Market Forces and Market Failure in Antebellum American Education: A Commentary

The international rise of mass education over the past few centuries is often seen by historians as due to the increasingly long arm of the state (see, e.g., Lindert 2004). On this view, the early rise and high level of mass education in the United States in contrast with its colonial ruler Great Britain reflects the ability of Americans to mobilize local and state government support for public education from the earliest days of the Republic. Indeed, institutions dating to the colonial era could have been at work. The articles in this special section are informed by the view that schools and the instructional services they offered during the antebellum period were subject to the choices of buyers and sellers of these services. The article by Kim Tolley provides a rich case study of this basic principle with her account of Mrs. Sambourne's foray into music teaching in early-nineteenth-century North Carolina.

However, it has also long been the case that many institutions offering instruction for children while responding to profit incentives have not been operated on a strictly for-profit basis. In addition to state and local governments, religious groups and private philanthropy have helped fund the provision of schooling. Yet such publicly supported schooling throughout the antebellum period in the United States continued to be funded in part by tuition payments as well and on those grounds continued to be responsive to parental demands. Thus the distinction between private and public schooling could be quite blurred. This point is carefully elaborated by Nancy Beadie's account of tuition funding in the antebellum upstate New York community of Lima. Both the common schools in Lima's school districts and a Methodist-affiliated academy received state funding, but both also relied on tuition payments for a substantial part of their funding.

Education as a service is not particularly distinctive in commonly entailing a mix of for-profit provision with government supervision. In the early twenty-first century, U.S. services offered for profit, ranging from haircuts to taxi rides to restaurant meals, are subject to local government licensing and regulation. Yet economists of all ideological stripes, from Milton Friedman and Adam Smith leftward, have generally recognized that education has distinctive features that imply that market provision may lead to lower levels of educational attainment in a population than would maximize societal welfare (Friedman 1962: chap. 6; Smith 1976 [1776]: 784–85). Economists more formally label this market failure (Bator 1958; Cowen 1988).

One commonly mentioned reason for failure in education markets is that, due to imperfections in capital markets, parents have difficulty in borrowing to finance their children's education. A second problem is that education has the nonexcludability and nonrivalry features of public goods. If the education of a child will lead him or her to be less prone to crime and more civic-minded, this benefits many besides the child and his or her parents. However, parents have no way of appropriating that benefit (the problem of nonexcludability), and yet this benefit to the future public at large does not diminish the benefits of schooling received by parents and children (the issue of nonrivalry). Parents and children alike ignore these public-good considerations in deciding how much education to obtain. A third difficulty arises from limits on how fully parents can specify or receive commitments ex ante as to the instructional quality their children will receive and how effectively they can monitor this ex post (Brown 1992). A further issue on the technical, production side is that provision of education may be subject to economies of scale. This would occur if the instructional effectiveness per child diminished in slower proportion than class size increased. This would allow the cost of the teacher to be spread over more students without a proportional fall in instructional effectiveness per child. In small communities, the number of students per teacher could be so low as to lead to prohibitively high costs of instruction per student.

Despite the clear presence of education markets documented by the articles in this...