Different River

”You can never step in the same river twice.” –Heraclitus

Arnold Kling points to a recent list of university endowments, in order of size. As usual, Harvard University has the largest endowment, at $22.1 billion — almost twice as large as the second-largest (Yale, $12.7 billion).

What’s interesting about this is not so much the number, but the annual increase — when compared to other annual figures from Harvard. Harvard’s endowment increased from $ $18.8 billion in 2003 to $22.1 billion — an increase of 17.5%, or $3.3 billion. That’s the net increase in endowment value, not the investment performance. So it includes increases from new donations, and substracts decreases from any money spent from the endowment. (The investment income, was actually $3.8 billion, so they did spend some of it on net.) This was not even an aception year for Harvard’s endowment; in 2000 it had $4.5 billion in investment income alone.

Now, according to Harvard’s 2004 Annual Report, Harvard received $556 million (that’s million, not billion) in income from students — including tuition for undergraduates and graduate students, board and lodging, and “continuing education and executive programs” — and that’s subtracting out scholarships and financial aid given to students by the university.

In other words, Harvard makes almost six times as much income from its endowment as it does from tuition, room and board.

Harvard could eliminate tuition completely — that is, make Harvard free to students, including room and board — and still make over $2.7 billion dollars for its endowment, and not spend a penny less on faculty and staff salaries, physical plant, or stem cell research. (A picture of some beakers at the Harvard Stem Cell Institute graces the first page of the financial statement section of Harvard’s annual report. How nice — and apolitical, of course.)

So, why does Harvard charge tuition?

If Harvard University were a for-profit corportation, it could reasonably be argued that they should charge what the market will bear. If people are willing to pay to go to Harvard, Harvard should take the money and add it to its bottom-line profit, even if it costs nothing to educated them. And they could justify “financial aid” (i.e., lower tuition) for less-rich studnets simply by viewing it as charging each student what he or she (or his or her parents) is willing to pay.

But Harvard University is not a for-profit corporation. Harvard is, legally and in theory, a non-profit, tax-exempt corporation. It is not supposed to be concerned with making a profit; it is supposed to be concerned with improving the world. But it’s acting like it’s just trying to make money. And Harvard, while the richest university, it not unique in this regard. As Forbes magazine reported back in October 1998, most universities spend only about 3% of their endowments annually, while their average investment income averages 6.8% (not counting new donations).

Yale law professor Henry Hansmann, an expert on the law and economics of nonprofit institutions, was recently quotd deriding the argument that universities need to maintain their endowments against hard times rather than fritter it away on educating students now. His pointed comment: “A stranger from Mars who looks at private universities would probably say they are institutions whose business is to manage large pools of investment assets and that they run educational institutions on the side . . . to act as buffers for the investment pools.”
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Helpfully, [former Columbia University trustee Edward N.] Costikyan has a suggestion for university administrators looking for ways to spend the money: Reduce tuition. He cites estimates that colleges like Harvard could conceivably abolish tuition altogether.

So, why the insistence on charging students ridiculously high levels of tuition, when they don’t need the money and don’t even spend it? There can be only one reason why people hoard money they don’t need, don’t spend, and don’t ever plan to spend. And that is greed. Simple greed. And when practiced by organizations rather than individuals, it is called corporate greed. The same corporate greed that has been vigorously denounced by certain members of the Harvard faculty, including prominent economics faculty, who really should know better.