Employment and Compensation in Education, (National Bureau of Economic Research, Occasional Paper 1111, 1950)

4. The subsidizing of basic research for example. I have interpreted education narrowly so as to exclude considerations of this type which would open up an unduly wide field.

5. The increased return may be only partly in a monetary form; it may also consist of non-pecuniary advantages attached to the occupation for which the vocational training fits the individual. Similarly, the occupation may have nonpecuniary disadvantages, which would have to be reckoned among the costs of the investment.

6. For a more detailed and precise statement of the considerations entering into the choice of an occupation, see Milton Friedman and Simon Kuznets, Income from Independent Professional Practice, (National Bureau of Economic Research, N.Y., 1945). pp. 81-94, 118-37.

9. Education and Economic Well-Being in American Democracy , (Educational Policies Commission, National Education Association of United States and American Association of School Administrators, 1940).

10. Despite these obstacles to fixed money loans, I am told that they have been a very common means of financing university education in Sweden, where they have apparently been available at moderate rates of interest. Presumably a proximate explanation is a smaller dispersion of income among university graduates than in the United States. But this is no ultimate explanation and may not be the only or major reason for the difference in practice. Further study of Swedish and similar experience is highly desirable to test whether the reasons given above are adequate to explain the absence in the United States and other countries of a highly developed market in loans to finance vocational education, or whether there may not be other obstacles that could be removed more easily.

11. It is amusing to speculate on how the business could be done and on some ancillary methods of profiting from it. The initial entrants would be able to choose the very best investments, by imposing very high quality standards on the individuals they were willing to finance. If they did so, they could increase the profitability of their investment by getting public recognition of the superior quality of the individuals they financed: the legend, Training financed by XYZ Insurance Company could be made into an assurance of quality (like Approved by Good Housekeeping) that would attract custom. All sorts of other common services might be rendered by the XYZ company to its physicians, lawyers, dentists, and so on.

12. The point in question is familiar in connection with the disincentive effects of income taxation. An example that perhaps makes this clearer than the example in the text is to suppose that the individual can earn $5, say, by some extra work and would just be willing to do so if he could keep the whole $5 – that is, he values the non-pecuniary costs of the extra worth at just under $5. If x is say 0.10, he only keeps $4.50 and this will not be enough to induce him to do the extra work. It would not however be unaffected by them; such differences would tend to produce different frequencies of default depending on the use made of the skill and so unduly favor uses yielding relatively high non-pecuniary returns or involving relatively low non-pecuniary costs. I am indebted to Harry G. Johnson and Paul W. Cook, Jr., for suggesting the inclusion of this qualification. For a fuller discussion of the role of non-pecuniary advantages and disadvantages in determining earnings in different pursuits. See Friedman and Kuznets, loc. cit.

Yet, even so, if the financial burden imposed by such an educational requirement could readily be met by the great bulk of the families in a community, it might be both feasible and desirable to require the parents to meet the cost directly.

Parents would then be free to spend this sum and any additional sum on purchasing educational services from an approved institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit institutions of various kinds. The role of the government would be limited to assuring that the schools met certain minimum standards such as the inclusion of a minimum common content in their programs, much as it now inspects restaurants to assure that they maintain minimum sanitary standards. An excellent example of a program of this sort what a va loan is the United States educational program for veterans after World War II. Each veteran who qualified was given a maximum sum per year that could be spent at any institution of his choice, provided it met certain minimum standards. A more limited example is the provision in Britain whereby local authorities pay the fees of some students attending nonstate schools (the so-called public schools). Another is the arrangement in France whereby the state pays part of the costs for students attending non-state schools.

It should be noted that a plan involving fixed money loans to individuals might be less seriously affected by differences among various uses of skills in non-pecuniary returns and costs than the plan for equity investment under consideration

Another special case of the argument that governmentally conducted schools are necessary to keep education a unifying force is that private schools would tend to exacerbate class distinctions. Given greater freedom about where to send their children, parents of a kind would flock together and so prevent a healthy intermingling of children from decidedly different backgrounds. Again, whether or not this argument is valid in principle, it is not at all clear that the stated results would follow. Under present arrangements, particular schools tend to be peopled by children with similar backgrounds thanks to the stratification of residential areas. In addition, parents are not now prevented from sending their children to private schools. Only a highly limited class can or does do so, parochial schools aside, in the process producing further stratification. The widening of the range of choice under a private system would operate to reduce both kinds of stratification.

The only additional complication is a possibly greater opportunity for abuse because of the greater freedom to decide where to educate children. Supposed difficulty of administration is a standard defense of the status quo against any proposed changes; in this particular case, it is an even weaker defense than usual because existing arrangements must master not only the major problems raised by the proposed arrangements but also the additional problems raised by the administration of the schools as a governmental function.

Vocational or Professional Education

The desideratum is not to redistribute income but to make capital available for investment in human beings on terms comparable to those on which it is available for physical investment. Individuals should bear the costs of investment in themselves and receive the rewards, and they should not be prevented by market imperfections from making the investment when they are willing to bear the costs. One way to do this is to have government engage in equity investment in human beings of the kind described above.