College endowments totaled $448.6 billion in the fiscal year ended June 30, 2013, an increase of 11.7 percent compared with a year earlier, according to recently released data.
As we know, this wealth is concentrated among a privileged few. Harvard, Yale and Princeton universities all have almost $2 million in endowment funds for every student.
We’ve heard the argument that what these institutions do with their privately raised money is their business and that they provide a lot of financial aid opportunities for less affluent students. But these endowments are of dubious value and can be attacked on two grounds. First, they promote inefficiency through misallocation of resources. Second, they are anti-meritocratic.
Regarding inefficiency, Adam Smith got it right more than 200 years ago in “The Wealth of Nations.” College endowments, he said, “have necessarily diminished more or less the necessity of application in the teachers.” At the University of Oxford, he complained, “public professors have, for these many years, given up altogether even the pretense of teaching.”