Historical Dimensions of the “Cost Disease” in US Higher Education, 1870s–2010s

Among explanations for the escalating cost of higher education in the United States, two economic theories predominate: the revenue theory of cost and cost disease theory. Since its formulation in the 1960s, distinguished economists have concluded that cost disease theory has convincingly been proven to explain cost escalation in higher education. This article examines three historical dimensions of the cost disease in higher education from the 1870s to the 2010s. First, we explain how the scholarship on the cost disease in higher education has developed over the past 50 years. Second, we concurrently analyze the historical data and the reasoning presented by economists in support of the view that cost disease theory explains cost escalation in higher education. This analysis concludes that the scholarship over the last 50 years provides little validation for that explanation. Finally, we present historical research on cost trends in US higher education from 1875 to 1930. This formative period in US higher education witnessed enormous growth in the national economy. Due to the growth in productivity, cost disease theory would expect costs in higher education, a personal services industry, to rise sharply relative both to costs generally and to the national income. But this historical research reveals that the per capita cost of higher education grew very slowly over this period. These findings consist with our analysis of cost disease scholarship. We therefore conclude that there is little validation that cost disease theory explains cost escalation in US higher education from the 1870s to the 2010s, though it may explain some periods within that span.