Tom Hazlett’s recent column “Helping Young Minds Click” about the use of in-kind charitable contributions illustrates the tenuous connection between charitable giving and social welfare. On the one hand, we have many donors with distinctive – I will not say peculiar – preferences for in-kind donations. But the use of these devices fly in the face of the economic wisdom that has generated the negative income tax – namely the belief that poor people have a better sense of how to spend money to advance their own welfare than their benighted guardians from the upper classes. Perhaps it would be nice to convert private donors into cash cows, but the relative infrequency of direct cash grants to poor people suggests that this will not happen any time soon. Whether there is some return benefit to the donor that drives the in-kind gift, or the fear of misbehaviour by potential middlemen and donees, no one can be sure. But it certainly is intellectually troublesome to note the disconnect between the dominance of in-kind donations in the face of theoretical arguments that run the other way.

There is, alas, good reason to think that the entire debate is even more troublesome than Hazlett’s account of Nicholas Negroponte’s famous computer gambit suggests. Quite simply, why is it that we have charitable donations at all, be it of low-tech equipment or cash? One source of uneasiness is the extent to which gifts or any sort lead the donees to substitute away from productive behaviour. On this score, the preferred strategy for those who care about charitable giving is to enter the microlending business, preferably at market rates of interest, so as to induce sustainable behaviour by individuals who now get a stronger incentive to develop the work ethic and business plan that could induce lenders to make that gift. The dynamic consequences of this strategy helps improve the incentives for individual labour. It also has the added benefit of aiding individuals in developing countries by working outside the deadening and corrupting influence of local governments. Any independent economic base of power helps to limit the risk of political abuse – a nice but unappreciated positive externality.

And here is another idea. Just stay out of the charitable business altogether. Instead, continue to work on those kinds of ventures that produced the huge profits that allowed some captain of industry to get into the charitable business at all. The point here is that there is only one way that individuals get rich through market transactions – to make those on the other side of the deal rich as well. Hence far from thinking that the capitalist – as he is sometimes called – prays on the unsuspecting pigeon, we should think of him as that person who sells for a price that generates a large profit for himself and a great deal for the consumers who purchase from him. No obvious incentive distortions come from selling in competitive markets. The key here is often to remove the tariff and other barriers that prevent ordinary markets from working well. So in a sense the greatest gift of all is this: spend money to remove the barriers to international trade. There is much in this regard that folks in the US and the EU can do abroad. There is also a huge amount that they can do at home to eliminate the protectionist barriers that impose such unnecessary hardship on persons in developing countries, for whom the greatest gift is free trade.

The writer is James Parker Hall Distinguished Service Professor of Law at the University of Chicago