School Vouchers and Influence Costs
McGinnis, John D., Journal of Private Enterprise
It is relevant to point out the backdrop of the publication date of Milton Friedman's Capitalism and Freedom. Upon the Soviet launch of Sputnik in the late 1950s, American politicians and educators perceived an inferiority in intellectual performance among American citizens. The proposed and implemented solution was for increased government spending in higher education and increased spending at state and local levels in primary and secondary schools. In the face of this statist agenda, Milton Friedman reiterated his 1955 proposal for a less socialist program of financing education-a voucher program where students would be given tax monies to spend on education as they and their parents saw fit. That government would be otherwise out of the picture in education and that educators would have to be competitive with each other in responding to the desires of students struck most at the time as a radically extreme libertarian idea.
As I will argue in this paper, the voucher proposal was not and is not extreme and certainly is not libertarian. It might be fairly characterized as radical in that it departs in many important ways from the orthodoxy of what is called public education. Its chief economic benefits derive from the reduction of what is known in the economics literature as influence costs. However, a voucher system does not eliminate all or even most influence costs. Further, a voucher system perpetuates the mistaken notion that education is a public good (in the economic sense of that term) and thereby forms an impediment to optimal educational investment by the American people.
A Fundamental Mistake
Friedman writes in Chapter 6 of Capitalism and Freedom:
A stable and democratic society is impossible without a minimum degree of literacy and knowledge on the part of most citizens and without widespread acceptance of some common set of values. Education can contribute to both (1962).
He further argues that such education has positive "neighborhood effects" that cannot be isolated as to whom the benefits accrue and, therefore, that justifies government's involvement in mandating and financing education.
This argument for government oversight of education is unpersuasive. First, the common values of a free society must be anterior to government. To entrust government with the responsibility of promoting the values necessary for freedom is naive at best and downright dangerous at worst. Government, like most organizations, never tries to limit itself, but always seeks to expand its influence. If it is given the power to shape a society's values, one can be reasonably sure it will promote those values most beneficial to itself and most inimical to freedom. Stable and free societies are almost entirely dependent on respect for private property and publicly-funded and controlled education undercuts such respect.
Second, 'neighbor effects' or positive externalities in certain behaviors do not justify government support. One elementary example is neighborhoods themselves. The value of my neighbors' houses goes up when I improve my own, but that certainly doesn't justify a forced subsidy from them to me. Surely there are positive externalities to a well-fed citizenry, but that is no argument for government financed grocery stores. And behaviors that produce positive externalities are frequently capitalized sufficiently by individuals. For example, if one's education makes a person more valuable in society, then one recoups the cost of education through selling this value. So long as the price system allocates compensation to those who produce social benefits, then educational benefits can be capitalized by individuals. The market, therefore, gives the right incentives to individuals for investment in education (Friedman, D., 1993).
Friedman cornes close to making the error that most do in referring to education as a public good. It is not. A public good as understood by economists is one that has two main characteristics. …