From Milton Friedman (1962/1982), Capitalism and Freedom (Chicago, IL: University of Chicago Press); earlier version (1955) in Robert A. Solo (Ed.), Economics and the Public Interest, pp. 123-144 (New Brunswick, NJ: Rutgers University Press).
Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy. The result has been an indiscriminate extension of governmental responsibility.
The role assigned to government in any particular field depends, of course, on the principles accepted for the organization of society in general. In what follows, I shall assume a society that takes freedom of the individual, or more realistically the family, as its ultimate objective, and seeks to further this objective by relying primarily on voluntary exchange among individuals for the organization of economic activity. In such a free private enterprise exchange economy, governmentâ€™s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free. Beyond this, there are only three major grounds on which government intervention is to be justified. One is â€śnatural monopolyâ€ť or similar market imperfection which makes effective competition (and therefore thoroughly voluntary exchange) impossible. A second is the existence of substantial â€śneighborhood effects,â€ť i.e., the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate himÂ â€”Â circumstances that again make voluntary exchange impossible. The third derives from an ambiguity in the ultimate objective rather than from the difficulty of achieving it by voluntary exchange, namely, paternalistic concern for children and other irresponsible individuals. The belief in freedom is for â€śresponsibleâ€ť units, among whom we include neither children nor insane people. In general, this problem is avoided by regarding the family as the basic unit and therefore parents as responsible for their children; in considerable measure, however, such a procedure rests on expediency rather than principle. The problem of drawing a reasonable line between action justified on these paternalistic grounds and action that conflicts with the freedom of responsible individuals is clearly one to which no satisfactory answer can be given.
In applying these general principles to education, we shall find it helpful to deal separately with (1) general education for citizenship, and (2) specialized vocational education, although it may be difficult to draw a sharp line between them in practice. The grounds for government intervention are widely different in these two areas and justify very different types of action.