The Weak Case for Public Schooling

Externality Arguments

by David Friedman

The most common arguments for government schooling involve the claim that it produces large positive externalities, that by schooling my children I greatly benefit society as a whole, and that it is therefore inappropriate to leave either the decision of how to school them or the cost of doing so entirely to me. On further analysis, this claim divides into three variants, one wrong and two dubious.

The simplest version is the one that is wrong. It is said that since education increases human productivity, by educating my child I increase the wealth of the whole society, making all of us better off. One obvious problem with this argument is that, if correct, it applies to a lot of things other than education. Physical capital also increases productivity; does it follow that all investments ought to be subsidized? Better transportation allows workers to spend more time working and less time commuting; should we subsidize the production of cars? The argument suggests that everything worth doing ought to be subsidized -- leaving us with the puzzle of what we are to tax in order to raise the money for the subsidies.

What is wrong with this argument is that it misses is the way in which the price system already allocates "social benefits" to those who produce them. Building a factory may increase the wealth of my society -- but most (in the limit of perfect competition, all) of the increase goes to the investors whose capital paid for the factory. If I use a car instead of a bus to commute, the savings in time is added either to my leisure or my income. If education makes me a more productive worker, my income will be higher as a result. That is why top law schools are able to sell schooling to willing customers at a price of about twenty thousand dollars a year.

Schooling -- like a new car -- produces non-market benefits as well. But these too go mostly to the student, enabled by education to appreciate more of the riches of the culture he lives in. There may be effects on other people as well, but they are typically small compared to the benefits to the student, and their sign is not always clear. When my child becomes an expert in Shakespeare and quantum mechanics one result may be to enlighten and entertain her friends, but another may be to make them feel stupid. In just the same way, the beauty of my new car may produce the pleasures of aesthetic appreciation or the pains of envy in those who watch me drive it down the street. To base the design of our institutions for schooling on the uncertain effect on such third parties rather than the direct effect on the schooled makes no more sense than to base the design of cars on their value to everyone except the owner.

There is, however, at least one important respect in which my investment in education -- or a factory -- does produce substantial external benefits. Even if my income fully reflects my productivity, as it will tend to do in a market economy, not all of my income goes to me. Some of it goes to the tax collector. It follows that some investments, in factories or in people, may not get made even though they are worth making, because the share of the benefit that goes to the investor is not enough to pay the cost of the investment. This inefficient failure to make some worthwhile investments is one form of what economists call "excess burden" -- the cost of taxation above and beyond the amount collected.

There is a problem in trying to solve this particular inefficiency by subsidizing investments. In order to pay a subsidy one must collect a tax -- and the additional tax increases excess burden at the same time that the subsidy reduces it. Excess burden is an argument against taxation, not for subsidy.

Another version of the externality arguments locates the externality not in the increased economic productivity of educated people but in their increased virtue. Both religious and utilitarian variants of this justification for government schooling were popular in the nineteenth century. Conservatives wanted to use publicly controlled education to teach the masses religious virtue. Many utilitarians, including Bentham himself, believed that while freedom was a good thing in most contexts, it was necessary first to teach people how to use their freedom -- which is to say, to teach them utilitarianism. A form of this argument which still remains popular holds that uneducated people are particularly likely to become criminals, justifying government schooling as a form of crime control. While I have not yet heard anyone argue that government schooling is needed to make the public ecologically responsible, to properly train the crew of spaceship earth, it seems the obvious next step in the evolution of the argument -- considering what is actually being taught to elementary school students in the more up to date government schools.

The thesis has two versions -- education and indoctrination. The first assumes that crime and sin are the result of ignorance rather than rational choice. The evidence for this thesis is far from clear. As a general rule, criminals seem to exhibit rational behavior in their crimes -- little old ladies, for example, get mugged a lot more often than football players. Criminals who have been caught and imprisoned frequently return to a life of crime -- although that experience surely teaches them more about the consequences of their actions than they are likely to learn in any school. And, of course, even if ignorance is one source of crime, the argument depends on the assumption that government schools are better at dissipating ignorance than private ones. As we will see, both theory and history provide reasons to doubt that.

The indoctrination version of the argument may make somewhat more sense. In a private system, children will be taught what their parents want them to know. In a government system, children will be taught what the state wants them to know. So the government system provides an opportunity for the state to indoctrinate children in beliefs that it is not in their interest, or their parents' interest, for them to hold. Insofar as some virtues require one to act against one's own interest -- for instance by not stealing something even when nobody is watching -- that is an opportunity to indoctrinate children in virtue.4

One good reply to this argument was made by William Godwin, who, in 1796, expressed his hope "that mankind will never have to learn so important a lesson through so corrupt a channel." To put the argument in more modern language, government schooling does indeed provide the state with an opportunity to indoctrinate children -- but there is no good reason to believe that it will be in the interest of the state to indoctrinate them in beliefs that it is in the interest of the rest of us for them to hold. Many modern societies have strong legal rules designed to keep the state from controlling what people believe -- the first amendment to the U.S. constitution being a notable example. It seems odd to combine them with a set of institutions justified as doing the precise opposite.

In an interesting recent article,5 John Lott explores the question of why schooling is controlled by the state in modern societies. His conclusion is that government schooling is a mechanism by which the state lowers the cost of controlling the population. Part of his evidence is the organization of modern government school systems -- in particular the almost complete absence of systems where parents choose the school and funding is proportional to number of students, an arrangement which would put pressure on the school to teach what the parents, rather than the state, wanted. Part is a statistical analysis of data for a large number of nations, designed to explore the relation between government schooling and other characteristics of government.

One final version of the externality argument is the claim that my education provides benefits to others because it makes me a more rational voter.6 While the argument is logically correct, its implications are limited. It is perhaps best understood as an argument for subsidy, not control. It is in my private interest to have a correct understanding of the world around me, and such an understanding will make me more able to evaluate government policy as well as more able to make private decisions. The only argument for government control is that it can force me to learn more about issues relevant to voting, instead of issues relevant to private choice. The problem with this is that the agency that does the controlling has its own interest with regard to how I vote -- which brings us back to the indoctrination argument.

A second problem with the argument is that it implicitly assumes that different voters have the same interest, so that my rational voting benefits you as well as me. For some issues this is no doubt true. But other issues -- many of them in a modern state, unfortunately -- involve attempts by one group to benefit itself at the expense of others. In such situations, your rational voting may well make me worse off. Subsidizing education in how to use the political system in one’s own interest become the political equivalent of subsidizing an arms race, and equally unproductive.

A final problem is that the argument works only if government run or government subsidized schools actually educate better than private schools. If the costs of government control more than cancel the benefits of government subsidy, the advantages of educating students well provide no argument for having the state educate them badly.

Externality arguments, not only for government schooling but for many other issues as well, often make the mistake of adding up only externalities with one sign -- positive in the case of schooling, negative in discussions of population or global warming -- while ignoring externalities with the opposite sign. The result may be misleading, since it is the net externality that provides an argument for government involvement. If my action benefits one person by a dollar and injures someone else by two dollars, that is an argument against subsidy, not for it.

What negative externalities might result from schooling? One I have just mentioned -- you may use your improved education to more effectively pressure the government to benefit you at my expense. A similar possibility exists for private transfers. Ignorance may perhaps produce crime -- but education produces more competent criminals.

Another possibility is that schooling may produce negative externalities because it is used in the competitive pursuit of status.7 Consumption bundles of physical goods and services are not the only thing that individuals care about. If one reason I wish more schooling for myself or my children is so that I or they will have more income or more degrees than my neighbor or his children, and if my neighbor has similar tastes, then the gains of each come at the other's expense.

I conclude that externality arguments provide little independent support for government schooling. At most they suggest that private schooling ought to receive some subsidy -- and even that conclusion is an uncertain one, given both the weaknesses of the arguments for the existence of net positive externalities and the difficulty of separating subsidy from control.

David Friedman
July 7, 1993


4. One can, however, argue that such virtues are in the long run interest of the individual who possesses them, since they make him a more valued partner in freely chosen associations. See Frank, Robert H., Passions Within Reason: The Strategic Role of the Emotions, Norton: NY1988. If this is right, then private schools may do a better job of inculcating virtue than government schools, precisely because it is in their interest to teach what parents want their children to learn.

5. Lott, JohnR. Jr., "An Explanation for Public Provision of Schooling: The Importance of Indoctrination," Journal of Law and Economics 33: 199 (1990).

6. William Buckley's response to this argument was that he would rather be ruled by the first thousand names picked out of the New York phone book than by the faculty of Harvard.

7. For an interesting and original discussion of such issues from an economic perspective, see Frank, Robert H., Choosing the Right Pond: Human Behavior and the Quest for Status, N.Y: Oxford, Oxford University Press 1985.