By Eric Michael Johnson

A flawed understanding of early human culture has resulted in a distorted understanding of how philanthropy evolved and what motivates philanthropic activity in the modern world. All evidence suggests that philanthropy is fundamentally driven by morality not markets. Systems of philanthropic debt obligation connect people—as well as organizations and even companies—in reciprocal networks of collaborative enterprise. They build mutual trust while enhancing the reputations of those who provide aid. In short, philanthropy and market capitalism have separate histories, motivations, and goals. Blurring the line between philanthropy and for-profit investment risks confusing social value with shareholder returns, to the detriment of both.

In classical economics, the origins of philanthropy are commonly associated with the invention of money. In The Wealth of Nations, Adam Smith described a fictitious hunter-gatherer who learns to make bows and arrows that are of a higher quality than those of his fellow tribesmen. “He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them,” Smith wrote. Rational self-interest led the hunter to focus on making the best bows and arrows so he could trade them for food and other material needs. Smith believed that wealth emerged as a result of such calculations multiplied across entire societies.

Smith also argued that money evolved from this original barter system, and that philanthropy was a natural outgrowth of a money-based economy. Instead of depending on individual barter transactions to satisfy human needs, it became more convenient to adopt standard currencies that could be exchanged for any product in the market. Precious metals were favored as currency because they were rare, malleable, and therefore easily identifiable. In this new market economy, some traders had more innate talent and thus performed better than others. As a result, they accumulated more wealth. Eventually, rich barons and clerics started spending their financial surpluses “in the most profuse hospitality, and in the most extensive charity.”

Philanthropy came first

The notion that philanthropy resulted from the invention of money is a pillar of classical economics. It is also a myth. After more than two centuries of searching for an indigenous society that approximates Adam Smith’s parable of the original barter system, anthropologists have concluded that it can only be imaginary. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing,” wrote Cambridge anthropologist Caroline Humphrey in a 1985 paper titled “Barter and Economic Disintegration” in the journal Man. Instead, researchers have discovered that philanthropy is far more central to human social organization than economists had ever imagined.

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