The New Prudent Man: Financial-Academic Capitalism and Inequality in Higher Education

Abstract

For over one hundred years university endowments in the United States had been managed according to the common law “prudent man” principle that imposed the relatively conservative fiduciary responsibility for capital preservation upon university trustees. Beginning in the 1970s the prudent man concept was re-imagined to call for the maximization of return on endowment holdings and increased attention to long-term capital accumulation. This chapter shows how the transformation of the prudent man principle coincided with restructuring in the broader political economy and especially the globalization of finance. It is argued that endowment management is now a form of financial-academic capitalism in which universities engage in market activities to generate profit in order to secure advantage over competitor institutions by amassing wealth, which is in turn associated with prestige and field status. This advantage is reinforced by historical positional and taxation policy. Wealth and status advantages result in inequality, and I argue that endowment management is one contributing factor to the steep and persistent stratification that characterizes higher education in the U.S. Institutional inequality presents implications for social opportunity and equity. The chapter concludes with policy recommendations related to institutional wealth management.