jects as classics or history, no serious problems arise. The university merely
adds part of its regular budget to these departments to make up for the
deficiency of funds for a particular chair. But where the subject to be taught
has little interest for current administrators, more serious problems arise.
A related problem is the following: at what price should an IHL agree
to set up an endowed chair? If a high-priced professor receives $20,000,
then at 4 per cent $500,000 would be needed. But a university may accept
less--say, $250,000--where the chair is badly needed and on the assumption that the agreement can be made in such a manner that it will not
spoil the market; that is, others will not be deterred from offering much
more. But there is another aspect. Twenty-five years from now the $20,000
professorship may cost $40,000. Should not this be taken into account in
setting a price for a professorship--in a generation a deficit of $20,000
per year may emerge. In part this would be offset by investments in growth
stocks resulting in a rise of income, though not likely equal to the increased costs of the chair. Obviously where the chair seems to offer a large
contribution for the foreseeable future--e.g., science--the administration
need not be deterred too much by the need of an additional, say, $20,000
per year to finance the chair by 1985.
Here I am not discussing the problem of how much attention generally should
be paid to book values. My view is that too much attention is paid to book values,
especially in periods of economic decline. The emphasis should be on income, and
treasurers should not be excessively concerned over declines in book values. Original
value is more significant than book value, especially since book values are occasionally modified. But, unfortunately, book, not original value, is usually available.
According to the 1959 HEW study, College and University Endowment Investments, 140 of 200 IHL accounting for the larger part of endowment use the book
value approach; also see Higher Education in the United States: The Economic
Problems, 1960, pp. 208-211, and Senate Bill No. 254, Session of 1947, The General Assembly of Pennsylvania.
R. S. Johns, "Preferred Method of Pooled Investments," College and University
Business, July 1, 1953, p. 27; C. H. Foster, "Applying Investment Trust Accounting
to the Pooled Funds of the College," ibid., November, 1956, pp. 47, 48; R. G. Funkhouser
, "Applying Investment Fund Accounting to Consolidated Endowment
Funds," ibid., June, 1954, pp. 21-23, and July, 1954, pp. 44-47; J. D. Russell, The
Finance of Higher Education (rev. ed.), chap. 11; A Second Look at the Sixty College Study, 1960, exhibit XI.
R. L. Thompson, The Care and Administration of Endowment Funds
, pp. 19
See especially L. M. Simms, Public Policy in the Dead Hand, 1955, pp. 119-131,
and T. E. Blackwell, "Who Has the Power to Modify Charitable Trusts?" College
and University Business, June, 1953, pp. 30, 31.