Colleges and universities in the United States have had increasing difficulty in attracting financial support from alumni and others donors. Annual giving programs are still successful, but large contributions are far less common. A number of institiutions have had to stretch out capital fund drives or have failed to meet their original targets, despite the fact that average incomes in the United States have risen fairly rapidly during the last decade.

This situation results primarily from financial circumstances facing wealthy elderly Americans who have historically been a dominant source of financial support for higher eductation. These people have typically held much of their wealth in the form of common stocks, and the last decade has been close to a disaster for such investments.

Common stocks used to be viewed as a hedge against inflation, but that theory has worked very badly during the last decade. From 1968 through 1978, the average price of common stocks declined slightly. Since the price level almost doubled during this period, the real value of such stocks fell by almost one-half.

Incomes from private pensions have taken a similar loss. People who retired in the late 1960s on what were then generous fixed pensions now find that their real income from this source has fallen by half. Since these people now expect more inflation, they look forward to further real income and capital losses and must be very careful in managing their finances.

These losses have meant that people who have historically supported higher education and similar activities are not in a position to be as generous as they have been in the past. After allowance for inflation, voluntary private support of higher education declined by 8 percent between 1968 and 1978. Since the number of students enrolled has risen, voluntary support per student has fallen more sharply.

Major private universities have been particulary hard hit, experiencing a 29 percent average reduction in real support between 1969 and 1978. The average decline in constant dollar support for private colleges was just over 15 percent. Although changes in federal tax laws concerning charitable contributions may have contributed to this decline, the major element in the loss of private support for higher education has been the fact that most major donors are simply not as rich as they were 10 years ago.

Many colleges and universities have had their endowments invested primarily in the same common stocks that performed so badly for individual investors. Declines in the real value of endowments have added to the financial problems facing educational institutions. Some colleges and universities followed the encouragement of the Ford Foundation in 1969 and shifted their funds toward the so-called "growth stocks." Polaroid and Xerox were very popular among managers of endowments when they were each selling for about $140. They are now at $26 and $60, respectively. A few well-known colleges had sizable holdings of Equity Funding. With or without inflation, that was a debacle.

In might be argued that colleges and universities must become more efficient and productive to offset these revenue losses. That does not work very well in education. Increasing the number of students per professor and thus raising "labor productivity" has undesirable effects on the final product, despite frequent arguments from university budget officers and state legislators to the contrary.

Dining halls may be run more efficiently (worse food), and winter themostats may be turned down, but the dominant cost in a college or university is the faculty. Efficiency improvements in this part of the enterprise are not readily available. Presdent James Garfield once suggested that the ideal college was a student on one end of a log and a professor on the other. Putting 100 students on the log does not represent a pure productivity gain.

As other sources of revenue decline, tuition must absorb a rising proportion of the costs of higher education. If you wonder why it costs so much more to send your children to college, while professors claim (correctly) that their salaries are not keeping up with inflation, that's why.

The inflation of the last decade has caused some major redistributions of income and wealth in the United States. Speculators in real estate and other physical assets have won. Owners of most financial assets have lost. If the rate of inflation were to slow significantly some abrupt reversals could be expected. Real-estate speculators operating with funds borrowed at high interest rates would lose badly, and holders of financial assets would be better off. Higher education and other sectors of society dependent in part on voluntary private support would be much better off.