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ABSTRACT. American capitalism differs from all other forms of industrial capitalism is its historical focus on both the creation of wealth (entrepreneurship) and the reconstitution of wealth (philanthropy). Philanthropy is part of the implicit social contract that continuously nurtures and revitalizes economic prosperity. Much of the new wealth created historically has been given back to the community, to build up the great social institutions that have a positive feedback on future economic growth. This entrepreneurship-philanthropy nexus has not been fully explored by either economists or the general public. The purpose of this paper is to suggest that American philanthropists - especially those who have made their own fortunes - create foundations that, in turn, contribute to greater and more widespread economic prosperity through knowledge creation. If we do not analyze philanthropy we can understand neither how economic development occurred nor what accounts for American economic dominance.
I. Introduction
It is widely recognized that much of the success of the American economy in recent years, is due to its entrepreneurial spirit. Individual initiative and creativity, innovation and wealth creation are indelible parts of the American spirit. As a result of the recent technological revolution and economic restructuring both the general public, and government officials, are keenly aware of the role of the entrepreneur in job and wealth creation (Hebert and Link, 1989). This crucial role of the entrepreneur in economic development has fostered efforts by government at all levels to promote entrepreneurship (Hart, 2001).
However, what is increasingly recognized is that there is another crucial component of American economic, political and social stability, that is, the role of philanthropy. Writing in 1957, Merle Curti advanced the hypothesis that "philanthropy has been one of the major aspects of and keys to American social and cultural development" (Curti, 1957, p. 353). To this we would add that philanthropy has also been crucial in economic development. Further, when combined with entrepreneurship, the two become a potent force in explaining the long run dominance of the American economy.
What differentiates American capitalism from all other forms of capitalism (Japanese, French, German, and Scandinavian) is its historical focus on both the creation of wealth (entrepreneurship) and the reconstitution of wealth (philanthropy).1 Philanthropy remains part of an implicit social contract stipulating...