All Commentary
Thursday, June 1, 1995

Knowledge, Ignorance, and Government Schools

We Are Utterly Ignorant of the Possibilities for Free-Market Education

The president of the American Federation of Teachers, Albert Shanker, put it well: “It’s time to admit that public education operates like a planned economy, a bureaucratic system in which everybody’s role is spelled out in advance and there are few incentives for innovation and productivity. It’s no surprise that our school system doesn’t improve: It more resembles the communist economy than our own market economy.”[1]

Shanker knows more than he realizes. The problem with government, or so-called public, schools is identical to that of socialism. As the Austrian school of economics teaches, socialism (because it lacks private property and prices) founders on its inability to discover crucial knowledge that is spontaneously produced and widely dispersed in society. A small group of planners simply cannot know what the market will reveal through the competitive process. The knowledge, or calculation, problem also sinks government schools. There is a certain ironic justice to the fact that government schools are plagued by systemic ignorance.

Open vs. Closed-Endedness

The Austrian-school economist Israel Kirzner has elaborated on the knowledge problem by distinguishing economic approaches that see the world as closed and open-ended. A closed universe, writes Kirzner,


is … one in which relevant alternatives present themselves to decision-makers in definitely perceived form. The decision-maker sees himself confronted by a limited number of clearly marked out possible courses of action, each leading to a definitely perceived outcome. Once the parameters of this closed universe have been identified, once the decision-maker’s preferences among the given set of alternative possible outcomes have been recognized, the decision-making process becomes strictly mechanical. Given these parameters and preferences, choice is completely predictable and determined.[2]

In other words, in a closed universe, everything of relevance is known to the decision-maker. He must merely engage in a calculation of costs and benefits to arrive at his choice.

But in an open-ended universe, things are rather different. As Kirzner tells us: “Decision-making in the open-ended universe occurs within a context in which key elements required for deliberate, calculative decision-making are totally absent. While some possible courses of action may be more or less clearly perceived, others are not seen at all. While some possible outcomes (of given courses of action) may be glimpsed, others are not recognized.”[3] Reality, in this approach, is more like a gemstone than a flat, two-dimensional painting. There are facets not in view. But more than that, one may not even be aware that those facets exist.

Thus, Kirzner writes: “The possibility of utter surprise is central to the open-ended universe.”[4] One may come upon information unexpectedly. Serendipity happens. “Such a universe,” he adds, “provides ample scope for–in fact, it imperiously demands–the imagination, creativity, and prescience of the decision-maker…. Successful decision-making, in the open-ended universe, consists rather in creatively anticipating the as yet unknown, in imaginatively filling in the missing contours of the apparently open-ended environment.”[5]

One must understand that Kirzner is not talking about mere” imperfect knowledge.” There is much we do not know because knowing it is not worth the cost. I am ignorant of the chief export of Burkina Faso. But I know I lack that knowledge, and, further, I know how to fill in that knowledge gap. I will do so when I believe the benefits outweigh the costs. Thus, my ignorance is known in the economics literature as “rational ignorance.”

But there is another, more fundamental kind of ignorance: ignorance of which I am unaware, utter ignorance. For example … well, of course I can’t give an example. If I could it wouldn’t be utter ignorance. (Hypothetically, if I hadn’t heard of Burkina Faso, I wouldn’t know that I was ignorant about it.)

Obviously, the real world is of the open-ended variety. We don’t know what we will learn tomorrow. We are capable of being surprised. Discovery is commonplace. It should go without saying that discovery is vital to our well-being. The enhancement of life, then, depends on our having institutions that encourage discovery. The important question is which set of institutions is more appropriate to an open-ended universe in the provision of services, such as educational services: government or the market, bureaucracy or entrepreneurship? Which way of doing things both recognizes our pervasive utter ignorance and increases the chances of discovery and utter surprise? We know from the collapse of communist economies around the world that political institutions have fared badly at the provision of goods and services. One reason for that is socialism’s inability to cope with the open-ended world.

The market, on the other hand, does quite well when allowed to operate, and it does so precisely because it is not a unitary thing. The market, as Thomas Sowell has written, is “the freedom to choose among many existing or still-to-be-created possibilities.”[6] As such, the market is best suited to the open-ended nature of reality. Why? Because it provides a powerful incentive for people to be open to utter surprise and discovery: the profit and loss system. When people stand to profit from their discoveries, they are more likely to locate (or create) opportunities that would otherwise be lost.[7]

Government Schools

We may now judge government schools by the criterion of ability to cope with open-endedness. The distinguishing feature of a government school system is that it is a virtual monopoly financed through the coercive mechanism of taxation. People must surrender their money to the system even if they don’t use the schools or are dissatisfied with them. Although parents are legally permitted to send their children to independent schools, tax financing precludes that option for about 90 percent of families. Most people simply cannot afford tuition for independent schools after paying their school taxes. Thus, the market for independent education is artificially constricted, consisting mainly of highly affluent people. Many fewer independent schools exist than would otherwise be the case but for the existence of a tax-supported system. The variety of schools is likewise artificially constricted.

As a result, most decisions about education are made by small groups of elected or appointed government officials. Their decisions apply to everyone in their jurisdiction. The only way for most people to avoid their directives is to move from the jurisdiction, a costly alternative.

One can see that political decision-making is not suited to coping with an open-ended world. There’s no reason to think that the small group of decision-makers knows everything, and there is no profit and loss system pushing them to make entrepreneurial discoveries. For example, methods of teaching are selected by government school officials. By virtue of the political system, they have the power to impose those methods on everyone within their jurisdiction. There might be better methods that this small group of officials doesn’t know about. Someone in the jurisdiction might even know such a method. But the system creates obstacles to his offering an innovation to parents and children. An innovative educator could try to open his own school, but as we have already noted, most taxpayers can’t afford the tuition.

Alternatively, he could attempt to persuade the government school officials to adopt his methods. But he may find unreceptive ears because the officials are unfamiliar with his ideas or acceptance of them might offend entrenched interests. Even if the school officials humbly acknowledge that they do not know everything, they nevertheless claim the exclusive power to recognize whose ideas are worth carrying out and whose are not.

The bureaucrats may decide to look for new educational methods, but their system lacks the reality check of the marketplace. If parents are unhappy with new methods selected by officials, they can’t take their business and money elsewhere. Dissatisfied parents could try to unseat elected officials. But, compared to consumer power in the marketplace, that is a costly, complicated, and indirect form of recourse. Besides, organized interests, such as the teachers’ union, are more likely to prevail.

The upshot is that a government school system lacks the entrepreneurial element that has so powerfully lifted living standards around the world. In a free market, innovators are free to try out new ideas. But consumers are free to reject them. Competitors may simultaneously offer different services for consumers to choose among. Competing ideas clash in the arena of the market–to the benefit of consumers. To be sure, an entrepreneur may have to persuade a lender to finance a project. But lenders too are aiming to make money, which can only be done by pleasing consenting consumers. Private business people can go bankrupt, school officials cannot. There, in a nutshell, is the difference.

Contracting Out

All these considerations indicate why some of the fashionable reforms proposed for government schools miss the point. A few school districts have contracted out the management of their schools to private firms. Some hail such a measure as a cure for what’s wrong with education. But it is not. Contracting out merely exchanges “public” monopoly managers for “private” monopoly managers. Consumers still cannot readily take their business elsewhere. The ends of the educational system are still set by the same small group of officials, who are protected from competition. The means are left to a private management firm that has an effective monopoly for the term of its contract.

Charter Schools

The charter school movement is similarly flawed. Under this reform, schools, public or private, may apply for special status under which they are free, to some extent, of central control by the school district and students’ tuition is paid from tax revenues. The reform is a limited version of the voucher plan, under which children may attend any school, and, like the voucher plan, charters will tend to corrupt formerly independent schools. But leaving that aside, the charter plan suffers from the same defect—what F. A. Hayek called the “pretense of knowledge”—as a conventional government school system: A small group of officials, whose knowledge is necessarily limited, decides which schools and educational philosophies are eligible for participation and which are not. Those that are excluded are badly handicapped by the political system.

Hayek called the competitive market a “discovery procedure.” As he pointed out, there are things we can know only if the market is permitted to reveal them. We don’t know what we will learn tomorrow. The implications of that fact for education are enormous. Without real entrepreneurship, we are deprived of innovations that could transform our lives in remarkable ways. Without a free market in education, we really don’t know what we’re missing.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.