File this one under barbequed sacred cow.

I think giving to charity is dumb. And harmful to the people you think you are helping 99% of the time.

So before you get out your pitchfork, let’s examine what the point of charity is: helping people.

But helping them to do what?

There are cases where if a person does not receive help right this second, he or she is going to die. Great, give that person food, water, shelter, or whatever and feel good about it. That’s your 1%.

The other 99% of the time, giving people things does not solve their problems.

There are all kinds of problems with formal charities like corruption, how much money actually goes towards the cause it purports to help, and so on. But even if all that were perfect, giving to charity would still be stupid.

Let’s take poverty as a classic example. We have a great deal of experience with giving poor people housing, food, and so on. Does it help them to get out of poverty? In the vast majority of instances, the answer is no. It may solve the immediate issue at hand, but it actually harms that person’s ability to care for him or herself – in other words, it  harms the ability to grow wealth.

And wealth is really the key to all charitable situations. Why do people need help? It’s because they don’t have enough wealth to live in some degree of comfort.

Remember that the natural state of humanity is wandering the savannah. No houses, no easy to get food, no clothes, nothing. Every single thing that we have now that makes our lives pretty easy to survive has come from the building of wealth.

So, the real question is not, “How can we give the homeless a place to stay?” Instead the real question is, “How can I help this homeless person develop his own wealth – and thus not be homeless any more?”

Fortunately, over the past couple of thousand years, humanity has found the answer in markets. The markets tell us that if we create value for someone else, that person will trade us money for that value. The trick, of course, is to create so much value so cheaply that the money we get pays for the creating and then some.

This is called profit.

So how do we help people profit?

One of the most exciting developments in this area is microfinance. These are small loans made to individual entrepreneurs who are trying to raise capital in order to start or expand their businesses.

Side note: one broker in this area, Kiva, is a total scam. More on this in another post.

By lending money for business development instead of giving it no-strings-attached, we are making sure that the borrower is at least attempting to serve his fellow man and provide value to the world. Imagine a world in which every man, woman, and child was really concerned with what they could do or make that would make their neighbors’ lives better.

The old saw about giving a hand up, not a hand out is completely right, but most people don’t take it far enough.

But I can hear it now, what about the people who can’t do things for others? Unless that person is in a coma of some sort (a 1% case), he can do something of value to others. Don’t sell people short and assume that just because they aren’t like you that they are incapable in all ways.

So stop being selfish by giving and think it through. If you really want to help people, help them help others.

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