[This is the foreword to the new book by Douglas French: When Movements Become Rackets (2025)]
Dante Alighieri, in his book Inferno, places those who betray benefactors in the deepest circle of hell. If that is true, the place is likely overpopulated with the managers and executives of nonprofit organizations.
In recent years, such organizations have been implicated in egregious schemes to launder money and influence for every sundry and malevolent cause and hundreds of billions in taxpayer money. But even those not on the take from taxpayers have vast problems, so much so it is a wonder why anyone donates to them at all.
The more you study this stuff, the more cynical you become. The pandemic period gave rise to hundreds of these things designed to plan for pandemics and end them. Many were funded by crypto scams born of stimulus payments provided so that people could work from home. Some had fancy philosophical cover such as “effective altruism,” about which the scandals never end. Tens of billions in fraudulent court judgments have come down.
Sometimes the racket benefits forever just from a name. Consider the American Society for the Prevention of Cruelty to Animals, or ASPCA. My God, who doesn’t want to stop cruelty to animals? It was founded in 1866 and maybe did some good, I don’t know. But these days, it is a main force to stop working-class people from making money by breeding and selling dogs and cats, taking from people a lucrative business that also helps people have companions at a low price. This doesn’t stop cruelty; it bolsters an industrial cartel of professional breeders.
But then you look up the organization. Assets: $553,325,000; contributions: $338,217,130; programs: $25,068,713; investment income: $13,573,862; book royalties: $3,953,489; fundraising fees: $11,884,368. The CEO gets a million plus a year. The fundraiser alone makes $500,000. The 14 top executives earn more than $275,000 a year each. More than a thousand people work there. I cannot say with certainty, but this has all the earmarks of a racket, all in the name of not stopping but actually creating “puppy mills.”
With those kinds of assets, why doesn’t it just become a foundation? Because it has a massive organization to support and can raise $338M per year. Why leave that kind of money on the table? But being a nonprofit also requires them to raise money to keep up appearances, per rules via the IRS. So the fundraising letters arrive like a tsunami, every dime pouring in in order to keep up appearances.
For all I know, that might be among the best. No comment is necessary on the Southern Poverty Law Center (as ably exposed and surveyed by Doug French in Chapter 1), which depends foundationally on spreading the word that America has a massive problem with racism and Nazism that they alone can solve. Ex-employees have blown the whistle many times on this scam, but it never makes a dent in the organization, which everyone knows is a scam but it somehow keeps lasting.
As for Harvard University, another nonprofit but with assets of $53 billion, the less said the better. I would also put in this bucket countless fake libertarian organizations such as the Cato Institute, which somehow weighed in eight months after the start of the pandemic period to endorse lockdowns, masking, tax-funded medical interventions, and mandatory injections.1 There’s some liberty right there!
I looked up the 990s of an organization founded in the postwar period that has long since failed to pursue its mission, which was once about backing economic freedom; indeed now it does nothing at all except vamp for social media. What I found was a long list of legacy foundations, institutions that are forced to give a percentage of interest and dividends to other nonprofits. It’s a gravy train. Once you are on it, you stay there seemingly forever even if your nonprofit only pretends to operate and do what it claims to do.
And yet people still work there, if you can call it that. As a long-time employee of nonprofits, there are many stories I could tell: incompetence, waste, fake jobs, preening frauds, underhanded fundraising strategies, bullying bosses, surreptitious survival strategies, hapless donors pillaged, preposterous spending schemes, managerial and intellectual hoaxes, and internal politicking so vicious that it shocks to the core.
In his chapter on movements, my old friend Doug French riffs on a theme from Murray Rothbard in observing that what starts as a mission somehow and seemingly inevitably turns into a racket. True words. French isolates a main structural feature of the nonprofit world that makes it particularly vulnerable. The consumers of the product are different from the sources of the revenue. It’s a three-way exchange: donors, consumers, and producers. This creates a huge space for racketeering. This is unlike the for-profit sector in which the direct exchange between producer and consumer minimizes the persistence of scams.2
That’s a solid technical explanation, but there is more going on still. It’s not as if the nonprofit designation is inherently corrupt. Most private schools are nonprofit. So are churches and many good charities. Great hospitals, orphanages, religious houses, and universities in history have been nonprofit organizations. They have done great good for the world at great sacrifice for donors and those who work for them. They could not have successfully reorganized as for-profit organizations simply because the service they provide goes mostly to nonpayers: that is, they have a mission that is inconsistent with a for-profit model.
If that is true, what mechanisms are in place to keep them from becoming a racket? There can only be good structure and a management system in place to keep them from falling into the pit. When I formed Brownstone Institute, this was my number one fear. I did not want to found an institution that would go the direction of most of them. Thinking it through carefully, I realized that a main feature of corruption comes down to institution building. In time, the managers care far more about their own operations and stability than the mission to which they publicly swear fealty. One sign of this is the construction of a fancy building for a headquarters.
How to stop that? My first step was simply to limit the number of personnel: only the best with high workload so that everyone was genuinely working a full-time job. No idle hands doing the devil’s work. I mapped out a structure of ten people and eventually reduced that to four. That is where it has stayed. Any other services we need that are outside the skill set of these four are contracted out on a temporary basis.
My second step was thinking through the mission itself to which we hope to devote 90 percent of the resources. Based on what I could see at the time, and continue to see, what the world needed more than anything else was sanctuary for dissident intellectuals—not a permanent home but a quick bridge to another path in the presence of cancel culture. I certainly could have used such an organization in the course of my career.
The key is that the unrestricted financial support is temporary, just one year, while their presence in the community is lasting. This model also becomes scalable: whether we have three Fellows or 300, we can scale up and down based on resources. Hence, if we gain or lose a million dollars, we are perfectly positioned to plough those resources into or out of a program that serves the mission primarily rather than simply builds the institution.
That’s the theory, and it has worked so far. It’s based largely on the structure that ended up saving Ludwig von Mises from doom when he was drummed out of Vienna in 1934.3 He landed in Geneva at an institute that saved him for six years (during which time he wrote Human Action) before he found another lifeline in the US thanks to some benefactors who helped him get an academic position.
Brownstone is designed to serve that role in our time. The hope that it doesn’t become a racket is built into the structure itself: no physical headquarters, a tiny staff, and a mission that is distinct and established as inherent in the protocol of our operations. That’s the idea in any case. I’m not so naive as to believe that this is an impenetrable edifice, however. I would rather it close its doors before it went the way of most nonprofits.
I’ve thrown around the word mission often here, and this deserves some elaboration. Missions are bound up with movements and groups, and each poses grave dangers on its own. One of the more revealing accounts of groups and movements I’ve seen is from one of Mises’s influences, Sigmund Freud and his powerful tract Group Psychology and Analysis of the Ego.4 In his view, the group has no actual physical existence; it is purely a sociological fiction. As such, all its members are in a continuing state of existential fear: it could evaporate in an instant. Some measures are necessary to sustain the fiction of its existence.
He gives the examples of the church and the military. What do they have in common? They are enormously welcoming on the way in and viciously punishing on the way out. They promise grace, eternal life, peace and contentment, adventure, heroism, manliness, valor and recruit members based on this. But if any member leaves, the exiting person is met with cruelty: excommunication, shunning, disgrace, death, and burial outside favored plots. The only difference in the person is the direction of joining or leaving: depending on the direction you go, you are either showered with praise and promises or denounced or even shot.
This is the essence of the group: manipulative, lying, duplicitous, deceiving, and ultimately cruel. (It is one reason Hans-Hermann Hoppe refers to the state as “the great fiction.”)5 The reason traces to the ultimate fiction that there is such a thing as a group, which there is not, but we speak of them as if they do exist. Nonprofits often lead groups and are thus subject to all the pathologies Freud names. They can be warm and welcoming until they are not; then they can be vicious and horrible in contradistinction to all their professed missions and purposes.
Once you have a group, you form a movement, which is another fiction. Still, creating the appearance of a movement requires a guru leader and compliant followers who are making a dent in public opinion. It requires compliance with the leadership principle but the leaders are more often than not led to corruption, sometimes of unspeakable types. These mortals aspire to immortality in reputation as “great men” who lead others but such power corrupts.
That’s not to say leadership itself is a myth but there are two kinds. There are those leaders who seek to surround themselves by talent and intelligence and who see themselves as servants of a cause, always ready to praise and credit others. And there are those who beat back and eschew talent and intelligence, regarding them as a threat to their own valor. These are the insecure types who have minions do their writing and obsequious servants praise their glories nonstop. There is no end to the flattery they demand; far from being taken in by it, they revel in it.
Another feature deserves comment: the ubiquity of infighting among groups, movements, and nonprofits. As anyone who has worked in this sector, big or small, can affirm, infighting and factionalism are the true desiderata of nonprofit life. How to explain this? Hegel’s theory of self-identity is helpful.6 Most people involved in intellectual and mission pursuits want to believe that they are making a difference in the world but what constitutes the “world” for marginal movements is subject to relentless shrinkage.
As it turns out, people want to be heard and they want evidence that they matter. But given that the bigger world cares nothing about their stupid cause, they turn toward internal fighting to prove to themselves that they are making a difference. They fight, purge, denounce, refute, lobby, and break into ever smaller factions, with the perpetrators of such absurdities mainly seeking a sense of self-affirmation. These little fish flop around in ever smaller ponds and will do so forever so long as the donors are there to change their water.
In evaluating the importance of any particular group, movement, or nonprofit, I’ve come to use what we can call the Seventh Day Adventist test. This is a church started in 1863 with a few thousand members. Today it has 23.6 million members and some 20 different break-off sects in every country. Some of these breakoffs are large and some tiny. Most people think nothing of all about this revivalist offshoot. For its members, however, it is the most important thing in the world. The test: your group should always compare itself with this church, which is massive but without much of a cultural importance. Just remember: there is no reason to take yourself seriously until you approach the level of size and scope of some portion of the Seventh Day Adventists. Until then, it is likely that you are taking yourself too seriously.
French’s truth-telling essay was first delivered at the Property and Freedom Society as founded by Hans-Hermann Hoppe. The question came up in the Q&A: why is the PFS exempt from the logic of decline into scammery? The answer is similar to my own concerning Brownstone: we have a refined purpose and scale to meet that purpose. PFS holds one meeting a year. Its budget consists of fees paid to attend that meeting. It is not an attempt to build an empire or institution or employ as many people as possible. It is there to do a job that needs to be done: provide intellectual camaraderie among dissidents who accept the values of the organization.
That’s why there is little danger that it will become a racket. It puts mission and its value first with refined operational limits. That’s the test. With those parameters, it is also less subject to the pathologies of group psychology and factionalism that doom so many other nonprofits. It is also not robbing people, which means it is not only doing good work. It will also keep its members and managers out of the circle of hell into which Dante places those who betray their benefactors.
I worked for a time with Doug French as my boss. He did his best to make sure that the institution he served was on the up-and-up: efficient, functional, broad-minded, effective, and mission-driven. Not a cult, not a scam, not an excuse for self-aggrandizement and pillaging. That’s the ideal and he worked toward it until it became impossible. I too have experienced such frustrations. It’s a sad truth that once an organization becomes a racket, there is no turning back, no final reform efforts that work, no real path to redemption. In the for-profit world of endless institutional churning, scams come and go.
In the nonprofit world, they last and last. So long as the money is flowing, and the bills are being paid, the rest takes care of itself. The key lesson for donors: know the difference between an organization with a purpose and an obvious racket. Sadly, the latter far outnumber the former, in both this world and the next.
References
- Jeffrey A. Tucker, “The Disgrace of the Old Guard,” The Epoch Times (Sep. 5, 2022; https://perma.cc/3R7G-PH86); idem, “The Downfall of the Gurus,” The Epoch Times (Jan. 23, 2022; https://tinyurl.com/2mf9dv9r); Robert A. Levy, “Vaccine mandates: A liberty-minded perspective,” The Hill (Aug. 18, 2021; https://tinyurl.com/4ucn6yk9); Thomas A. Firey, “Government in a Pandemic,” Cato Institute Policy Analysis No. 902 (Nov. 17, 2020; https://perma.cc/DS6Y-YLEV); Matt Welch, Ronald Bailey, Jeffrey A. Singer, and Sandy Reider, “Should Vaccines Be Mandatory?”, Reason (April 2014; https://perma.cc/V4M5-VJH9); David Boaz, “Cato Scholars on Vaccine Policies,” Cato at Liberty Blog (Aug. 13, 2021; https://perma.cc/A4JS-ACBD).
- This also explains why some groups, such as PFS (as noted in the addendum to Ch. 1), are not prone to the same problem, since there, the donor is the consumer of the service provided. More on this below.
- Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn, Al.: Mises Institute, 2007; https://mises.org/library/book/mises-last-knight-liberalism), ch. 16.
- Sigmund Freud, Group Psychology and Analysis of the Ego, James Strachey, trans. (London and Vienna: The International Psycho-Analytical Press, 1922; https://www.gutenberg.org/ebooks/35877).
- Hans-Hermann Hoppe, The Great Fiction: Property, Economy, Society, and the Politics of Decline, Second Expanded Edition (Auburn, Al.: Mises Institute, 2021; www.hanshoppe.com/tgf), a book I am proud to have published during my tenure at Laissez Faire Books, in 2012, around the time I attended the PFS. See Jeffrey A. Tucker, “The Center of the Conspiracy,” Laissez Faire Books (Sep. 29, 2012; https://propertyandfreedom.org/2012/09/jeff-tucker-on-pfs-2012-the-center-of-the-conspiracy/).
- Georg Wilhelm Friedrich Hegel, Phenomenology of Spirit, Terry Pinkard, trans. (Cambridge: Cambridge University Press, 2018; https://perma.cc/G8WW-GGF2).
Read the full article here