Capitalism is the best economic system in practice for
charitable giving because it is the only one that gives
us the freedom to allocate our capital as we see fit.
But so many people equate capitalism with greed and
think that the profit motive is not compatible with
giving. This is a wrongheaded notion.
This is not saying that capitalism is free of greed.
There is plenty of greed involved, but no more so than
in command economies. Economics 101 teaches that
capitalism, based on the private ownership of capital
goods and the means of production, allows people to
use their assets as they please.
That applies to giving, as well. Business owners have
every right to give or not. If they do not, then we can
call them greedy, but it is not the fault of our system
that they don't.
We are a giving country
We have so much wealth and so much capacity for
generosity in our system because we incentivize
innovation and productivity. Gallup did a survey to find
out which countries are the most generous based on
the percentage of people who give to charity,
volunteer or help others.
The United States, its people, its foundations, and its
companies donated roughly $410 billion last year – or
about 2.1% of its own GDP. In fact, the amount
Americans donated was more than the entire GDP of
all but about 40 countries in the world.
But the United States is not the most generous
country on the list by Gallup’s metrics – the most
generous countries are Indonesia and Australia, then
the United States and New Zealand.
The Giving Pledge
In 2010, Bill and Melinda Gates and Warren Buffett
along with 40 of America’s wealthiest individuals and
couples joined together to create the Giving Pledge –
a commitment by the wealthy to give more than half of
their wealth away. So far, the Giving Pledge has
enlisted the support of over 200 individuals and
MacKenzie Bezos, one of the richest people in the
world with an estimated worth of over $36 billion
following her divorce from Amazon’s Jeff Bezos, just
signed the Giving Pledge promising to give at least
half her fortune to charity. In a letter announcing her
decision, MacKenzie wrote:
"My approach to philanthropy will continue to be
thoughtful. It will take time and effort and care. But I
won't wait. And I will keep at it until the safe is empty."
MacKenzie was one of 19 new Giving Pledge
signatories announced recently, and she hopes to
inspire others to do the same. And according to the most recent annual Forbes list of the world’s
billionaires, with 2,208 billionaires around the globe,
the Giving Pledge has a lot more room to grow.
Capitalism vs. planned economies
In centrally planned economies like Cuba, the state
owns the means of production, and profits are
supposedly distributed to all. In these systems, the
governing bodies give the wealth of the nation to
whom they choose. But resources are usually not
handled optimally or fairly. In most cases, they are
unevenly distributed to cronies or the current
leadership’s pet projects. When that happens, it is not
the fault of socialist philosophy, but of the leadership.
In the majority of cases where there is a monarch or
similar powerful group, that ruling group has the most
opulent lifestyle in the kingdom. This goes for Tudor
monarchs of old all the way up to modern-day North
Korea. In those economic systems, the powerful keep
the resources and wealth to themselves, only sharing
enough to keep the peace and stay in power.
Why taxes matter
In our world, we force giving through wage laws and a
system of taxation and redistribution both to pay for
collective goods and services and for simple transfers
to the needy. Many of our great capitalists give away
far more than our tax system requires of them
because they are passionate about donating, they
may get additional tax benefits – and they recognize
that our system allowed their enterprises to exist and
supported their success.
For whatever reason, they give a lot because they
were able to produce a lot. That was only possible
because they had the incentive to be productive. This
doesn’t just go for the ultra-rich and big multinationals
out there. In real world experience, most small
business owners also make giving part of their daily
This is not true in other systems of economics. In
systems where fewer economic incentives exist, there
is less excess capacity for giving to begin with.
It is fashionable to confuse capitalism and greed.
When we think of our free-market economy, we think
of the movie Wall Street and Gordon Gekko’s
infamous declaration that greed is good. We often
reduce every enterprise that seeks profit to a purely
profit-seeking enterprise. In truth, companies big and
small are there to provide not just for shareholders,
but also workers, customers and the community.
While you might not be a billionaire ready to sign the
Giving Pledge, how does philanthropy factor into your
financial planning? Let’s discuss.
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