In recent months and weeks, America has watched its economy take hit after hit. On campus, these events have caused us all to question the financial future and security of the University. President Michael Roth began his presidency by stating that he would work hard to double the endowment, yet events out of his control have caused the University’s funds to drastically shrink—without considering the market’s recent volatility, the University’s endowment for Fiscal Year 2008, which ended June 30, declined by 3.9 percent.

Perhaps the best way to approach the University’s financial problems is to reflect on moments in history when the endowment has been threatened by similar economic crises whose roots lie beyond the campus. Looking back into the history of the University’s endowment reveals a series of ups and downs that climaxed in the 1970s, when an economic recession brought its growth to a screeching halt. Before delving into this decisive moment in Wesleyan history, however, the entire story of the endowment must be laid out so that its climactic moments can be understood in context.

Wesleyan and its endowment were born simultaneously in 1829. The University’s founders purchased the campus, then the defunct American Literary, Scientific and Military Academy, from Middletown for $30,000. The purchase was made under the agreement that a fund of $60,000 (later reduced to $40,000) be raised to support the college. In those early years, much like today, the University’s president spent a large portion of his time traveling, in an effort to raise the required $40,000.

The endowment grew slowly, but steadily. By 1858, the University had raised $131,760, and in 1873 the endowment reached a total of $376,860. Then, in the mid-1870s, the University weathered its first economic recession, and by 1879 the endowment had decreased to $166,160.

Despite its setbacks, the University prevailed and by 1889, its funds had recovered from previous losses to reach a new high of $698,556. The endowment continued to increase and reached $1.5 million in 1908. The next two presidents of the University managed to maintain a similar rate of growth. In 1923 under William Shanklin’s management, the endowment reached $4.5 million. By the end of James McConaughy’s presidency in 1942, it had increased to $9 million.

The nature of the University’s endowment changed in 1949, when the University acquired the American Educational Press (AEP), which produced a number of publications including the popular elementary school magazine My Weekly Reader. The significant increase in annual revenue that the Press brought in changed the University’s approach to its endowment—its managers shifted their focus from “income” (stocks and bonds which are held because of their ability to generate interest), to “growth” (stocks held because of their capability to appreciate in value).

This golden age of the endowment came to an end in 1965, when the University sold the AEP to Xerox under pressure from the IRS. Apparently, the increasingly high profits of the Press, which brought in $100 million over a period of 16 years, had called into question the University’s status as a non-profit organization.

The Press was sold for 400,000 shares of Xerox stock. Soon after, the shares surged in value. Much of the Xerox stock was sold off and the University began to invest in a series of different companies. Edwin Ethering was brought in as the University’s president, leaving his previous post as president of the American Stock Exchange. This marks the beginning of the modern endowment, a large sum of money to be invested and managed so that it will continue to increase. Unfortunately, the early years of the modern endowment proved to be rocky.

In 1969, the University’s endowment had reached the colossal value of $161 million, and the University boasted the largest per capita of any school in the United States. It appeared as though the endowment had nowhere to go but up. However, without a source of funds—the AEP—the endowment was ill equipped to improve. The University had no strong fundraising institution established, and the endowment was hit hard by the economic recession of the 1970s. This hit was largely because of Ethering’s rampant spending during the years of his presidency—particularly on the construction of such buildings as the Center for the Arts, the Exley Science Center, the Butterfield dormitories, and the Hi-rise and Lo-rise apartments, as well as the development of a PHD program.

Throughout the following thirty years, the University attempted to both balance the endowment and establish a successful fundraising system to replace the AEP as a source of necessary funds. A viable fundraising system was attempted in the late 1980s, but only successfully established during Douglas Bennett’s presidency.

Deciding where and how to invest the endowment proved just as complicated. The endowment’s managers and the student body have often clashed over the ethical questions involved in investments. In 1989, the student push for divestment from South African companies came to a climax when a student activist threw firebombs into President Bill Chace’s office.

Since that trying moment, the University has steadily worked towards increasing the endowment through the established channels of fundraising and investments.

While the damaging effects of economic recession are nothing new to the University, we are still trying to understand how the school’s funds can prevail both in times of economic prosperity and during national financial trials. Today, as in the early 1970s, the University stands at what may be the peak of a period of economic growth—there are both similarities and differences, however, between the two situations.

In the 1970s, an unprecedented combination of inflation and unemployment gave birth to the term stagflation. At the same time, oil crises shook the public’s faith in both government and business, which, in conjunction with foreign competition, led to the forced bailouts of companies Chrysler and Lockheed. Similarly, today, among astronomically high oil prices and continued economic competition abroad, the U.S. economy has begun to collapse, leading to the bailout of Fannie Mae and Freddie Mac, as well as a number of Wall Street Firms.

Professor Michael Lovell, Chester D. Hubbard Professor of Economics and Social Sciences, Emeritus, who came to the University to teach in 1967, believes that the economy may be in worse shape today than it was in the seventies. He pointed to the housing and mortgage crises as issues the U.S. faces today that were not a problem in the seventies, in addition to the country’s current problem with borrowing.

“The U.S. has been borrowing funds from abroad, as opposed to the seventies when the U.S. had more invested in the rest of the world,” Lovell said.

Similarly, the University’s endowment stood on sturdier foundations thirty years ago than it does today, according to Professor Karl Schiebe, Professor of Psychology, Emeritus, who first came to the University to teach in 1963.

“Our endowment is much weaker than it was thirty years ago,” Schiebe explained. “Back then, the best endowments in the country had slightly over a billion dollars. Now it’s thirty-five billion. At the same time Wesleyan’s endowment has at best doubled or tripled.”

According to these two professors—who have worked at Wesleyan long enough to have had witnessed the affects of the 1970s economic recession first hand—when facing the economic recession of the 1970s, one of the University’s solutions was to increase the student body in an effort to bring more money onto campus. Both professors agree, however, that the plan backfired.

“When I came here in ’63, the student body was 1100,” Schiebe said. “Within a few years, decisions were made to expand the student body to 2800 because we needed more money.”

Lovell explained the immediate effects of increasing the student body.

“We expanded the student body as a response to financial pressure,” he said. “But you’re crowding dormitories and increasing the student to faculty ration. Expanding the student body makes things worse.”

Understandably, neither professor suggests that the University increase its student body again to cope with the current economic recession.

“In the short run, increasing the student body brings money,” Schiebe said. “But you need to build more facilities. You simply could not maintain the old facilities with the student body size.”

Schiebe believes that the decision to increase the number of students was shortsighted, and points to the resulting shift in the student to professor ratio as proof.

“We used to have about 6 students to 1 teacher,” he said. “Now it’s closer to 10 to 1.”

Schiebe believes that the University should proceed cautiously.

“What will work is cost containment, fundraising, and deferment of new construction,” he said.

Lovell offered similar suggestions.

“We should all balance the budget a little bit,” he said. “Less teachers will be hired, and it’s wise to postpone any building projects.”

Lovell also suggested that students and faculty alike make an effort to reduce the University’s amenities costs through simple tasks like turning down the thermostat.

Ultimately, the financial status of the school lies largely in President Michael Roth’s hands. In reaction to the economic recession, Roth has delayed several new projects, including the Molecular and Life Sciences Center and the proposed extension to the Political Affairs Center (PAC). According to Roth, the University must proceed cautiously, without sacrificing progress in the name of self-preservation.

“We can’t just focus on cut-backs,” he said. “We have to continue to develop programs and to make a case for Wesleyan as a target of philanthropy, and we have to do all this over a period of five to ten years.”

The president believes that as long as he is honest with the students and faculty, he will be able to maintain their trust.

“I think everybody at Wesleyan will understand the decisions I make as long as I’m transparent about the process,” Roth said.

Although Professor Schiebe has pride in the University and hopes it will persevere through its current financial troubles, he is wary of looking at Wesleyan with an endowment-centered eye.

“Wesleyan was a poor Methodist institution until this quick injection of money [the purchase and subsequent sale of the American Educational Press],” he said. “Now we’re back where Wesleyan has been for the rest of its history. In some ways the endowment is not a major part of Wesleyan, and we don’t need to apologize to anybody.”