Abstract

In order to explain the rising cost of higher education, economist Howard Bowen in 1980 proposed his “famous law” of institutional finance. Bowen based his “revenue theory of cost” on a study of aggregate quantitative data extending from 1929 to 1979. Neither he nor subsequent economists asked whether or how that “law” applied prior to 1929. Nor did they examine specific cases or testimony to understand the historical operation and nuances of the theory. These three issues are addressed by examining the “free money” strategy that Harvard President Charles Eliot formulated during his administration from 1869 to 1909. Recently identified by scholars, Eliot’s strategy fits closely the theory posited by Bowen a century later, notwithstanding the many differences between their historical periods. During the 1910s and 1920s many wealthy universities began to adopt Eliot’s “free money” strategy, and this adoption explains how that financial ideology proliferated subsequently. Eliot’s singular case thus explains the origins, demonstrates the historical operation, and illuminates the nuances of the revenue theory of cost that Bowen codified in 1980.

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Additional Information

ISSN
1538-4640
Print ISSN
0022-1546
Pages
pp. 886-912
Launched on MUSE
2014-11-03
Open Access
No
Archive Status
Archived
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