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[NOTE: While three of the four books reviewed here are not particularly  
relevant to the history of economics (albeit perhaps of general interest  
to some), the fourth, by Sealander, deals with a subject that has  
begun to gain some attention in the literature.--RBE] 
 
EH.NET BOOK REVIEW 
 
Published by [log in to unmask] and EH.Net (May 1998) 
 
Bruce R. Hopkins and Jody Blazek.  _Private Foundations:  Tax 
Law and Compliance_.  New York:  John Wiley & Sons, 1997. xxi + 
498 pp.  List of exhibits, appendices, tables, bibliographical 
references and index.  $125.00 (cloth), ISBN 0-471-16892-0. 
 
Bruce R. Hopkins and D. Benson Tesdahl.  _Intermediate 
Sanctions:  Curbing Nonprofit Abuse_.  New York:  John Wiley & 
Sons, 1997.  xiii + 194 pp.  Appendices, glossary, bibliography, 
index.  $49.95 (paper), ISBN 0-471-17456-4. 
 
Lester M. Salamon, with the assistance of Stefan Toepler and 
Associates.  _The International Guide to Nonprofit Law_.  New 
York:  John Wiley & Sons, 1997.  xxxii + 400 pp.  Appendices, 
bibliography, index.  $125.00 (cloth), ISBN 0-471-05518-2. 
 
Judith Sealander.  _Private Wealth and Public Life:  Foundation 
Philanthropy and the Reshaping of American Public Policy from 
the Progressive Era to the New Deal_.  Baltimore:  Johns Hopkins 
University Press, 1997.  xii + 245 pp.  Notes, bibliography, 
index.  $39.95 (cloth), ISBN 0-8018-5460-1. 
 
Reviewed for H-Business and EH.Net by Milton Goldin <[log in to unmask]>, 
National Coalition of Independent Scholars 
 
What ties together these four timely books is scrupulous 
research on subjects that require, but infrequently receive, 
thorough investigation:  attempts (in the first three books 
listed) to offer lucid descriptions of complex legal frameworks, 
and perceptions in all four books that at the turn of the 21st 
century Congress may be no closer to defining coherent 
guidelines for grant-giving entities and other nonprofit 
organizations than it was at the turn of the 20th century, when 
American charity began its journey to "scientific philanthropy." 
Hopkins and Blazek offer a survey of foundation law, Hopkins and 
Tesdahl discuss "intermediate sanctions" (a major new legal 
issue for nonprofits), and Lester M. Salamon and co-authors 
survey nonprofit law and issues in the United States and 
twenty-one other countries.  Judith Sealander is the only writer 
in this group not to emphasize that our present understandings 
of what foundations can and cannot do are riddled with legalisms 
so convoluted that they severely test the understandings of 
highly-qualified lawyers, accountants, nonprofit executives, and 
fundraising professionals, not to mention the Internal Revenue 
Service.  Sealander tells us that many historians, past and 
present, have not got quite right how seven pioneering 
foundations--four of them Rockefeller (the Rockefeller 
Foundation, the Laura Spelman Memorial, the General Education 
Board, and the Bureau of Social Hygiene), and the Commonwealth 
Fund, Rosenwald Fund, and Russell Sage Foundation--functioned 
during their early years and why these enterprises had problems 
deciding what foundations could and could not do. 
 
One measure of the need for such books is the spectacular growth 
in the number of nonprofits, including foundations, especially 
during the past half century.  As late as 1940, America had only 
12,500 nonprofits.  By 1967, there were 309,000, and by 1993, 
there were some 1.3 million--a 10,300 percent increase in just 
over fifty years.  At the beginning of the 20th century, only 
eight foundations were in existence; today there are estimated 
to be some 50,000--a 624,900 percent increase.[1]  Salamon 
further points out (p. 2) that as of 1990, in seven major 
industrial nations including the United States, "nonprofit 
organizations employed the equivalent of 11.8 million full-time 
employees....This was six times larger than the number of 
workers employed by the largest private corporation in each of 
these countries." 
 
In 1993, American nonprofits had total annual operating budgets 
of some $500 billion; foundations had assets of about $195.8 
billion.  Two years earlier, two adjoining hospitals in New York 
City--New York Hospital-Cornell Medical Center and Memorial 
Sloan-Kettering Cancer Center--had a combined annual budget of 
$1 billion, which more than equalled the budget of the entire 
United States government just prior to World War I.[2] 
Hopkins and Blazek, attorneys and legal authorities on tax- 
exempt organizations, remind us (p. 18) in _Private Foundations_ 
that although Congress first concerned itself with foundations 
in 1912, no body of law governing such organizations existed 
prior to the Tax Reform Act of 1969. This legislation came into 
existence thanks mainly to Representative C. Wright Patman of 
Texas, a populist who deplored the existence of foundations to 
the same extent that he deplored the existence of Wall Street 
financial institutions, and for the same reason--wealthy 
Easterners served on the boards of both the banks and the 
foundations. 
 
In theory, after the 1969 enactment, statutes and regulations 
would frame foundation law.  But in practice, procedural 
details, which stemmed from IRS private determinations--meaning 
letter rulings, technical advice, and general counsel 
memoranda--that are technically not "law," as Hopkins and Blazek 
also rightly remind us beginning on p. 8, actually defined 
foundation law.  Such documents emerged from the IRS with 
bewildering frequency.  The IRS initiated (and in some instances 
reversed) policy so rapidly that no one knew exactly what was 
happening at any specified moment. 
 
Hopkins and Blazek add (p. 200) that the Tax Reform Act of 1981 
in which Congress revised private foundation mandatory 
distribution rules, partly because of dramatically high interest 
rates paid on bonds and other debt instruments during the late 
1970s, further complicated matters.  But surprisingly, the 
authors do not touch on a new height of cynicism about 
foundation regulation inevitable with a discovery by donors and 
their financial advisors, in the early 1990s, that the IRS 
sometimes does not strictly enforce regulations governing 
tax-exempt organizations.  (The Clinton administration has thus 
far cut by ten percent the budget of the IRS Exempt 
Organizations Division, which today has only 400 agents to 
oversee nonprofits, or one agent for every 3,250 such 
organizations.  On the state level, attorneys general in 24 
states have no designated person assigned to monitor nonprofits, 
and only 11 states have two or more people dealing with such 
matters full time, according to the National Association of 
Attorneys General.)[3] 
 
Wisely, Hopkins and Blazek decided to limit _Foundations_ to 
what could be of the most advantage to a market consisting 
mainly of attorneys, nonprofit board members, and professionals 
in the nonprofit field.  Their work serves as a valuable 
handbook summarizing foundation law, and it can assist 
foundation officers and managers in understanding and completing 
such documents as IRS Form 990-PF, which must be filed annually 
to prove that a private foundation maintains an ongoing policy 
satisfying rules. 
 
Completing Form 990-PF can be a daunting task.  The authors tell 
us that "instructions are 26 pages long and exemplify the 
complexity of reporting and compliance requirements for a 
private foundation" (p. 331).  Successful completion of the form 
does not guarantee immunity from IRS searches:  "The manner in 
which the IRS chooses organizations to examine changes from year 
to year is always a matter of great speculation.  In some years, 
the IRS looks at business leagues, some years at social clubs, 
and in other years it may examine hospitals, related clinics, 
and universities" (p. 71). 
 
Readers will find a chart (pp. 331-356) outlining those Form 
990-PF parts to prepare first and those parts that are dependent 
upon some other part for completion.  An invaluable checklist of 
private foundation compliance issues (pp. 356-390) should be 
read by every person with more than a casual interest in the 
subject. 
 
Hopkins and Blazek make admirable efforts to define terms as 
well as to deal with frameworks, optimistically writing (p. 
viii), "the myth has to be dispelled that private foundations 
are difficult if not impossible to manage."  Which, under the 
circumstances, might seem a hopeless task to some readers. 
Consider a problem that emerges as early as page 13, with the 
term "charitable."  Federal income tax regulations, which use 
the term in its English common law sense, note that it can also 
be used in a "generally accepted legal sense" (p. 13), which 
regulations fail to precisely define.  This leads Hopkins and 
Blazek to note a court decision in which a judge found that 
"evolutions" in the definition of "charitable" are "wrought by 
changes in moral and ethical precepts generally held, or by 
changes in relative values assigned to different and sometimes 
competing and even conflicting interests of society" (p. 13). 
This may strike some readers as proof positive that the courts 
lean to a striking lack of clarity. 
 
In _Intermediate Sanctions_, Hopkins, this time with D.  Benson 
Tesdahl, an attorney and Adjunct Professor of Law at Georgetown 
University Law Center, deals with a new challenge for the 
nonprofit field, to grasp the essentials of "intermediate 
sanctions."  These new laws stem, in part, from IRS concerns 
about "self-dealing," which it defines, in the "private 
foundation context," as "inappropriate arrangements between a 
private foundation and those closely associated with it" (p. 
180). 
 
As an example (not cited in the book) of what had concerned the 
IRS, two Shubert Foundation attorneys and officers, Bernard B. 
Jacobs and Gerald Schoenfeld, benefitted greatly from a 
highly-unusual and little-known tax ruling in 1979 that gave 
that foundation an exemption from federal tax laws that declare 
that private charities generally cannot own a controlling stake 
in a profit-making business.[4]  It had developed that Jacobs 
and Schoenfeld received hundreds of thousands of dollars as paid 
advisers to the benefit funds of their own workers in the 
Shubert Theater chain,[5]  who, like the attorneys, might 
possibly have been considered foundation employees by the IRS, 
given that the foundation controlled the theaters. 
"The only mystery--and that was scant," write Hopkins and 
Tesdahl, "surrounding intermediate sanctions was_when_they would 
be enacted" (p. x).  Which is not quite accurate, because 
another mystery was _whom_, exactly, would the sanctions 
concern?  No further newspaper articles suggested that they 
concerned Jacobs and Schoenfeld, and/or the Shubert Foundation, 
but the IRS had already been emphatic that penalties--structured 
as excise taxes--could be imposed on disqualified persons who 
improperly benefited from transactions and on an organization's 
managers who participated in such transactions knowing that they 
were improper. 
 
Would new definitions of "disqualified persons" be offered?  In 
answer to this question, Hopkins and Tesdahl note as possible 
examples of wrongdoers the executive officer of a tax-exempt 
charitable hospital, the director of a large museum, the 
president of a small private college, and the executive director 
of an advocacy group, all of whom could be theoretically caught 
in a legal net because in each instance an "excess benefit 
transaction" might have taken place in connection with their 
earnings or benefits (pp. 1-5). 
 
And what is an "excess benefit transaction"?  The authors define 
it as "Any transaction in which an economic benefit is provided 
by an applicable tax-exempt organization directly or indirectly 
to or for the use of the disqualified person, if the value of 
the economic benefit provided by the exempt organization exceeds 
the value of the consideration (including the performance of 
services) received for providing the benefit"(p. 8).  Hopkins 
and Tesdahl predict, "the potential impact on operations of 
nonprofit organizations is enormous...(but) much of the actual 
outcome will depend on the vigor of the IRS and, ultimately, of 
the courts" (p. 8).  Additionally, "Intermediate sanctions have 
the promise of transforming the private inurement and private 
benefit doctrines, and are likely to impact the composition and 
functioning of many boards of directors of nonprofit 
organizations," given that they also "apply with respect to 
public charities and tax-exempt social welfare organizations." 
(p. 8). 
 
This is quite a large "promise," and again, the Treasury 
Department would have performed a mighty service had it provided 
more guidance, in advance.  The authors rightly argue (p. x) 
that what the IRS should have done was have an intermediate 
sanctions explanatory package available within a week of the 
enactment--say, by early August 1996.  Had this happened, exempt 
organizations might not have floundered for months with little 
knowledge about compliance, definitions of key elements, and 
specifics on sanctions to be applied. 
 
What the Treasury Department did not do, Hopkins and Tesdahl 
have concisely done in the pages of _Intermediate Sanctions_, 
which, like_Private Foundations..._, can be used as a handbook 
by those individuals who need reliable information quickly. 
On a larger scale, Lester Salamon's purpose in _The 
International Guide_ is to address legal particulars of a 
worldwide proliferation of American-style foundations and 
nonprofits.  Salamon is a professor in the Schools of Arts and 
Sciences and Hygiene and Public Health at Johns Hopkins 
University, and director of the Johns Hopkins Institute for 
Policy Studies.  Highly-informative books and articles on 
nonprofit issues have flowed from his pen over the years, and 
recently he has been particularly concerned with the issue of 
nonprofit for-profit activities. 
 
Salamon's _The International Guide_ grew out of a series of 
"field guides" he tells us (p. xiii) were commissioned on the 
legal treatment of nonprofit organizations in thirteen 
countries.  The process yielded far more material than could 
effectively be used in the monographs, and the idea emerged that 
an international guide should be produced.  Salamon warns, 
however, that we must "understand the great difficulties 
attending the kind of task that was attempted here, particularly 
given the complex legal questions that were at issue.  In such a 
context, no account, and certainly no account operating within 
the space constraints of this one, can aspire to definitiveness" 
(p. xiii). 
 
Salamon's caveat notwithstanding, his book, like Hopkins and 
Blazek's, offers an excellent introduction not only to nonprofit 
law (foundations are understandably not covered as thoroughly as 
in Hopkins and Blazek) but to systemic issues in the nonprofit 
field.  American readers should particularly note his concern 
that such issues go "largely invisible in both scholarly 
analysis and public debate, with the result that we know 
precious little about them in most places" (p.  7). 
 
This state of affairs, he counsels, could one day present a 
serious problem: "For the nonprofit sector to remain able to 
secure contributions, it is imperative that public trust in the 
sector be protected" (p. 36). 
 
Salamon is less confident than Hopkins and Blazek, however, that 
the nonprofit system can continue to exist as we know it.  "The 
United States is a common law country that nevertheless has a 
written constitution.  In addition, the country has a federal 
governmental structure that features a national government and 
50 state governments with their own elected officials and their 
own authority to exercise sovereign powers.  These circumstances 
make the legal position of the nonprofit sector far more 
amorphous and disjointed in the United States than the 
significant size and scope of this sector might suggest" (p. 
342). 
 
Finally, credit must be given Salamon for doing more than simply 
citing problems.  His Appendix A, "Toward a Vital Voluntary 
Sector:  An International Statement of Principles,"  offers an 
"emerging consensus so that those involved in the development of 
the third sector around the world can take its contents into 
account when framing their own policies and practices" (pp. 
369-374). 
 
After attempting to grasp nonprofit law, reading Judith 
Sealander's _Private Wealth_ is almost like dipping into a 
novel.  Her interests are not only the pros and cons of the late 
nineteenth- and early twentieth-century foundations noted above, 
but assessments of their founders.  Among the people she favors 
are John D. Rockefeller, Sr., John D., Jr., Julius Rosenwald, 
and, notably, the remarkable John Campbell of the Russell Sage 
Foundation, who is seldom mentioned in the literature.  She 
believes Andrew Carnegie's influence on philanthropy to have 
been overrated by scholars (p. 16), and his appearance at the 
Walsh Committee Hearings, in 1912, to have been something of a 
farce (p. 229).  (Rockefeller, who, with Carnegie, was a founder 
of modern American philanthropy, would not have shared her views 
on the Steel King. Rockefeller admiringly wrote Carnegie, after 
the publication of Carnegie's two seminal essays on philanthropy 
in the _North American Review_, "I would that more men of wealth 
were doing as you are doing with your money."  Later, 
Rockefeller ruefully admitted, "I (had been) still following the 
haphazard fashion of giving here and there as appeals presented 
themselves.") 
 
Sealander makes clear, with respect to all seven foundations, 
that there were great differences between what these Progressive 
Era donors and their staffs hoped to accomplish and what they 
could realistically achieve.  There was an additional gap, she 
suggests, between what "Americans, including public policy 
makers" knew about John D.  Rockefeller, Sr., the most generous 
giver of all, and how political establishments and writers 
portrayed him:  "The overwhelming majority of the country's 
population never heard him, or saw him, or read a word he wrote" 
(p. 56).  Yet the image conjured up by media and politicians led 
to a situation in which "Americans decided Rockefeller was a 
terrible man because leading politicians and journalists told 
them so" (p.  56). 
 
Nor does Sealander approve of today's "static" lack of interest 
(pp. 6, 9, 31) in studies of the emergence and history of 
foundations.  She could have added that albeit bereft of 
critical information, one school of thought in academies 
condemns such agencies because they exist thanks to the 
benevolence of individuals who may not truly be benevolent, only 
interested in tax relief.  Meanwhile, another school of thought, 
also based in academies, lauds them because from where else can 
money for experimental and non-governmental programs come, if 
non-benevolent as well as benevolent types do not create 
foundations and thus save on their taxes? 
 
The truth, of course, lies somewhere between these extreme 
views.  But the right question never seems to get asked:  After 
a century of experience, have foundations done enough good to 
merit the loss of taxable funds their existence costs the public 
treasury? 
 
Which returns us to issues raised earlier in this review.  We do 
not currently know enough about the impact of foundations and 
nonprofits on economies to render informed judgements. And the 
price of _not_ knowing, carried too far into the future, may one 
day be a sudden, angry public awakening to the fact that 
benevolence has a price in tax relief that societies cannot 
afford. 
 
Sealander ends her study, "The small group of people who created 
the foundations this volume has examined possessed an 
intellectual gift lost to many in the late twentieth century. 
With a fierce kind of optimism we now find peculiar, they 
believed people could be better, that government could be 
better, that society could improve" (p. 245). 
 
I couldn't agree more.  Put in the vernacular, whatever their 
personal flaws, men and women of the generation that included 
Rockefeller, Carnegie, Rosenwald, and Katherine Bement Davis (a 
student of Thorstein Veblen) put their time and/or their money 
where their mouths were. 
 
[1].  The statistic, 50,000, is from Hopkins and Blazek, _Op. 
cit._, pp. 1, 10; Sealander, _Op. cit._, p. 10, writes that 
there were 22,000 foundations in 1990. 
 
[2].  Milton Goldin, "At New York Hospital, Memorial, 
Consolidation Becoming Imperative." _The New York Observer_ 5 
August-12 August, 1991, p. 18. 
 
[3].  Thomas J. Billitteri. "Rethinking Who Can Sue a Charity." 
_The Chronicle of Philanthropy_ 12 March 1998, p. 35. 
 
[4].  Mel Gussow. "Bernard B. Jacobs, a Pillar of American 
Theater as Shubert Executive, Dies at 80." _New York Times_ 28 
Aug 1996, D: 18. 
 
[5].  Ralph Blumenthal.  "Shubert Leaders Got Fees from Workers' 
Funds." _New York Times_ 6 June 1996, C:16. 
 
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