter since any investor has the right to try to beat the market. And if he truly thought he could beat the market, then it made more sense for him to maintain control of his money to grow it faster until the time of his death. How can you criticize him, and not Warren Buffett who seems to undertake a similar philosophy with a large chunk of his fortune?

2. It’s absurd in the vast scope of human history (and the human suffering that has always shadowed it), that you really think giving money 20 or 30 measly years earlier than he did is going to make such a vast difference! Plus, with technological advances, it could actually be better to wait. Take anti-viral HIV drugs for instance. One could argue money invested now could go farther to eliminating AIDS deaths than 20 years ago. Or, if he gave money in the go-go late-90s as opposed to now, my guess is there were less food banks in need back then.

3. Cheap shot on the building names. Most people wouldn’t settle for that when they were in the ground if they could also have their ass kissed while they were living and still be part of a ceremony where the naming rights were announced and applauded. I’m sorry your name on a building would sound like a cat food factory, but give this dude a break for still giving it up for charity.

Posted by mmjjss | Report as abusive

Hey, WangZhu, if you’re reading the blog for the first time, how do you know Felix is stuck in the same place?

Posted by samadamsthedog | Report as abusive

Felix I can get behind the idea that the best givers (like Carnegie, Gates, Dell ect) give deeply both during life and in death.

I’m not sure I can follow you to the premise that a large one-time gift will have a greater positive impact on society than a sustained effort over time.

I believe you would agree that the average quality of human life has never been greater on planet earth than it is today. While some people would surely debate that assertion, I can’t think of any measurable statistic like GDP per Capita or global average life expectancy which would not point to the present day being the high water mark of human achievement. This idea would lend itself to you point that past giving bests future giving.

The flip side of that coin is that while the AVERAGE quality of life has never been higher than today the ABSOLUTE number of people living in truly squalid poverty has also probably never been higher (7 billion people now very unevenly share the earths resources vs 5 billion very unevenly sharing the worlds resources in 1990.) I probably could have worded that in a much simpler way. The percentage of the worlds population suffering has declined slowly but steadily over time… but the number of people suffering has still inexorably risen as the population has risen sharply.

If you agree with that 2nd world view (and I’m not sure how you could dispute it) than giving the 5% minimum in perpetuity is better than giving 20times as much today because there will always be more mouths to feed and minds to educate tomorrow until the moment the human race controls it’s overpopulation.

This is your best post of 2013 by the way!… very thought provoking!

Posted by y2kurtus1 | Report as abusive

Felix,
Most people, myself included, would agree that the most impact-full donors give deeply both during life and in death. Gates, Dell, Carnegie all fit that best of both worlds profile.

You could probably sanely argue that since the average quality of human life is at or near an all time high that past giving or early giving bests giving in the future.

I would argue that while the AVERAGE standard of living has never been higher in all of human history the ABSOLUTE number of suffering people is also at an all time high. Think about it in 1990 we had 5 billion brothers and sisters with about a billion of those living in pretty squalid poverty.

Hundreds of millions of those people have been lifted up in the ensuing 24 years… and yet we have grown our population so much that we still sadly have more desperately poor people than we started with. If you frame the debate in that way I could make a strong case that inter-generational gifting will find more hungry mouths to feed in 2025 than in 2015 2005 or 1995.

Best hopes for more saver/givers and less conspicuous consumers!

Posted by y2kurtus1 | Report as abusive

Seems petty to pick on this guy. Of all the possible outcomes of the scenario- childless guy inherits millions of dollars at a young age- this seems like one of the best ones I can imagine. He apparently not only preserved the wealth, but, if we believe the story, may have actually grown it quite effectively before electing to give it away to charity. I certainly don’t begrudge the fact that he did so using a sustainable structure that ensures prolonged benefit from the trust.

Are you prepared to scold Bill Gates and Warren Buffet with similar logic because most their wealth will not be transferred until after they pass on?

Just doesn’t seem like someone who deserves to have shots taken at him posthumously.

Posted by Newy | Report as abusive

You really need to preface that whole piece with an introduction that you are about to flyspeck the relative virtues of various kinds of exceptional generosity. In life (maybe yachting) or death (maybe a colossal statue of himself), Mr. MacDonald could have just spent all of his money, and we have no reason to expect otherwise of people generally. Also, even while investing, he was giving society the benefit of his resources, instead of calling in his chips for personal consumption. “If he were really” more “philanthropically inclined” than almost everyone else, he might well have done exactly what he did.

Posted by RyanDonovan1 | Report as abusive
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