All Commentary
Monday, August 1, 1960

Education and the Market

Mr. Cooley is Associate Professor of Economics at Ohio Northern University.

When my wife sends me to the supermarket to buy groceries, I pay for what I get and get what I pay for. The price of each item purchased is known to me and I agree to it. This is an exchange between two parties, each of whom knows exactly what he is getting and what he is giving up.

How different is the case with respect to the services of govern­ment! I use the public streets and roads, send my children to the pub­lic schools, am protected, presum­ably, by the local police and fire­men and by the national armed forces. And periodically I pay taxes, or suffer them to be taken from me, either directly or indi­rectly (according to the Tax Foun­dation a third of my taxes are hopelessly hidden from sight in the prices of things I buy). Gov­ernment services seldom are priced so that I pay for what I get or get what I pay for. How, then, am I to know whether I am getting my money’s worth?

At the supermarket I can in­spect each article, note the price, and decide whether it is a desirable purchase. My decision to buy a cer­tain article signals the store man­ager to continue to stock it and the manufacturer to make more of it. My adverse decision, on the other hand, is a sign that the quality or design needs to be improved, the price lowered, or both. Thus, the production of food is “price-guided.” Alas, there is no similar guide for the production of most government services.

It is true that market pricing might be difficult, if not impos­sible, for services such as police protection or court procedures. But this pricing difficulty does not apply to many others in the con­tinually growing list of tax-sup­ported services.

When we examine a specific ex­ample, such as elementary schools, we find that the enterprise was originally socialized, not because of a technical difficulty of pricing but because of the fear that, if the “goods” were openly priced and freely offered in the market, the consumers might not “buy” them. Education, it was argued, is a good of which everyone should partake, if not for his own sake, then for “society’s” sake. Those who thus reason are not willing to leave to the individual consumer the ques­tion of whether he should buy edu­cation, what kind, and how much. While they talk democracy, they practice paternalism.

The Market Is Disappearing

This has long been the philoso­phy with respect to elementary and secondary education; increasingly it is being applied to college educa­tion. The press recently reported the case of 18-year-old Nancy Pass of Mississippi. Nancy wanted to go to college. Said Justice James G. Holmes: “College educa­tion is the duty which the parent not only owes to his child but the state as well.”¹ Nancy wanted to go to the state university to study art, but her mother, who is divorced and living on payments from the father, felt that she could not af­ford this. The Supreme Court of Mississippi ruled that the father must increase his support pay­ments by $90.00 a month to enable

Once this theory is accepted, it would appear only a matter of time until all intellectually qualified youngsters will be required to go to college. Increasingly, through education subsidies to veterans, easy government loans, and abun­dant scholarships, students and their parents are being relieved of the responsibility to pay for what they get in college. In short, the market in education is disappear­ing.

If we do not pay for what we get in education, have we any assur­ance that we shall get what we pay for? Once the market is de­stroyed—once getting is divorced from paying—there is really no way of comparing what one pays with what one gets.

Assume that this trend con­tinues and that fifty years hence all American colleges and univer­sities are socialized. John Smith’s two boys will go to college (com­pulsory attendance) where they will enjoy free tuition, free books, free board and room—”free” everything. It is then likely that more than half of John’s income will be taken in taxes, direct and indirect; and part of this take—nobody will be able to say just how much—will go to help pay the cost of running the government-owned colleges.

The colleges will be standard­ized, since all will have to meet uniform government specifica­tions. There will be no incentive for one institution to be different from another since all will depend, not upon attracting students who pay their own way, but upon gov­ernment appropriations. Hence, the John Smiths will have little if any basis for choosing one school rather than another—even if they are still permitted a choice. If the colleges do not teach what John Smith thinks ought to be taught, there will be nothing he can do—except write to his congressman.

The teachers and administrators also will have little choice. They will not need to produce education which satisfies students and par­ents; rather they will have to please bureaucrats and politicians. They will be civil servants, as the post office employees now are. They will not be responsible, ex­cept in an indirect and circuitous way, to those who use their serv­ices.

Who can believe that the quality of higher education would be im­proved by such a change? Unfor­tunately, we are moving in this di­rection.

Bargaining and Alternatives

The quality of any good or serv­ice depends on the relationship which prevails between producer and consumer. In a voluntary transaction, the producer must satisfy the consumer as to both quality and price, or else lose the sale; and the consumer in turn must satisfy the producer by pay­ing an amount sufficient to keep him from turning his energies to some other field of production.

Both producers and consumers have alternatives. This is what gives them bargaining power—this is what makes a market.

Rather than suppressing the market, we should be perfecting it—freeing it, making more use of the principle of exchange. Rare, it seems, is the worker who under­stands the disadvantage of receiv­ing part of his wages in “fringe benefits,” who perceives that a cash dollar he can spend freely in the market is worth more than a dollar in any other form. The vogue of trading stamps further demonstrates how little we appre­ciate spendable cash over merchan­dise premiums. Money, after all, is a great invention; why not use it?

Albert S. J. Baster in The Little Less² says: “The depravity of taste in modern capitalistic societies is not due to the fact that life is over-commercialized but to the fact that life is not commercialized enough.” We suffer not from too much but too little marketing. Consumers do not take the trouble to inform themselves of the “buys” that are available, and producers are not sufficiently aware of the alterna­tive outlets for their energies and resources. The consumer relies on a Federal Trade Commission to protect him, while the worker re­clines naively in the arms of his union officials. The consumer does not know what he is getting, nor does the producer know his oppor­tunity costs.

When a new need arises, like the present need for more and better education, many turn to govern­ment to satisfy the need. Anyone who suggests that consumers can get better schools and colleges more quickly by digging down deep in their pockets and paying for them, directly and forth­rightly, is considered a social an­tiquarian.

There Are Ways To Be Free

Supposedly, many young people are unable to pay the cost of col­lege attendance. But the record shows that boys and girls from poor families have secured a col­lege education, and some are doing it today. More could, if their par­ents were not taxed so heavily.

Many, lacking cash, have used their credit. Any young man or woman with the physique and men­tality to do college work has great potential earning power. A loan to enable such a youth to attend col­lege would seem to be a productive loan, even in the banker’s sense of that term. If the youth cannot pro­vide tangible security for such a loan, he surely can secure it with the signature of a parent or other relative. Where are the bankers who presumably want to preserve and strengthen the market econ­omy? Here is a way in which they can well use their talents and re­sources to that end.

Higher education may be the most favorable field in which to halt the socializing trend. Private institutions are still operative in this field. Let private enterprise stand firm in the colleges and uni­versities and youth will be en­listed in the cause of freedom. It should not be difficult for univer­sities and colleges that are dedi­cated to freedom of thought to teach the value of freedom of ac­tion. But they must practice what they preach. And they must restore the market in education.


1 Newsweek, April 4, 1960

2 London: Methuen, 1947. p. 124.




Ideas on Liberty

John Stuart Mill

The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their ef­forts to obtain it.


  • Mr. Cooley is Associate Professor of Economics Emeritus. Ohio Northern University, Ada, Ohio.