The conventional wisdom among higher education historians is that government was uninvolved in the development of American higher education before the Civil War. In “Myth Busting: The Laissez Faire Origins of American Higher Education,” published recently in The Independent Review, I refute this view using a framework that compares the actual political economy during the period against a true free market for higher education. My analysis suggests that the sector was not free from government intervention, but rather the state was considerably more involved in shaping the trajectory of American higher education than most scholars proclaim.
What constitutes a true free market for higher education? The criterion that I use involves three broad features: property rights and institutional autonomy, privatization, and competition.
Prior to the 1819 Supreme Court ruling in Trustees of Dartmouth Coll v. Woodward, the property rights and autonomy of colleges were increasingly threatened by politicians seeking to control them. The ruling in the case is widely viewed as institutionalizing the property rights and autonomy of colleges, providing an impetus for a proliferation of private colleges.
While the majority of colleges that emerged during the era were founded by private interests, this does not necessitate the existence of a private and competitive market. Many so-called private institutions were subsidized with land, cash, and/or regulatory protections that provided them with a competitive advantage relative to institutions that were either philosophically opposed to government intervention, or were unsuccessful rent-seekers. And many institutions received an exemption from property taxes, a policy that largely remains intact today but has recently been questioned.
Although many credit the rise of the public sector to the Morrill Land Grant Acts of 1862 and 1890, these policies were essentially scaled-up versions of antebellum state and federal policies. The original constitutions of several states called for the establishment and financial support of state institutions, and revenues were often raised through the sale of land. The federal government’s first endeavor with land grant colleges was the Northwest Ordinance of 1787, which called for the creation of a university using proceeds from the sale of land.
Discriminatory subsidization of colleges and the creation of state institutions hardly constitute a private and competitive higher education marketplace. Instead, these state interventions altered the natural market process that would have evolved in their absence. Given that American higher education today is massively subsidized, heavily regulated, and subject to extensive rent-seeking, it seems likely that these developments are at least partially attributable to state interventionism during the sector’s infancy. The traditional view that it was not seems to be propagated by a misunderstanding of the market process.