by Gary North
There is a fixed pattern in economic development that is not well understood by the public. There are three main stages of development. Using political terminology, I call these three stages the oligarchic/autarchic, the democratic, and the individualistic. I realize that we lose some conceptual accuracy by transferring concepts from one discipline to another, but when no readily recognized terms exist in one discipline, imports sometimes help.
The oligarchic phase of an economy is where skilled craftsmen produce mainly for the rich. The market is narrow. Competition is based on quality rather than price. Meanwhile, poor families produce for themselves (autarchy) and for barter with their neighbors, with a few local producers of low-quality goods that are priced in money, but at prices where the poor can just barely afford them.
To maintain such a hierarchical, stratified economy, political compulsion is mandatory. A common feature of the medieval economy was the producers' guild. Members of a guild cooperated politically with members of other guilds in cities to pass laws that restricted access to local consumers. A system of hierarchical apprenticeship and screening was established by each guild in order to restrict competition. The goal was to keep price competitive products away from consumers. This subsidized those who competed in terms of high quality rather than price. It kept the masses poor.
At some point, those producers with the ability to produce a larger quantity of goods by means of a new technology break through the legal barriers. They beat their way into the market by offering significantly lower prices. The market responds to a fundamental economic law: "At a lower price, other things remaining the same, a greater quantity will be demanded." I call this the democratic phase of economic development. It is marked by a decline of political compulsion in the market.
Price competition is initially associated with lower quality, but only when compared to quality that had been available to the rich elite. For the poor, these new mass-produced products represent a quantum leap in quality. Buyers who could never have afforded to buy similar goods at the older, higher prices now find new products available and affordable. For them, the quality seems very high: something rather than nothing. The goods' lower quality in relation to the older array of prices and products is irrelevant to the buyers.
Two groups oppose this development: those who produce for the rich, who now find that some of their rich clients also like a bargain; and those who produce for the poor, offering shoddy merchandise at prices that the poor have barely been able to afford. Both groups lose customers to the new producers.
The new mass-market producers at first offer limited choices. As was said of the Model T Ford, "You can get it in any color, as long as you want black." The Model T opened the automobile market to the growing American middle class. But in the 1920's, General Motors took this market away from Ford by offering five brands of GM cars and many options within each brand line. This price competitive market had begun to increase diversity. Ford and Chrysler had to imitate this multi-brand automobile marketing strategy in order to survive. Then came foreign imports in the 1950's. Today, the level of diversity is beyond most car buyers' ability to monitor.
Here is the pattern. Price competition initially creates a mass market for some product line by offering minimal diversity. But as these new mass production techniques are imitated by competitors, diversity raises its lovely head. Buyers then are offered more choices at far lower prices than existed before the initial market-creating breakthrough took place. They get rising quality and falling prices.
The microcomputer has been the best example of this process of diversification in a physical product line during the last two decades. As for services, the best example is the steady erosion of network television's audience to cable and satellite channels. This process even has a clever phrase: from broadcasting to narrowcasting. This is the individualism phase. Buyers can get pretty much what they want.
Dell Computer will sell you a computer with most of the features you can imagine. They will even help you to imagine lots of new ones. Your computer is put together for you personally in Taiwan (or wherever) and flown to the United States, to be delivered to your door. This is truly a personal computer. All this came about because a teenage Michael Dell started producing microcomputers to order in his college dorm room back in the early 1980's. He still offers the same service, but he uses a much larger room.
Stages of Education
The same stages of development have taken place in education. Prior to the printing press, education was limited to a tiny minority: sons of the very rich, sons who gained access to the literate branches of the priesthood, and sons of Jews. Books in those days were too expensive for most people to buy, so there was little demand for literacy.
The model for family education was the tutor. A rich family hired a tutor for its sons (and maybe daughters, though probably not). Formal education was therefore oligarchic and familistic. Only in monasteries and in universities, after its appearance around 1070, did anything like a classroom model exist, but only for a tiny minority. Classroom education had existed for thousands of years, but had been confined to political and priestly oligarchies.
The printing press changed everything. Demand rose for books and also for the ability to read. Then the division of labor was increasingly applied to education. Tutors who were willing to teach larger groups than the sons of one family began offering their services to groups of middle-class families. This was the classroom model. "We don't make house calls," the tutors announced. Mass education began. This was the beginning of the democratic phase of education.
The classroom model was far cheaper per student. The student/teacher ratio rose. There was less student-teacher interaction. But the quality of formal educational instruction was vastly higher than what had been offered to most families before the advent of the printing press. Something beats nothing almost every time.
The tutorial has gone out of existence except in very rare cases. The very rich have used their money to create and then fund prep schools. Meanwhile, the middle class and the poor have been thrown together by law in government-funded schools. Here, the Model T model has ruled supreme since the 1830's. The basic educational model has not changed, although academic content and student discipline have declined since the 1930's. Taxes to fund these schools have risen. This is what compulsion produces every time: lower quality and higher prices.
Tax-funded, compulsory education initially adopted the educational model of the democratic phase of market production — price competition without great diversity — and locked it in by law, beginning in Prussia after Prussia's defeat by Napoleon in 1806. The United States imported this model, beginning in the 1830's in Massachusetts.
This legally locked-in American model involves the following: (1) compulsory tax funding, (2) compulsory student attendance, (2) mass-produced, low-common-denominator textbooks, (3) state-controlled teacher certification, (4) state-mandated trade union compulsion, and (5) state-enforced, monopoly-granting accreditation to educational institutions. Oh, yes, one more thing: intervarsity athletics to keep the voters supportive of "their" schools. Boola-boola = moolah-moolah.
This witches brew of statist compulsion has stifled educational innovation for almost two centuries. It has also led to enormously high costs per student, compared to the law-hampered private schools that educate only a small fraction of students.
Today, a new technology is offering parents great diversity at lower prices: the Internet. Take a look at the recent book, Homeschool Your Child for Free by LauraMaery Gold and Joan M. Zielenski. (As an advertising copy writer, I appreciate its benefits-laden subtitle: More Than 1,200 Smart, Effective, and Practical Resources for Home Education on the Internet and Beyond.) It is amazing how much material is on-line for free, only five years after Web browsers hit the market.
The Internet now threatens to smash the state's monopoly of education. The classroom model is now being undermined by new technologies. What parents have at their disposal today is technology that will enable them — mainly mothers — to become effective tutors. Soon, there will also be teachers who sell their services to hundreds of families at low prices, using electronic grading to do their grunt work, and hiring teaching assistants to do the grading on more personalized examinations and term papers.
The Internet is already offering the ultimate price competition: approaching zero price as a limit. "Just add paper and toner!" It is also offering stupendous diversity of educational choice.
This is where the free market always heads: from quality competition to price competition to both price and quality competition. What has undermined education over the last 170 years is the Prussian model: education by the State and for the State. This model has always been tied to the classroom. The Internet points to the future: individual instruction. The individualism phase has begun to appear, having been held back by law. Familism in education is being restored, as it was for the oligarchs half a millennium ago.
May God bless the digital pipeline! Parents who care can and will get back their children!
January 30, 2001
Gary North is the author of an eleven-volume series, An Economic Commentary on the Bible. The latest volume is Cooperation and Dominion: An Economic Commentary on Romans. The series can be downloaded free of charge at www.freebooks.com.