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William Richards Castle William Roscoe Thayer.

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in the party would make them traitors to America.



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1916.] Seeent Biographies. 637

All this is to read into Mr. Washburn's book more than is there
printed, for Mr. Washburn states only verifiable facts ; yet events hare
proved the deductions from those facts to be fair. Much as '^ big busi-
ness " may dislike it, the days of Republican or any other paternal care
are over. Business must be regulated in the interests of all. Mi*. Roose-
velt realized this when he was President ; he undoubtedly turned on the
official searchlight too suddenly to be quite fair, since business, like
eveiything else, should be given time to adapt itself to a changed moral
code. One of the hardest things for us to realize is that a specific act,
whicli is today considered morally wrong, would have been regarded only
a few years since as above reproach. Therefore any sudden increase in
the sensitiveness of the national conscience leads inevitably to a confu-
sion of moral standards, to distorted judgments. The early years of the
century were a festival time for the <* muck-rakers." With them the
President was classed as the blind champion of impeccable labor in its
struggle against cruel and vicious capitaL This was an unjust inference.
He was the champion of the oppressed against the oppressors, and at the
moment he saw only the sufferings of labor. As Mr. Washburn says, one
of his great virtues — and it has sometimes been a great fault — is his
intense absorption, to the exclusion of everything else, in the work of the
moment. Roosevelt tipped the balance too far, but his attack on business,
read in the light of subsequent events, is seen clearly to have been an
attack on oppression. He has also, it is fair to say, been more interested
in the human problem than in capitaL He believes in giving every man
a chance according to his deserts, but is by no means blind to the needs
of business, nor to the essential and beneficent rdle of capital under the
modem economic system ; and, if the tables are turned, if capitalists suf-
fer under the unjust demands of laborera, he will as strenuously defend
their rights, will attack as vigorously the excesses of the unions as he
attacked what seemed to him the soulless methods of employers. And
this he wiU do without fear of political consequences.

The book shows Mr. Roosevelt as always the sincerely patriotic Amer^
ican which the last two years have proved him to be. It does him and
us the service of revealing the real man, because it ignores all the mass
of unessentials, one or the other of which obscures for so many the sound
and honorable bases of his character. It is a book, also, which recognizes
and tries to explain some of the national problems in the solution of
which Mr. Roosevelt has played so prominent a part But it is perhaps
natural that the reader, intensely interested in the dramatic unfolding of
the character of *' the most interesting American," should at first hardly
notice the thoughtful and suggestive explanation of the effect on the two
great Civil War parties of changing conditions of life and population, or



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638 An Interpretation of the Treasurer* 8 Report. [June,

the clear definition of the working of anti-trust laws as interpreted and
reinterpreted by the courts. Mr. Roosevelt, presented by a classmate who
has been always a personal, although not always a political, friend, is,
however, the subject of the book, and the picture of the noanly, fearless
American, fighting always for what he believes to be right, without re-
gard to the German vote or the labor vote or the Wall Street vote, cer-
tainly gives a large aspect of the truth*

JT. R. Castle, Jr., '00,



AN INTERPRETATION OF THE TREASURER'S REPORT.
W. M. COIJ^ W,AM9ociaU Professor of Aeeounting.

The Treasurer's reports have always been hard to interpret, and they
probably always will be so for all except those who have been- concerned
in their preparation. The peculiarity of the reports of the Treasurer of
Harvard College lies in the fact that three financial aspects must be shown
coincidenUy. The first is the status of the funds which have been given
to the University for various purposes, because the donors of such funds
and their descendants have a right to know exactly what is done with
their money — to know, for example, whether the funds have increased
by additions of income, have been used as a source of income solely, or
have been disbursed largely for current expenses. The second is depart-
mental information, for the heads of various departments desire to know
what funds are at their disposal, what balances remain of various funds,
what their normal and extraordinaiy expenses are, and what figures may
be used in drawing up- budgets for following years. The third is the gen-
eral financial policy of the University, which requires that certain of
these things be combined into a general formal statement as preparation
for subsequent budgets. Since it chances that these three aspects are to a
certain degree contradictory, and in large degree are overlapping, the
Treasurer's report necessarily involves either much repetition or else a
form of statement that seems complicated to the layman who is concerned
with the more simple aspects of the financial situation. An attempt is
made here to simplify the financial statements and give only such infor-
mation as the main body of alumni presumably will find interesting.

We may well turn first to the endowment of the University. The item
of Funds and Gifts, which comprises both original gifts and accumula-
tions of interest from them, amount to $28,500,000. These figures do
not include any funds or gifts devoted to the purchase of real estate or
other equipment for the University in past years, for such items have



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1916.] An Interpretation of the Treasurer's Report. 639

always been treated as transactions of the current period and hence have
no direct influence on later figures. Nowhere on the current accounts is
shown the value or cost of the various buildings and equipment now carried
by the University for the purposes of University instruction^ research, etc.
The item of Funds and Gifts, therefore, is either endowment or sums
available for immediate use. For the last two or three years, for illustra-
tion, an item of gifts for Freshman dormitories has been carried on the
Treasurer's report, but when the Freshman dormitories were actually
built and the money had been expended the item disappeared entirely
from Funds and Gifts.

The funds and gifts are shown to have been invested (in approximate
figures) as follows : land and buildings, $6,000,000 ; mortgages and other
loans, $1,800,000 ; railroad bonds, $6,750,000 ; traction bonds, $2,400,-
000 ; public bonds, $250,000 ; other bonds, $5,500,000 ; railroad stocks,
$2,400,000 ; manufacturing and telephone stocks, $1,200,000 ; real estate
trust stocks, $1,400,000 ; sundry stocks, $300,000. Nearly $5,000,000
of these investments are in the original form as received by the Univer-
sity ; and not always are these investments productive or easily converted
into productive form. The rest of the funds and gifts are loaned tempo-
rarily to departments of the University or to Treasurer's investment ac-
counts in anticipation of future income, — $500,000 ; that is to say, de-
partments or other activities with income inadequate for their needs have
been loaned funds properly belonging to other departments or uses bat
in excess of the immediate needs of those departments or uses, and are
charged interest on those loans.

Of the endowment, it is notable that $25,500,000, of the $28,500,000,
is so restricted that the income only is available, and of this the income of
nearly $23,000,000 is restricted to certain uses ; that $1,500,000, though
restricted in its uses, may be spent outright if desired, for both principal
and income may be applied to such uses ; that of $4,250,000 for unre-
stricted uses, only the income may be used for $2,600,000 ; and that only
$1,600,000 of the total $28,500,000 is absolutely unrestricted as to both
principal and income.

The income from these funds amounted to $1,375,000, or almost 5%
on the value carried on the books. (The income from general investments
was slightly over 5%.) To this income was added a number of gifts for
immediate use, such as annual subscriptions for the maintenance of vari-
ous departments of the University, and gifts for Freshman dormitories,
etc., which will be discussed in more detail later. To these are added
the miscellaneous income from departmental and non-departmental activi-
ties, tuition fees (amounting to $750,000), laboratory fees, rent of College
dormitories, etc., making total income for the year $3,000,000.



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640 An Interpretation of the Treasurer's Seport. [June,

The expenditures have been roughly diyided into groups as follows :
administrative purposes^ $132,000 ; departments of instruction, $1,600,-
000 ; other activities, including such things as the library, the museums,
the observatory, etc, $1,060,000; aid, scholarships and fellowships,
$200,000 ; miscellaneons items, such as repairs and equipment of dormi-
tories, care of dormitories, repairs and equipment of land and buildings
for general purposes, $190,000. The difference between income and ex-
penditure for the year shows a deficit of $13,400.

A confusing feature of the accounts of any particular department lies
in the fact that a department may have both a surplus and a deficit at
the same time. Most gifts to the University have specific aims, and not
always is the income which is to be spent exactly adaptable to the needs
of any one year. Often such items are accumulated for expenditure in
other years, and often it happens that the immediate need of a depart-
ment is not met by the restricted purposes of funds available for its use.
It is the custom of the financial authorities of the University to care for
such contingencies by borrowing and lending not only between years but
between departments. The accounting is careful, and in subsequent years
settlement is made and tlius all funds and departments bear their own
burdens — except as the records show sometimes that ultimately trans-
fers are made as a matter of general policy. These temporary loans and
ultimate transfers necessarily very much complicate the accounts and
financial reports.

This is well illustrated in the accounts of the College^ for 1914-15.
The College accumulated $87,000 of restricted funds which it could
not wisely use during the year for the designated purposes ; so it has car-
ried this over for use in subsequent years. In the same time it expended
$15,000 of other restricted funds accumulated in previous years and held
over for the purposes of this year. It repaid $5000 of sums borrowed by
it from general funds (unrestricted) in preceding years, and took up and
used $1000 of general income accumulated in its favor in preceding years.
It borrowed $800 of general funds and lent $300 to general funds — all
must show, for the sums borrowed and lent must be credited or debited
to the other departments or uses concerned. The final general figure for
the College is $62,500 surplus of general income. This is carried, as hereto-
fore,, to a combined account for the " University, College, and Library."
Since the Library shows a deficit of $34,500 it depletes by so much the
surplus of the College and of the ^' University "($4000). This would natu-
rally leave a balance on the combined account amounting to $32,000 ; as
a matter of fact, however, this was transferred as follows: $500 to pay

^ An College figrnres inelade the Gndnate School of Arts and Soiences. No eepani-
tion 18 deemed feasible, for to great degree both salaries and tuition fees are oommon.



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1916.] An Interpretation qfthe Treasurer's Seport. 641

the deficit of Appleton Chapel, $27,000 to pay the debt of the Randall
Hall ABSOciation, and $5000 to pay part of the principal of the mort-
gage note of the Riverside Associates — debt incurred to hold property
in Cambridge available for the growth of the University toward the
river.

After this view of the College, it is interesting to note the general con-
dition of some other departments. The Graduate Schools of Applied
Science, after receiving $66,000 from the general funds of Harvard College
as compensation for teaching undergraduates, etc., completed the year with
a final balance of general income of $6000 credited to general suspense.
The Graduate School of Business Administration, after exhausting slightly
more than $3000 of surpluses accumulated in the past, ended the year
with a general deficit of about $500. The Divinity School exhausted by
$5000 its previously accumulated surpluses. The Law School depleted by
about $3000 its surpluses accumulated in past years. The Medical School
was able to pay off about $20,000 of amounts borrowed in previous years
to enable it to meet its running expenses. The Graduate School of Medi-
cine added $7000 to its credit balance. The Dental School had a deficit
of $7000. All the figures just cited refer to general income, for neither
deficits nor balances of restricted income, for reasons to be given later,
are deemed to create final deficits or surpluses. The total expenditures
of all departments in excess of income assignable to them amounted to
$150,000, and the total balances of general income assignable to depart-
ments and not expended by them amounted to $137,000 ; so the net deficit
of general income was $13,000, as already indicated in the general dis-
cussion of income and expenditure.

Respecting restricted funds, the total deficiencies of all departments
and activities having deficiencies of restricted income appears as $355,000,
but since credit balances are $232,000, the final reduction is $123,000 ;
but, as a matter of fact, none of this is actual depletion in the ordinary
sense, or even anticipation of income, for practically all of it is expendi-
ture this year of sums accumulated in past years for purposes of imme-
diate consumption or construction. The best illustration is the completion
of the Freshman dormitories. For this, in 1914-15, was spent $363,000,
though the receipts for the year for that purpose amounted to but $90,000.
Most of the difference was taken out of funds accumulated in the past for
this specific purpose, and the rest is a debit suspense balance ($81,000)
carried as an expense of the year but presumably to be made good by
special funds to be available later. Another illustration of the same sort is
in connection with the Cmft Memorial Building, for which there was spent
during the year $48,000, though the receipts for the fund amounted to but
$300 ; the balance was paid out of the original fund, given for that pur-



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642 An Interpretation of the IVeaeitrer^s Report. [Jane^

pose, and its aceomulalions— except for a small balance carried over to
the future.

A table is appended showing briefly the general income balances of
the various departments and activities of the University for the year
1914-15. The figures will differ in some cases from those already
given, for the figures given had regard as much to what may be called
the solvency of the department as to its current support. Obviously
payments, from the funds of 1914-15, of indebtedness of previous years
should not count as current expenses, for they are in reality disposition
of surplus of 1914-15. Similarly, funds accumulated in previous years,
though expended in 1914-15, sAionld not be counted as current income,
for their expenditure is in reality exhaustion of former surplus. The
figures following show the result of the operations of 1914-15 unaffected
by earlier or later operations ; that is, they show how far each department
was in 1914-15 able to make the income of the year meet the expenses
of the year. Some departments have actually larger surpluses at their
disposal than those shown in the table, for they have older accumulations
to draw on ; others have larger deficits ; and some have balances, as a result
of accumulations, on the side opposite those for the single year 1914-15.
In a few cases, too, income from so-called restricted funds is so little re-
stricted that in effect it is unrestricted ; and surpluses of such income,
added in the Treasurer's report to Funds and Gifts and therefore nom-
inally unavailable, are in effect free surpluses ; since they are few and
small, however, they are here disregarded. Indeed, with so many re-
strictions as occur in funds, it is often impossible to say indisputably for
a period, without prohibitive labor, exactly what is the surplus or deficit ;
for if certain expenses are met from a restricted fund (found on careful
interpretation to be capable of such a use), unrestricted funds may remain
for meeting other expenses clearly not chargeable against the restricted
fund, and there is no deficit ; but if the first charge had been met from
the unrestricted fund, because the need of interpreting precisely the re-
striction of the other fund was not then apparent, there would have been
a deficit — no balance would remain in the unrestricted fund for the
payment of the second charge and the restricted fund would not be avail-
able. Within certain limits, therefore, the line of surpluses and deficits
is flexible ; but the line cannot be stretched beyond these limits to con-
vei-t a threatened deficit into a surplus, else the future will disclose the
misrepresentation.



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1916.] An Interpretation of the Treasurer's Report. 643

UuuU of operatUnufor ths

s4ngte pear 1914-15
D^U Surpltu

University! $512.45

College $66,139.00

Library 34,617.32

Summer School 664.22

Graduate Schools of Applied Science 7,522.49

Graduate School of Business Administration . . • 3,761.06

DiTiAity School 4,803.07

Law School 2,840.78

Medical School 20,693.37

Graduate School of Medicine 6,877.09

Dental School 6,846.51

Botanic Garden 2,638.85

Botanical Museum 107.77

Gray Herbarium 3,606.10

Observatory* 3,076.00

Blue Ilill Meteorological Observatory • . . • . 800.00

Museum of Comparative Zoology * 14,796.88

Peabody Museum ^ 842.96

Germanic Museum ' 652.10

Fogg Art Museum * 1,558.54

Appletou Chapel 569.40

Stillman Infirmary 237.16

Totals $59,773.21 $124,389.91

Deficits 59,773.21

Net Surpluses $64,616.70

The following had neither surpluses nor deficits of general income :

Biissey Institution * Brooks House *

Arnold Arboretum '^ Hemenway Gymnasium *

Semitic Museum '

1 The figure preTiously cited is ultimately affected by a chargre of 14811.84 against
the Harvard University Press.

^ This -well illustrates the fund complications. The Observatory received from the
Fnnd for the Advancement of Astronomical Science (1901) 31995.35, and from a simi-
lar fund (1902) $870.65, or a total of S2866 ; it contributed to the former fund, how-
ever, from surplnses specially available, even though after so doing the observatory had
a deficit of S3076.00, $1 737.32. The deficit was due to expenditures in anticipation of
an assured gift, and hence was nominal <Mily.

' After the assumption of certain charges by other departments.

* This was accomplished by meeting a deficiency of $5000 out of the unrestricted
principal of the Gordon McKay endowment.

' A snrplas of $4000 was added to Arboretum oonstmetion gifts.

This was accomplished by charging the deficits ($10,600 for the Gymnasium and
$1600 for Brooks House) to departments in Cambridge in proportion to the number of
students.



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644 An Interpretation of the Treasurer's Report. [Jane,

The figures of departmental sorpliues and deficits above show a net sur-
plus for all departmental actiyities of $64,616.70 ; but the non-depart-
mental actiyities showed a net deficit of $78,013.60, leaving a final
yearly deficit of $13,396.90, as previously shown. These non-depart-
mental deficits consisted of three items, only one of which was of magni-
tude — the expenditure for Freshman dormitories above the funds im-
mediately available for building them. The actual deficit of these
activities was less than the excess expenditure on the new dormitories,
for some minor activities had yielded enough to offset in small part that
excess.

It is noteworthy in this connection that the University does not attempt
to distinguish normally between capital expenditure and running expense.
To do so would require an initial valuation, or at least specified inven-
tory, of all property in all departments, and in addition would require
the designation of one person in authority in each department who should
be not only competent but willing to consider carefully each expenditure
and determine whether it is a rumiing expense or an addition to property.
The consequence of the present system, which has prevailed in large
measure because it is believed that an attempt to require adequate ac-
counting in all departments would result in serious interference with
teaching or research, is uncertainty as to how much of any year's deficit
or surplus is due to the actual work of the year and how much is due to
expenditure necessitated by neglect of property in the past or by capital
needs for the future.

The table just given shows dearly that unless the surpluses of numer-
ous departments were due to very gross neglect of property, thus forcing
into the future large expenditures to replace property, the net result of
last year's work so far as the costs of the year are concerned was a sur-
plus of $64,000 ; for the deficit of $13,000 is due to the absorption of
that surplus, and more, by the cost of construction of Freshman dor-
mitories in excess of gifts applied to that cost. If the same thing had
been done for the cost of building the tunnel to carry steam to the Col-
lege Yard, which was $137,000, the deficit for the year would have been
$150,000. The accounting difference between the two cases lies in the
fact that the balance of cost on the Freshman dormitories is in the report
treated as an activity of the year, paid for by money borrowed from other
funds but to be replaced later from special funds soon to be available
(a suspense debit balance), but the cost of the tunnel is treated wholly
as a loan to the future, for (though it is carried as a suspense debit bal-
ance) it nowhere appears as an expense of the year. As a matter of fact,
the figures of the Treasurer's report require two adjustments, amounting
to $30,000| in the matter of Freshman dormitories, which reduce the



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1916.] An Interpretation of the Treasurer's Report. 645

balance, above the gifts applied to meet the cost, to $51,000, and this
changes the nominal deficit for the year to a surplus of $17,000 even
when tbe cost of the dormitories above subscriptions is treated as a cur-
rent expense. If the construction of tbe dormitories is not treated as a
current expense, this change makes no difference in the surplus, of course.
These adjustments are due to items analyzed since the publication of the
Treasurer's report and to be adjusted in the next report As ah*eady in-
dicated, the excess cost of tlie Freshman dormitories will doubtless be
taken oltimately from unrestricted funds soon to be available. If it had
been treated last year as a loan to the future, as was the cost of the steam
tunnel, the year 1914-15 would have shown a surplus of $64,000 as
above indicated.

The discussion of figures to this point has been on the supposition that
the test of a department's condition lies in its figures of general or un-
restricted income. The sigpiificance of this supposition is essential to an
understanding of the real status of departments. A balance of income
restricted to uses for which the department just now has no occasion is
just now no real surplus, however eagerly the department may cling to
the fund for future needs; and deficiencies of current restricted income
are not real deficiencies if the Treasurer can advance funds in anticipa-
tion of snch income soon receivable, or if accumulations of such income
are available. If, on the other hand, a department has an excess of gen-
eral income, it may use that to eke out deficiencies of special income, and
the fact that it does not need to do so shows actual surplus ; and defi-
cits of general income show either current (or accumulated) deficiencies
of restricted income made up out of general funds, or else a scale of gen-



Online LibraryWilliam Richards Castle William Roscoe ThayerThe Harvard graduates' magazine → online text (page 87 of 103)