University scientism and American economic interests

Abstract

This article outlines the evolution of the relationship between the emergence of large-scale finance and industry in the American Gilded Age and Progressive eras and the shaping and funding of universities by foundations linked to the emerging industries. Scientism has been a means of gaining and maintaining legitimacy and research funding. Statistics about recent donations reflect the earlier pattern, although the strongly elitist preferences of early funders and shapers of American higher education, such as the Carnegie Foundation for the Advancement of Teaching and the Rockefeller-Funded General Education Board, have moderated.

Keywords

Banking Carnegie Foundation for the Advancement of Teaching foundations higher education funding philanthropy research funding

In his classic trilogy on scientism, Hayek (1942, 1943, 1944) notes that the application of theories that mimic science, that presuppose collectives have conscious identities, that quantify at the expense of understanding human purpose and that exaggerate the possibility of the conscious control of society are scientistic and contribute to reducing social welfare (1944: 38). My claim goes further: universities have been influenced by elite business interests, and their development, including scientism in business schools and the social sciences, has been influenced by the economic interests of large philanthropic donors. Scientism is not a value-free ritual; rather, it is a ritual that serves economic purposes.

This claim is related to a point that Readings (1996: 66) makes in his sociological and philosophical study of the evolution of the 19th-century German university into today’s global, American-style university: the plan of the founder of the University of Berlin, Wilhelm von Humboldt – the plan that in turn served as a model for the first American research university, Johns Hopkins – was that it would support and exist symbiotically with the state. Readings says of Humboldt’s vision (1996: 69), ‘The state protects the action of the University; the University safeguards the thought of the state’. In America, this symbiosis was modified by democratic traditions, business and foundation funding and the progressive movement’s proactive use of the state for social purposes in the late 19th and early 20th centuries.

Economic interests were crucial to the formation of American universities. They continue to shape universities, and the scientism to which Hayek demurs was a response to those interests. From the beginning of American universities, business interests, especially banks and financial firms, and foundations have made significant financial contributions. The names of the Peabody College of Education and Development, Johns Hopkins University, Vanderbilt University, the Wharton School and Rockefeller University attest to this history. Recent major donations to business schools and universities have been made to a broader range of schools and by a broader range of businesses than was the case a century ago but the earlier pattern survives.

In turn, and contrary to the claims of conservatives (e.g. D’Souza, 1998) that political correctness was a byproduct of 1960s radicalism and identity politics, explicit and implicit constraints on ideas were present in universities from their beginnings. Paradigms and institutions that attract resources from special interests survive; those that do not attract them die. By the time of the founding of the American Economic Association in 1886, the exclusion of viewpoints that did not conform to what Ross (1982: Ch. 2) calls ‘American exceptionalism’ was part of the development process of the social sciences. American exceptionalism, the claim that America is unique, is central to American culture. Its form changes in tandem with the evolution of elite ideology. An important example is the evolution of the laissez-faire views of the Gilded Age mugwumps – elite Republican intellectuals concentrated in Boston and New York – into the progressive views of their children (Cohen, 2002).

Scientism has been a way for academics to claim special expertise, obtain research funds, secure a role in the development of government policy and avoid charges of either excessive socialism or excessive individualism. Horowitz (1969) points out that extension of the behaviouralism at the University of Chicago that Hayek (1943) attacks as one of the manifestations of scientism was funded by the Laura Spelman Rockefeller Memorial, which at the time was headed by Beardsley Ruml, who had previously worked for the Carnegie Foundation for the Advancement of Teaching (CFAT) and subsequently headed the Social Science Research Council.

Universities' move to the left after the days of the Vienna School's positivism and John Bates Clark's early 20th-century marginalist revolution in American economics ensued from shifts in elite attitudes.From the earliest days of American universities, both individualists like William Graham Sumner – and later Friedrich von Hayek and Ludwig von Mises – and, in an earlier era, institutionalists like Richard T. Ely and Henry Carter Adams have been marginalized or excluded from universities coincident with universities’ growth, the emergence of social science and scientism and the progressive institutions that universities have served to validate.

My claim that the emergence of social science and the transformation of American religious colleges into research universities were linked to progressivism is not new (see Cohen, 2002; Marsden, 1994; Ross, 1982; Rudolph, 1990), but most historians of the university separate the intellectual shifts that occurred in universities from the activities of the Carnegie and Rockefeller foundations (Barrow, 1983, Chapter 1; Lagemann, 1983) and from progressivism’s economic implications (Kolko, 1963; Radosh and Rothbard, 1972; Sklar, 1988).¹ The evolution of universities in America required the support of large foundations and businessmen as well as of the state. American universities therefore take on characteristics that are similar to public German universities in relation to the state (Loss, 2012), but they are also allies to and beneficiaries of industrial and banking interests.

Natural versus social sciences

The claim that economic interests influence science is widely discussed in the sociology of the natural sciences. Shapin and Schaffer (1985) and Latour (1987), for instance, claim that natural science is inherently political. Latour argues that scientists often twist findings and that they are able to twist them because science is based on black boxes that are difficult for others to refute. The creation of black boxes requires funding, hours of laboratory work and supportive referees in journals. Among the critical political resources is, according to Latour, the scientist’s ability to enrol others so that they participate in the social construction of fact. Enrolling scientists means catering to their interests. This, of course, means control of financial and political resources. The more the creator of an idea can enlist other scientists to support his idea politically, the greater the support for his idea becomes. Hence, success with funding sources is essential to scientific success.

Economic interests and universities

After the American Civil War, philanthropists associated with emerging large-scale industries were intimately involved with the founding of universities. The first American university designed along Humboldtian lines, Johns Hopkins, was endowed by a wealthy Baltimore merchant, Johns Hopkins, who had invested in the Baltimore and Ohio Railroad. He consulted about the university’s structure with fellow Baltimorean George Peabody, one of the first important American investment bankers and philanthropists. Their meeting about the founding of Johns Hopkins University occurred during one of Peabody’s rare trips home to Baltimore from his firm’s London office (Parker, 1995: 166). By the time of his meeting with Hopkins, Peabody had endowed museums at Harvard and Yale and a Baltimore research library, the George Peabody Library, on which Johns Hopkins University relied for the first several decades of its existence. He had also endowed the George Peabody College for Teachers, now part of Vanderbilt University, and the Peabody Education Fund, a predecessor to the Rockefeller-Funded General Education Board (GEB) (Flexner, 1940: 203).

Another example is Joseph Wharton, a mining and steel entrepreneur who had sold his nickel mines to the International Nickel Company, a Morgan interest, and the Bethlehem Steel Company to Charles M. Schwab. Wharton’s nickel mines and steel interests had needed protection, and Wharton participated in forming the Industrial League to advocate it (Sass, 1982: 15). He was also the Vice President of the American Iron and Steel Association in charge of tariff matters. In 1881, he offered the University of Pennsylvania 100,000 dollars to organize a school of finance and economy. As part of the offer, he insisted that, on matters of international trade, the school be committed to the Republican, protectionist viewpoint (Sass, 1982: 21).²

In 1883, Wharton appointed Edmund Janes James, Professor of Public Finance. Professor James later became the Wharton School’s Director, then the President of Northwestern University and subsequently the President of the University of Illinois. In 1890, when he was still at Wharton, the American Bankers Association (ABA) asked James to talk at their annual conference (James, 1890). In his talk, he called for the banking industry’s support for finance education. At a 1913 conference held in honour of the dedication of the University of Illinois’s School of Commerce, James (1913: 56) said that the banking executives at the 1890 ABA conference had already been interested in expanding business education because of increasing political, commercial and social complexity. As a result of his 1890 talk, the ABA passed a resolution advocating the founding of schools of finance and business modelled after the Wharton School. The ABA then sent James to Europe in 1892 to investigate business education, and he presented his findings at an ABA meeting on 7 September 1892. In 1913, he claimed that these steps were important in stimulating the growth of business schools.

In 1890, when James made his initial presentation to the ABA (James, 1890), George Baker, cofounder and President of First National Bank, was the organization’s secretary. Following the US Congress’s Pujo Committee ‘money trust’ hearings in 1913, of which Baker was among the targets, his interest in contributing to charity to improve his public image increased (Cruikshank, 1987: 99). After several years of meetings with Harvard officials, Baker’s five million dollar contribution was sufficient to build much of the Harvard Business School’s current campus.

In addition, in 1854, George Peabody made Junius Spencer Morgan a junior partner in his firm (Parker, 1995: 66–68), which at Peabody’s insistence changed its name to Morgan Grenfell following Peabody’s retirement. J.S. Morgan’s young son, J.P. Morgan, briefly worked at Peabody’s London firm. Decades later, on 27 June 1901, the New York Times (1901) wrote that J.P. Morgan had made a one million dollar gift to Harvard Medical School for the construction of three buildings. Not to be outdone, John D. Rockefeller donated one million dollars to Harvard Medical School in the following year.

Prins (2014: 14) writes that in 1909, Morgan donated US$5000 to Princeton and pledged to do so every year for the next 5 years. Woodrow Wilson, the President of Princeton from 1902 to 1910, thereby became acquainted with Morgan. Also in connection with fundraising for Princeton, Wilson met Frank Vanderlip, the President of National City Bank from 1909 to 1919. Wilson and Vanderlip served together on the Board of the CFAT. Vanderlip was one of six members of CFAT’s Executive Board, for he was a close friend of its Secretary, former MIT president Henry S. Pritchett.

CFAT and GEB

On several occasions, Vanderlip spoke publicly about the need for reform of higher education (Vanderlip, 1907a). In a 1905 Founder’s Day address at Girard College, an orphanage, Vanderlip (1907b: 8–9) argued for the need for application of business principles to higher education. He argued for ‘symmetrical growth’ to rationalize the higher education market, raise standards and avoid duplication of effort. He argued that a fund should be set up with a board composed of trustees who had both educational and practical experience (1907b: 11). He was alluding to CFAT, which was founded soon after Vanderlip’s 1905 address.

Carnegie had wanted to set up a foundation to fund college professors’ pensions.³ Pritchett and the CFAT board convinced Carnegie to let CFAT use the pension monies to rationalize universities, just as J.P. Morgan had rationalized the steel industry and John D. Rockefeller the oil industry. Almost all the CFAT trustees were college presidents, with the exceptions of Vanderlip and Robert A. Franks, the President of the Home Trust Company. CFAT promised higher education institutions pension money if they became non-denominational, required 4-year high school programmes for admittance and required 4-year degree programmes. High-school programmes had to be composed of 14 Carnegie units (each unit composed of 120 h of class time) for students to gain college admission. Colleges had to eliminate preparatory study.

In an Atlantic Monthly article, Pritchett (1905) writes that only two models for universities are possible: the private university and the public university completely controlled by the state. He adds that universities of both kinds need to be run as business corporations. Later that year, writing in The Outlook, Pritchett (1906: 120–125) reported that CFAT could find only 51 institutions that were not connected with a religious denomination. He writes that many colleges should not exist, and he deplores varying admission standards. He also argues that CFAT’s influence in centralizing and standardizing higher education would be more important than the pensions themselves.

Taking the university-as-business claim further, CFAT hired Morris Llewelyn Cooke, an associate of the founder of the scientific management movement, Frederick Winslow Taylor, to perform a scientific management study of American universities (Smith, 1974). In a report that CFAT published, Cooke (1910) argued for increasing specialization of teaching, relieving professors of administrative work, improving classroom utilization and restricting foundation grants to efficient institutions. He argued against departmental autonomy (1910: 18) and for adoption of what he called ‘functional management’, under which academic committees would be replaced by professional administrators, and lectures would become the property of the university so that all professors would use the same lecture notes, economizing on time.

Not all academics were pleased with these suggestions. For example, Harvard philosopher Josiah Royce (1915) argued against standardization in response to CFAT’s evaluation of Middlebury College. He wrote that the use of the term ‘scientific’ in ‘scientific management’ is incorrect: ‘Standardization is at the present time very much vaunted as essentially scientific in its nature. It is not scientific […] it is militaristic’. Royce argued for a ‘wise provincialism’, whereby local communities should decide how colleges were to be administered and accredited.

In addition, Thomas W. Churchill, the President of the New York City Board of Education, railed against the Carnegie Foundation in an address that was published in the Journal of Education (Churchill, 1914). Hollis (1938: 49–50) quotes Jacob Gould Schurman, the President of Cornell University and a CFAT trustee, as saying that he feared the control that CFAT was amassing. Dean Harlan Fisk Stone of the Columbia Law School (and later chief justice of the US Supreme Court) headed a committee of the American Association of University Professors which issued a report calling CFAT’s use of pension monies ‘a menace to educational freedom’.

One of CFAT’s most far-reaching projects was Abraham Flexner’s report on medical schools, which was to hasten their rationalization (Lagemann, 1983) and was to lead to the illegalization of various forms of what we now call alternative medicine. As CFAT did more generally, Flexner (1910: 151, 1940: Ch. 9) advocated a centrally planned medical system with ‘31 medical schools with a present annual output of about 2,000 physicians, i.e. an average graduating class of about 70 each’. He advocated closing 120 medical schools.

In 1913, John D. Rockefeller suggested to Wallace Buttrick, Secretary of the GEB, which Rockefeller had funded, that Flexner move to GEB (Flexner, p. 202). GEB was focused on a number of educational issues, such as African American basic education, but it also provided significant funding for universities, particularly medical schools. Carroll (2009) notes that GEB had contributed over US$94 million to American medical schools by the time of the organization’s termination in 1960. Furthermore, Rockefeller endowed the University of Chicago with 35 million dollars and appointed its first President, William Rainey Harper.

Hollis (1938: 140) writes that GEB had aims for liberal arts colleges and research universities that were similar to those of CFAT, but GEB was more moderate and less public in making demands; nevertheless, it used endowment money to encourage restructuring, and colleges readily complied (Hollis, p. 140). The GEB’s restructuring strategy led to a hierarchy of colleges, with those colleges receiving the most GEB funding soon becoming the most prestigious and receiving the most media attention. Unlike CFAT, GEB had no grand programme to eliminate denominational control or transform high schools, but its efforts paralleled and supported those of CFAT. By 1915, GEB and CFAT were each aiding over 100 colleges. Nevertheless, their contributions tended to be focused on just a few central institutions. In 1934, the Rockefeller Foundation and GEB alone made 50.6% of education grants made by 95 leading foundations, and of the three chief foundations making grants to higher education – the Rockefeller, Carnegie and Commonwealth philanthropies – between 1923 and 1935, 78.5% of higher education grants went to just 15 colleges (Hollis, 1938: 122).

Foundation grants and business influence

Barrow (1983) offers data concerning the shift in the number of business and banking trustees on university boards from the Civil War to the New Deal era. In 1861, clergy comprised 39.1% of university boards, but they accounted for only 7.2% in 1931. Businessmen comprised 22.8% of board members in 1861, but their proportion increased to 31.9% in 1931, an increase of 39.9%. Bankers’ representation on boards of trustees increased more than fourfold, from 4.6% in 1861 to 20.3% 1931. Quoting a study by Earl J. McGrath (pp. 33–34; also see Smith, 1974: 42), Barrow finds that, with respect to the boards of public universities, bankers went from 4.4% in 1861 to 13.0% in 1931.⁴ Of course, private universities needed businessmen to be trustees to encourage fundraising, but there may have been lateral effects on universities’ strategic choices and academic freedom.

Concerning GEB’s board of trustees, Barrow (1983, p. 62) claims that 90% of the 45% of trustees who were officers or directors of banks or industrial corporations were associated with the three major New York financial blocks – Rockefeller, J.P. Morgan and Kuhn, Loeb – and of the 90%, 44% were in the Morgan block, 44% were in the Rockefeller block and 2% were in the Kuhn, Loeb block. Although most members of CFAT’s Board were university presidents or provosts, all either served on at least one corporate board or had previously been a business executive.

In 1910, the sum total of all higher education institutions’ endowments combined was about 259 million dollars. In 1909, GEB’s endowment was 53 million dollars, about 20% of the total. CFAT’s 15 million dollar pension fund was almost 6% of the total. Moreover, Barrow notes that, between 1902 and 1934, the nine largest foundations appropriated US$339 million in grants, and 73% went to only 20 institutions. The five largest foundations gave approximately 86% of their disbursements to only 36 institutions (Barrow, 1983: 86–87).

In an essay that first appeared in Ramparts Magazine, Horowitz (1969: 4) argues that the CFAT and Rockefeller foundation grants tended to fund innovations rather than day-to-day operations. As a result, foundations were able to guide the directions in which research and programmatic innovation proceeded. Recall, for example, that the two reports that pushed US business schools towards professionalization and enhanced their research focus were Robert A. Gordon and James Edwin Howell’s (1959) Higher Education for Business, which was funded by the Ford Foundation, and Frank Pierson’s (1959) The Education of American Businessmen: A Study of University-College Programmes in Business Administration, which was funded by the Carnegie Corporation. Horowitz (1969: 5) writes that the Ford Foundation gave US$ 105 million in grants to economics programmes and business programmes from 1951 to 1965, but 77.5% of it went to just 10 universities and 5 research centres.

Given that the leading PhD programmes, journals and journal editors were associated with top-tier institutions, in part because of the foundations’ hierarchical approach to grant giving, the foundations indirectly shaped personnel policies across all universities. That is, the granting of foundation money to top-tier universities led to a pyramidal university structure, for PhDs were chiefly granted by the top 25 universities. In his autobiography, Flexner (1940: 207–210) describes GEB’s aim as ‘perpendicular development’ and ‘emulation’, a hierarchical system whereby less-funded institutions emulate better-funded ones. The result was, as Horowitz points out, that in 1912, economists from 10 research universities wrote 51.6% of articles in major academic journals; in 1962, economists from 10 centres wrote 53.8% of the articles. Using the Laura Spelman Rockefeller Memorial’s funding for behaviouralist political science research at Chicago – and behaviouralism was one of the examples of scientism that Hayek (1943) discussed – Horowitz suggests that the emphasis on scientistic empiricism was one way elite universities excluded faculty who might call the status quo into question.

The evolution of scientism

Histories of the origins of modern social science tend, unlike Horowitz’s magazine article, to avoid integrating discussion of external financial incentives with the shifts in social science methodology and ideology; they tend to view social science as evolving on a purely academic plane. One example is Cohen (2002), who sees the rise of modern social science as a response to anti-democratic intellectual foundations erected in the Gilded Age and to labour unrest, monopoly and universal suffrage. Another is Lepenies (1988), who sees sociology as emerging in Europe from an intellectual competition between science and literature.

Building on the work of Parsons (1967) and Hughes (1961), Haskell (1977: Ch. 1) argues that social science emerged through a convergence of Spencerian positivism and German idealism. Like Cohen, he sees social phenomena in the 19th century as having engendered a shift to a perception of a uniform, interdependent social universe that could be studied with scientific methods. The emphasis on interdependence was associated with the new social scientists’ rejection of individualism and utilitarianism in favour of more collectivist approaches, which Haskell calls anti-formalist. Examples of the kinds of concepts that the collectivist approaches employed were social control and group norms. In addition, the emerging social science, in Haskell’s view, emphasized welfare programmes as central to its aims. The progressive explanations and concepts and the claim that social phenomena had complex, interdependent causes led to the conclusion that specialists, professional academics, rather than lay scholars were required for important public policy positions.

Of course, this transformation of social science occurred just as big business wanted to transform industry along state-coordinated lines and sought intellectual justification for government intervention in areas like banking and the cartelization of industry (Kolko, 1963; Radosh and Rothbard, 1972; Sklar, 1988). Concepts like ‘urbanization’, ‘industrialization’ and ‘modernization’, which were created in order to justify state action, depended on the anti-formalist philosophical shift that occurred concurrently with the increased availability of research monies from the foundations and wealthy donors for scholars who advocated this ideology.

Ross (1982: xiv; also see Cohen, 2002) argues that American social science owes its character to American exceptionalism. The 19th-century colleges rejected their Christian, moral roots in response to Darwin, but in economics institutionalists like Richard T. Ely, Henry Carter Adams and Simon Patten, who went to German universities or later Johns Hopkins, tended to be positivist in methodology but were still religious. Science was gold leaf that covered a strong moral core. The gold leaf of positivist objectivity cloaked their moralistic collectivism, and it made it palatable to the donors to universities. Thus, scientism was a method of negotiating for acceptance by trustees and for grant money.

In the Gilded Age, if an economist went too far in criticizing the status quo, he was fired. This happened to Richard T. Ely at Cornell and Edward W. Bemis at Chicago. Scientism was one of the ways that the institutionalists made themselves acceptable to trustees. Ross traces conflicts between positivists and progressives in economics and sociology. The ultimate resolution was a progressive consensus. In economics, the marginalism of John Bates Clark was coupled with advocacy of economies of scale, regulation and consumerism.

Continuity in perpendicular development

To determine the current pattern of philanthropic giving to universities, and to ascertain whether Flexner’s concepts of perpendicular development and emulation continue to motivate large donors, I examined the largest grants to universities and business schools listed by the Chronicle of Higher Education (2017) and on the Association to Advance Collegiate School of Business website (2018).

Several key points emerge in Tables 1 to 3. Table 1 shows that the growth of the economy has broadened the list of donors to higher education. In contrast to the early 20th century, donors come from a range of industries – not just steel, oil and banking – and giving is not as concentrated on the top 25 institutions as it once was. Donors with backgrounds in the financial and banking industry have roughly equal representation to those with backgrounds in manufacturing; in contrast, the St Louis Federal Reserve Bank (2018) indicates that there were 4938 commercial banks in the United States in the third quarter of 2017, while the Manufacturing Institute (2014) indicates that, as of 2014, there were 254,941 US manufacturing firms.

Table 1.

Non-anonymous donations to US universities in excess of 75 million nominal dollars, 1979–2017.

Donors’ industry	Number of donors	Industry’s donation (US$ million)	Percentage of total donation	Mean gift amount (US$ million)	Proportion of top 25 US national university recipients (%)	Mean ranking (standard deviation) of US national university recipients
Energy	13	1580.0	5.1	121.5	46.2	66.9 (61.6)
Finance and banking	52	7134.0	23.1	137.2	67.3	19.2 (19.8)
Manufacturing, engineering and utilities	49	7762	25.1	158.4	53.1	59.0 (62.8)
Media and entertainment	15	1933	6.3	128.9	73.3	56.5 (80.9)
Real estate, construction and solid waste	33	4451	14.4	134.9	60.6	41.3 (59.2)
Retail and distribution	16	2778	9.0	173.6	50.0	65.0 (69.5)
Technology and biotech	27	3773	12.2	139.8	55.6	36.9 (44.2)
Miscellaneous	9	1471	4.8	163.5	44.4	47.2 (54.3)
Total/grand mean	214	30,882	100.0	144.3	58.4	43.8 (55.7)

Sources: Chronicle of Higher Education (2017); US News and World Report (2017).

Table 2.

Non-anonymous donations to US business schools in excess of 20 million nominal dollars, 2004–2017.^a

Donors’ industry	Number of donors	Industry’s donation (US$ million)	Percentage of total donation	Mean gift amount (US$ million)	Proportion of top 25 national university recipients (%)	Mean ranking (standard deviation) of national university recipients
Energy	4	160	4.0	US$40	25	57.0 (17.5)
Finance and banking	25	1588	39.5	63.5	56.0	49.6 (61.7)
Media and entertainment	1	30	0.7	30.0	0.0	124
Manufacturing, engineering and utilities	12	720	17.9	60.0	41.7	53.1 (63.3)
Real estate, construction and solid waste management	10	554	13.8	55.4	10.0	83.7 (66.8)
Retail and distribution	12	812	20.2	67.7	25.0	125.6 (88.4)
Technology, biotech and telecommunications	6	153	3.9	25.5	50.0	113 (77.1)
Total	70	4017	100.0^a	US$57.4	38.6	73.4 (71.5)

Sources: Association to Advance Collegiate Schools of Business (2018); US News and World Report (2017).

^aTotals do not match due to rounding.

Table 3.

Banking and finance industry funding of 20 US News top-ranked business school campus buildings as of 2017.

US business school ranking	Proportion of campus buildings, plazas and other structures named after individuals or foundations associated with banking and finance (%)
Top five ranked business schools^a	63.0
Second five ranked business schools^a	38.7
Third five ranked business schools	17.0
Fourth five ranked business schools	5.7
Mean	45.7

Sources: Websites of the 20 top-ranked business schools in January 2018 and US News and World Report (2017).

^aRanks one to four include six business schools because of ties. Ranks 6 through 10 include four business schools.

Moreover, since 1979, 58.4% of the donations of 75 million dollars and above have gone to the top 25 nationally ranked universities. That is less than was observed in the early 20th century, but it is still disproportionate. Since there are more than 4500 US higher education institutions, the top 25 represent less than one-half of 1%. This varies somewhat by the industry of the donor, however. While donors and foundations whose principals have been associated with the energy industry gave to schools with a mean US News ranking of 66.9, finance industry donors gave to schools with a mean ranking of 19.2. Furthermore, 67.3% of donors associated with finance and banking and 55.6% of those associated with technology and biotech gave to schools in the top 25. Almost all the very large donations have been to national universities with PhD programmes: only a handful of the largest grants have been to liberal arts or regional colleges.

A likely explanation of the continued predominance of top 25 and national universities is that investment bankers and entrepreneurs tend to be alumni of such universities. Besides, successful entrepreneurs may prefer to be associated with prestigious universities. For example, if they have attended a less prestigious undergraduate college and a more prestigious business school, they may prefer to give a large donation to the latter so that their name will be associated with the more prestigious school. That preference is a legacy of CFAT’s and GEB’s early concentration of resources in a few schools; the hierarchical system perpetuates itself. Even though the effect may be unintended, the pattern of grant giving continues to concentrate academic resources at the top of the hierarchy.

Table 2 concerns the donors to business schools. Finance and banking donors constitute a larger percentage than any other group, both in terms of amounts given (1.588 billion dollars) and numbers of donors (25). Although donors with a finance and banking background give to a higher percentage (56.0%) of business schools in the top 25 than donors from any other industry, the overall mean ranking is 73.4 and the mean ranking for finance and banking is 49.6.

To check the tendency of individuals in the banking and finance field to give to the top-tier business schools, I reviewed the names of all the buildings at the top 20 schools. Table 3 shows that in the top five schools of business, 63% of the structures are named after donors associated with the finance and banking industry, but the fall is precipitous. The second five top business schools have only 38.7% of their buildings named after finance and banking donors; the third five have 17.0% and the fourth 5.7%. The trend towards centralization continues, although abated, and donors from finance and banking have been most eager to contribute to the institutions highest in status.

Conclusion

In the 20th century, wealthy individuals and two key Carnegie and Rockefeller foundations, CFAT and GEB, dramatically increased universities’ funding. The foundations used the funding to encourage rationalization and create a hierarchical higher education system through Flexner’s perpendicular development and emulation. Thus, wealthy donors and foundations mostly funded the 25 leading universities, which served as models to other institutions. Early in the history of this process, the donors were explicit about their expectations for adherence to specific doctrines like protectionism. Such restrictions and firings led to adverse publicity. It is likely that the rituals of academic freedom enhance the legitimacy of higher education institutions, hence their usefulness to donors. The scientism against which Hayek argued throughout his career was a byproduct of universities’ search for resources. By cloaking their moralistic aims in the gold leaf of positivism, institutionalists found it easier to obtain funds. The result of perpendicular development and centralized funding was a hierarchical, centralized system by which the faculties of 25 or fewer research universities were given a disproportionate share of resources, journal editorships and PhD students.

Critics who have studied this process have questioned its effects on the substance of academic freedom despite the statements of the American Association of University Professors, the first of which was published in 1915 (e.g. Barrow, 1983; Hollis, 1938; Horowitz, 1969; Lagemann, 1983; Smith, 1974). Historians of social science have tended to emphasize the homogenization of social science around American exceptionalism or as a response to the failures of Spencerian positivism and German idealism, but they avoid linking their discussions to the history of university philanthropy, which coincided with the development of positivism and scientism.

Additional research will improve our understanding of the process. For instance, Hall and Soskice (2001) contrast liberal market economies like that of the United States with coordinated market economies like those of the Scandinavian countries. The coordinated market economies have state-driven university systems, but to what extent do coordination methods in the United States, such as through the Business–Higher Education Forum (see http://www.bhef.com/), influence higher education in a coordinated way and how has that influence evolved over the past century? Additional research will provide the empirical evidence needed to answer this and related questions.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

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