Foundation History in the United States

The foundation idea came to America with the English diaspora. Puritans preached benevolence (John Winthrop's sermon “A Modell [sic] of Christian Charity” is an example) and practiced it, particularly in the construction and support of their churches. It was that emphatically unpuritanical Benjamin Franklin, however, who undertook the first substantial American experiment with the foundation concept. As Weaver (1967) has chronicled, Franklin's will left bequests to Boston and Philadelphia of £1,000 for two hundred years. For the first hundred years, the funds (each worth $4,444.49 at the time of Franklin's death in 1790) were to be loaned out at 5 percent to “young married artificers of good character.” The principal and interest were to accumulate, and in 1890 each fund was to be divided into two portions, with three-quarters to be expended on public works “of the most general utility” and the remaining one-quarter to be invested and allowed to accumulate for a second one hundred years. In 1990, the full amount of the remainder of the fund was to be distributed, earmarked once again for generally useful purposes.

Over the years, Bostonians proved far better money mangers than Philadelphians. In 1890, Philadelphia had but $90,000 for distribution, whereas Boston had $298,602. Both cities used their windfalls to build Franklin Institutes. The Boston fund was augmented by a matching grant from industrialist Andrew Carnegie, and the two funds seeded an endowment for Boston's Franklin Institute.

During the second hundred years, both cities used the cy pres doctrine to modify the terms of Franklin's bequest in order to expand the pool of those to whom loans could be made. When the trusts were finally terminated in 1990, Boston again outmanaged Philadelphia, $5 million to $2 million.

The Franklin bequest, although not a modern foundation (it did not, for example, make grants from the interest earned by its endowment), nonetheless illustrates several of the themes that would later characterize foundations in the United States. Franklin endowed it with his private funds but dedicated its income to public purposes. He left specific instructions as to how the principal was to be employed, but he also allowed for distributions for general purposes and gave trustees discretion to decide how these distributions might best be made. And, although he made his trust a long-term benefit, he did limit its life span. Finally, his trustees, recognizing the requirements of changing conditions and customs, exercised the cy pres doctrine to make needed changes in the bequest. All these themes recurred, to a greater or lesser degree, during the following two centuries of foundation development in the United States.

What is generally regarded as the first true U.S. foundation was the Magdalen Society, established in Philadelphia in 1800 as a perpetual trust “to ameliorate the distressed condition of those unhappy females who have been seduced from the paths of virtue, and are desirous of returning to a life of rectitude.” Weaver (1967) notes that the Magdalen Society also became the first foundation in the United States to experience difficulty in fulfilling its philanthropic mission. Distressingly, the society had difficulty in finding many prostitutes who were interested in “returning to a life of rectitude,” and the minutes of the society complained that most who were recruited were “insubordinate.” It even discovered that one volunteer was an “impostor.” (Whether the imposture was a matter of gender or of professionalism, the minutes unfortunately did not explain.) After struggling to pursue their original mission for many years, the trustees finally threw in the proverbial towel and reorganized as the White-Williams Foundation, with an interest in youth development.

The Magdalen Society learned a lesson that every foundation must absorb sooner or later: those whom the foundation wishes to help do not appreciate having that help thrust upon them without their knowledge or consent. As laudable as a foundation's intentions and objectives might be, its efforts will come to naught unless it consults and respects the wishes and needs of those to whom its aid is directed.

Throughout the nineteenth century, a number of endowments were established, often for the relief of the poor and frequently entrusted to churches or units of local government for administration. The first foundation established in the United States whose organization and aims would seem “modern” to us was the Peabody Education Fund, endowed by George Peabody in 1867. His gift, of about $2 million, was directed to aid the Southern states that had been devastated by the recently concluded Civil War. Peabody stipulated that his fund could be dissolved after thirty years, and indeed, in 1914, the remaining assets were transferred to the John F. Slater Fund, which had been established in 1882.