2. A Historical Overview of Philanthropy, Voluntary Associations, and Nonprofit Organizations in the United States, 1600–2000

The terms nonprofit sector and nonprofit organization are neologisms. Coined by economists, lawyers, and policy scientists in the decades following World War II as part of an effort to describe and classify the organizational domain for tax, policy, and regulatory purposes, the meaning varies depending on the identity and intentions of the user. Defined narrowly, the terms refer to entities classified in section 501(c)(3) and 501(c)(4) of the Internal Revenue Code of 1954 and subsequent revisions: nonstock corporations and trusts formed for charitable, educational, religious, and civic purposes which are exempt from taxation and to which donors can make tax-deductible contributions. The terms can also refer to the broader range of organizations in section 501(c)—categories that include political parties, trade associations, mutual benefit associations, and other entities that enjoy various degrees of exemption, accord donors various kinds of tax relief, and are constrained in distributing their surpluses in the form of dividends. Most broadly construed, the terms refer to the larger universe of formal and informal voluntary associations, nonstock corporations, mutual benefit organizations, religious bodies, charitable trusts, and other nonproprietary entities. Some of these are classified as exempt organizations by the Internal Revenue Service (IRS); others, such as religious bodies (which are not required to incorporate or apply for tax-exempt status) and informal organizations (which David Horton Smith [2000] calls the “dark matter” of the nonprofit universe), are not. None of the contemporary definitions does justice to the complex historical development of these entities and activities. Every aspect of nonprofits that we consider distinctive—the existence of a domain of private organizational activity, the capacity to donate or bequeath property for charitable purposes, the distinction between joint stock and nonstock corporations, tax exemption—was the outcome of unrelated historical processes that converged and assumed significance to one another only at later points in time. Processes of development and change are continuous and ongoing. The institutional and organizational realities we attempt to capture in creating such synoptic terms as nonprofit sector are, at best, of only temporary usefulness. Because such frameworks may incentivize collective behavior (as when entrepreneurs come to understand the economic benefits associated with nonprofit ownership or the tax benefits of charitable giving), they may actually serve to accelerate processes of growth and change. It is no accident that the impressive proliferation of registered tax-exempt nonprofits in the United States from fewer than 13,000 in 1940 to more than 1.5 million at the end of the century coincided with legislative and regulatory policies that defined and systematically favored nonprofits and those who contributed to their support. Nor is it a coincidence that ownership of hospitals shifted from predominantly public and proprietary in 1930