The Almighty cannot change what has already transpired; historians, however, can. Not only are they capable of it, but they do so with relentless frequency. Of course, it is precisely here that historians falter before the Divine. God possesses the absolute truth; He has no need to revise history. Historians, conversely, never grasp the entirety of the truth; like the proverbial blind men describing an elephant, they perceive only fragments of reality. Thus, historical interpretations of any given event undergo constant revision. It is through these fragmented accounts that we perceive the multifaceted nature of truth. Consequently, I am not troubled by new interpretations of historical events; rather, I find them delightful. In fact, it is those events upon which historians are in total agreement that cause me the greatest unease.
The legendary figure of altruism in South Asian history is Emperor Harshavardhana, who ruled over Kannauj in the seventh century. According to historical accounts, Harshavardhana was a king of boundless generosity. Once every four years, at the festival of Prayag, he would give away his entire worldly wealth. After everything had been distributed, he would reportedly donate even the clothes from his back, and having bathed in the Ganges, would return home clad in garments borrowed from others. Historians appear to have no quarrel with this legend. Yet, during my student years, I harboured certain doubts regarding this tale—questions for which I found no answers in any historical text.
Many years later, I witnessed a repetition of this historical event within my own life. Once, shortly before the holy night of Shab-e-Barat, I fell ill. On the day of the festival, my mother handed me a bundle of one-taka notes and instructed me to distribute them to the beggars. Dressed in my pyjamas and panjabi, I began handing out a note to each beggar outside our gate. Within minutes, I was besieged. In the ensuing scramble, the beggars tore my panjabi and snatched the notes from my hand. I was forced to flee inside the house for my own safety.
At that very moment, the story of Harshavardhana flashed through my mind. I became firmly convinced that the Emperor perhaps did not surrender his garments at the Prayag fair by choice. It is quite possible that, much like myself, the Emperor was surrounded; he may not have had the time to “donate” his clothes at all. Perhaps they were stripped from him, and he was compelled to plunge into the Ganges to hide his shame. Harshavardhana’s biographer was his courtier; naturally, he chose to embellish the undignified incident of the Emperor leaping into the river after his clothes were torn. In his rendition, therefore, Harshavardhana voluntarily gives away his clothes before taking his ritual bath.
The tale of Harshavardhana occurred long ago; only the Almighty knows what truly transpired. However, my experience is a factual one, and it is by no means an anomaly. Every year in Bangladesh, countless such incidents occur during the distribution of Zakat saris. The United Nations’ experience in Somalia further demonstrates that the mere presence of suffering people and relief goods does not guarantee successful aid. In some places, the distribution of relief requires armed guards. Yet, many philosophers believe that one can give as much as one desires, provided the will is there. Thus, Francis Bacon wrote:
“The desire of power in excess caused the angels to fall, the desire of knowledge in excess caused man to fall, but in charity there is no excess, neither can angel or man come in danger by it.”
Master Bacon never witnessed the consequences of almsgiving in twentieth-century Bangladesh or Somalia; had he done so, he would undoubtedly have retracted his proclamation.
For ages, charity has remained the exclusive domain of theology. It is regarded as sustenance for the afterlife—provision for the hereafter. According to the Bible, charity washes away a multitude of sins. In the Holy Quran, charity is likened to the sowing of a seed: a single grain of corn produces seven ears, and each ear bears hundreds of grains. Similarly, the blessings derived from even a small act of charity are manifold. Sociology, however, is preoccupied with this world; the hereafter lies outside its traditional boundaries. Furthermore, the very values upon which economics is founded are fundamentally at odds with almsgiving. Charity requires a selfless individual, yet the primary assumption of economics is that all humans are inherently selfish. Indeed, it is self-interest that keeps the engine of capitalism running. In the words of Adam Smith:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from the regard of their own interest. We address ourselves not to their humanity but to their self-love and never talk to them of our necessities but of their advantage.”
In such a self-centred economic system, charity appears to be an entirely irrational act. Consequently, for a long time, the fear of the afterlife was considered the sole motivation for giving. For years, private charity was ignored in economic theory. Yet, one cannot deny the role of altruism in real life. There is no definitive record of the vast amounts given annually to friends, neighbours, and relatives. However, a 1990 estimate revealed that in the United States, approximately 1.7% of household income is donated in cash to charitable institutions. This figure does not even account for the value of voluntary labour.
As economic development progresses in advanced nations, the volume of charity continues to grow. Moreover, in all industrialised countries, public expenditure for the welfare of the poor is steadily increasing. Social scientists, therefore, have no grounds to ignore charity entirely. Consequently, economists have gradually begun to turn their attention toward the subject. They have, however, rechristened it the “Economics of Altruism,” and they refer to voluntary organisations as “Non-profit” institutions. A survey published in 1996 noted that social scientists had recently produced twenty-seven books and seventy-seven research articles on the subject of charity.
Altruism is not limited to humanity alone; such impulses are observed throughout the animal kingdom. From a biological perspective, altruism is defined as behaviour that benefits others at some cost or risk to oneself. On the surface, selfishness and altruism appear to be diametrically opposed tendencies.
The father of economics, Adam Smith, observed both of these impulses within the human psyche. In his first book, The Theory of Moral Sentiments, published in 1759, Smith described the desire to do good for one another as the very foundation of human social behaviour. Conversely, in his 1776 masterpiece, The Wealth of Nations, his central thesis was that man is inherently selfish, and this selfishness is gratified through the “invisible hand” of the market. Smith, however, offered no explanation as to how a human being could be simultaneously selfish and altruistic.
In the history of economic thought, the coexistence of these two seemingly contradictory tendencies is known as the “Adam Smith Problem.” Although Smith did not resolve this dilemma, his contemporary, the English philosopher David Hume, provided an independent explanation. Hume posited that man loves himself (selfishness) but also loves others, provided they are not his enemies (altruism). However, the intensity of this love depends upon social distance. The closer someone is socially, the more they are loved; as social distance increases, the intensity of that affection diminishes. Later, the American sociologist Bogardus presented a detailed theory regarding the metrics of social distance.
The economics of altruism raises three fundamental questions. Firstly, who gives to charity, and why? Secondly, what form of charity is the most beneficial? Finally, to what extent is charity beneficial to the economy as a whole?
The first question is of paramount importance to charitable institutions. By understanding the motivations of donors, these organisations can achieve greater success in soliciting contributions. Current research suggests three primary schools of thought. Firstly, some economists believe that altruism is, in fact, a form of selfishness. Specifically, helping relatives is driven by a biological urge to protect those with genetic ties. However, this brand of socio-biology cannot explain why people donate to those who are entirely unrelated to them.
Secondly, some economists argue that charity is driven by the donor’s psychological motives. Certain donors wish to influence the behaviour of recipients according to their own whims; for instance, a donor might wish to discourage drug addiction and thus contributes to an anti-narcotics institution. Others derive genuine pleasure from the well-being of the recipients. Then there are those who donate simply because they see others doing so, assuming there must be some inherent benefit. The third theory suggests that in industrialised nations, donors give primarily to secure tax advantages.
In most countries, income tax laws provide exemptions for charitable donations. However, the efficacy of such tax breaks in encouraging charity remains debatable. If tax rates rise, the value of the exemption increases, potentially encouraging more giving. On the other hand, higher taxes reduce an individual’s disposable income, which may lead to a decrease in donations. Thus, the impact of taxation on charity is not always certain. While there is empirical evidence supporting all three theories, no single simplification of the fundamental impulse for altruism is possible. Altruism remains for us a twilight world of religious and material motivations.
Theoretical research into which form of charity is most beneficial to the recipient remains limited. The greatest problem with charity is that those who are undeserving often seize the lion’s share, while the truly needy receive nothing. Individual donors can resolve this through personal diligence, but for impersonal institutions, this remains a most formidable task.
This problem exists at both the national and international levels. A major grievance among foreign aid donors is that the assistance intended for poverty alleviation does not reach the poor. Consequently, critics of foreign aid in developed nations often remark that the money provided by poor taxpayers in wealthy countries is being embezzled by the wealthy elite in poor countries. The foremost requirement for any charitable system is a mechanism that ensures aid reaches the rightful recipients.
Embezzlement of relief supplies can be curtailed in two ways. Firstly, through administrative measures, those ineligible for aid must be identified, and safeguards must be established to ensure they do not receive it. However, this requires precise information regarding potential recipients. For an external administration, collecting such data is prohibitively expensive. They are often forced to rely on local influential figures, who frequently attempt to deliberately misappropriating the goods. While one could bypass these local leaders by employing salaried staff to gather information, such employees in developing nations are often no less corrupt. Thus, while it is theoretically possible to reduce the theft of relief through administration, in practice, this is seldom achieved.
Secondly, the most effective method for helping the poor is not administrative, but rather a market-based solution. The nature of the charity must be such that it serves the poor while failing to attract the wealthy. According to economic theory, there are three types of products: luxury goods, normal goods, and inferior goods. Luxury items are consumed exclusively by the affluent. Normal goods are those for which demand increases as income rises. Conversely, an inferior good is one for which demand decreases as income rises. Thus, inferior goods are primarily consumed by the poor; as their income increases, even their demand for such products diminishes.
From an ethical standpoint, one might argue that the poor should be given the same quality of goods consumed by the wealthy. Indeed, gifting “inferior” products to the destitute may seem callous. However, when normal goods are distributed, those who are not entitled to relief exert great effort to embezzle them. In contrast, if inferior goods are provided, the affluent feel no inclination to compete with the poor for them. A study by the International Food Policy Research Institute (IFPRI) on food aid in Bangladesh supports this hypothesis.
In rural Bangladesh, wheat is considered an inferior good. Consequently, when wheat is distributed as relief, it reaches the poor much more easily. Rice, however, is a normal good; when rice is distributed, the wealthy attempt to misappropriate the portion intended for the needy. This experience proves that the poor benefit more when they are provided with inferior goods. If one tries to offer “better” items, the poor ultimately lose out. To truly help the target group, one must distribute products that possess an inherent tendency to reach them automatically.
If luxury items such as ladies’ shoes or butter oil are provided as relief, they will never reach the poor; the wealthy will seize them. Providing cash only increases the scale of embezzlement. While normal goods are more suitable for the poor than cash, inferior goods are more beneficial still. What applies to relief is equally true for subsidies. For instance, in the case of agricultural credit, it has been observed that where interest rates are low, the loans never reach the poor; the lion’s share is captured by the rich. In credit schemes where interest rates are higher, the wealthy do not flock to them.
In the experience of Bangladesh, it is observed that loans provided by state banks on easy terms are seldom repaid, yet high-interest loans from non-governmental organisations (NGOs) are settled punctually. The poor live in fear of the law; they repay their debts. The wealthy, however, know that they enjoy a degree of impunity—that “seven murders would be forgiven” for them—and thus they do not repay. When subsidies are introduced, it is often found that instead of benefitting the poor, they serve only to make the rich even wealthier. No government possesses the inexhaustible resources required to fund unlimited subsidies.
Consequently, a competition arises between the affluent and the destitute for these limited subsidies—a struggle in which the poor cannot survive. Thus, by attempting to provide high subsidies for the poor, one risks doing them more harm than good. Recently, a political party in Bangladesh sought popularity by increasing subsidies to lower the price of fertiliser. As the price of fertiliser rose in the international market, vast quantities were smuggled into neighbouring countries. This resulted in a domestic fertiliser crisis. The subsequent violent protests by farmers became a colossal electoral burden for that political party.
Poor farmers do not seek charity. They are content if they receive necessary inputs at a fair price and in a timely manner. The poor are satisfied with little; unlike the wealthy, their hunger is not all-consuming. Since the dawn of modern economics, a debate has raged regarding how to make charity effective and what impact it has on the economy as a whole. This debate originated in eighteenth-century England. Since the reign of Queen Elizabeth I, the “Poor Laws” had been in effect, mandating that local governments provide for the sustenance of the indigent from their own revenues.
In the eighteenth century, the classical economist Malthus drew attention to the ill effects of this system. Malthus argued that state-sponsored aid made the poor increasingly dependent upon the state. Recipients of aid ceased to work; instead, relying on state support, they continued to multiply. Consequently, the population burgeoned, and the offspring of the poor became even more dependent on charity. David Ricardo echoed these sentiments, demanding the abolition of local government aid to the poor. They were joined by the utilitarian philosopher James Mill. However, the most prominent role in the reform of the Poor Laws was played by Nassau Senior, the first Drummond Professor at Oxford University—a chair later graced by Amartya Sen.
In 1834, the Poor Laws were amended, and cash assistance was abolished. The new law imposed various conditions on eligibility for aid, and a central bureaucracy was established to oversee poor relief. These reforms sparked intense debate in nineteenth-century England. While the economists of the day supported such measures, journalists and men of letters denounced them as inhumane. The Times of London and the famous novelist Charles Dickens were among the most vocal opponents of the Poor Law Amendment. Ultimately, in the first instance, the economists emerged victorious.
However, the victory of the classical economists was short-lived. Towards the end of the nineteenth century, state initiatives to aid the poor were revived. Interestingly, these initiatives did not stem from fiery socialist leaders but were championed by pragmatic conservatives. In the 1880s, the first modern social security system was introduced in Germany by Otto von Bismarck—a staunchly traditionalist politician. He pioneered state-sponsored insurance for workers against accidents, illness, and old age. In the early twentieth century, the conservative leader Winston Churchill led the establishment of social security in the United Kingdom. Gradually, such social safety nets spread to the United States and across the globe.
The social security web has since expanded vastly. The architects of this system were not wild-eyed, fire-breathing leftists; rather, it was cool-headed counter-revolutionaries like Bismarck and Churchill who laid this net.
In the debate over social security, economic logic often surrenders to political emotion. Yet, this does not change the underlying reality. The apprehensions expressed by nineteenth-century classical economists regarding the pitfalls of poor relief remain true today. When aid is available from the government, the poor may cease their efforts to find employment. A growing segment of the population becomes dependent on state handouts, and the system becomes rife with corruption.
On one hand, an inept bureaucracy continues to bloat; on the other, many abuse social security programmes to maintain a life of luxury. In the United States, it is lamented that high social security taxes make it difficult for the working poor—who strive for a modest, honest living—to afford basic necessities. Meanwhile, those who do not work but rely on government aid are seen driving about in oversized Cadillacs.
The greatest problem with social security is financial. Its costs are rising inexorably. As costs rise, the government must increase taxes. Higher taxes reduce the income of those who work, thereby diminishing their incentive to produce. Consequently, overall economic productivity declines and the rate of economic growth slows. Thus, providing new resources for social security becomes impossible, yet its costs cannot be easily reduced. In a social security system, bureaucrats distribute taxpayers’ money to beneficiaries; in such a framework, there is no inherent urge to curtail spending. Thus, there is a global push today to overhaul social security systems. The goal is to reduce the dependence of the poor on society. The ultimate aim of social security should not be charity, but ensuring that everyone is able to earn their own livelihood through work.
Altruism may be the fundamental urge behind charity, yet charity cannot be fruitful if it ignores basic economic tenets. The mere desire to do good for the poor is insufficient; one must act in a manner that truly benefits them. Such a task cannot be accomplished on emotion alone; it requires a profound understanding of reality. Policies formulated by disregarding the “invisible hand” of the market have a very limited chance of success.
Three maxims of market economics must never be forgotten. Firstly, it is unwise to provide the poor with assistance that discourages them from working. Such a system is not sustainable. In a society where indolence is rewarded, everyone will seek to shirk their responsibilities.
Secondly, as long as the economics of altruism is dominated by the wealthy, “inferior goods” will remain the most suitable form of relief for the poor. Inferior goods satisfy the hunger of the destitute without attracting the avarice of the rich.
Thirdly, programmes for the poor must be entirely distinct from other social initiatives. If a uniform programme is adopted for everyone, the poor will fail to reap its benefits. Dr. Muhammad Yunus expressed this beautifully in his autobiography:
“Like good old Gresham’s law, it is wise to remember that in the world of development if one mixes the poor and the non-poor within a programme, the non-poor will always drive out the poor, and the less poor will drive out the more poor, and this may continue ad infinitum unless one takes protective measures right at the beginning. And what will happen is that in the name of the poor, the non-poor will reap the benefits.”
Two hundred years ago, Samuel Johnson wrote, “The road to hell is paved with good intentions.” I did not fully grasp the weight of this aphorism until I was besieged while attempting to distribute alms. Today, I understand that in striving to do “too much good,” one can inadvertently invite calamity.
In ancient Greece, there was a sacred site—the Temple of the Oracle at Delphi. Inscribed upon its gateway was the motto “meden agan”—“Nothing in excess.” This truth was applicable to Emperor Harshavardhana’s altruism; it was true for the philosopher Bacon; and it remains equally valid today. Sustainable altruism is impossible if one denies the fundamental realities of economics.
References
- Cited in Webster’s Compact Dictionary of Quotations (Merriam-Webster 1992), p. 44.
- Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations—a Selected Edition, Sutherland, Kathryn, ed., (Oxford: Oxford University Press, 1993), Book-I, Chapter II, p. 22.
- Rose-Ackerman, Susan, “Altruism, Nonprofits and Economic Theory”, Journal of Economic Literature, June 1996, Vol. XXXIV, No. 2, pp. 701-729.
- Ibid.
- Ahmed, Raisuddin, et al, Out of the Shadow of Famine: Evolving Food Markets and Food Policy in Bangladesh (Washington: IFPRI, 1998).
- Yunus, Muhammad, Banker to the Poor (Dhaka: University Press Ltd., 1999), p. 72.
- Peter, Laurence J., Peter’s Quotations (New York: Quill 1977), p. 243.
- Durant, Will, The Life of Greece (New York: Simon and Schuster, 1966), p. 118.