This article is adapted from a talk presented at the Mises Circle in Greenville, South Carolina, September 12, 2026.
I prepared for this talk by looking at headlines about the state of government schools.
I saw that in Montgomery County, Maryland, the public schools are accused of having a policy of hiding from parents that children are transitioning genders if those parents are considered insufficiently supportive of such transitions. In my home state of Idaho, the government has recently been involved in a case trying to separate school sports by sex, and I think they’ve achieved some success with their lawsuits (such as Little v. Hecox). Parents in multiple states have sued school districts over not being able to opt their children out of LGBTQ-inclusive story time. Another issue is that the current presidential administration is reversing a policy of previous administrations that encouraged schools to reach racial parity in terms of disciplinary actions against students— not without controversy.
Checking in on how the three R’s are going: There’s no shortage of sad statistics there.
In multiple school districts and cities (Chicago and Detroit) many high school seniors are not testing at grade-level proficiency in reading and math. In certain schools, none of them are. An estimated 20% to 30% of students entering four-year institutions of higher education need remedial training in these areas. Perhaps you’ve seen a recent viral TikTok of a male high school teacher weeping over the fact that none of his students are able to read.
Now, this may be a biased sample of things. This doesn’t describe the state of all government schools. I am the product of government schools. I went to school in Bismarck, North Dakota, and my experience wasn’t that bad. Perhaps I just don’t know what I’m missing, not having directly experienced anything else. But if there was some shortcoming, it’d be more in terms of what was omitted rather than my being directly indoctrinated in some kind of ideology.
My argument for this talk is that we do not have to assume that there is any kind of intentionality by those in charge of government schools to keep their students ignorant of good economics. Rather, this is going to be the natural result of a government school. It takes careful effort to teach good economics, and government schools not only don’t have a strong incentive to teach a proper economic understanding, but in fact have good incentives not to. That’s what I want to point out.
That invites the question: What would a good understanding of economics involve?
Well, for Austrian economists especially, you start with human action: Individuals engage in purposeful behavior, using scarce means to attain ends. A close corollary is that a frequent action people take is exchange. When people engage in voluntary exchanges, both parties expect to benefit. This includes the case of voluntary, private schools. Parents exchange money for the school to help cultivate education within their children—and certainly schools aren’t the sum of education—but with government schools, there’s not really an exchange occurring on the same level. Governments take money from taxpayers, and some of that ends up being spent on school-related expenses. Parents and students are certainly not the customers of government schools. A good understanding of economics should lead us to be skeptical of any coerced behavior imposed on individuals: Why wasn’t it the case that they chose this for themselves?
Another aspect of understanding economics is understanding the role of competition, the importance of which is hard to overstate. Hayek calls competition a discovery procedure, by which entrepreneurs discover what consumers want. They provide goods and services, and consumers, through their decisions to buy or abstain from buying, demonstrate whether they really want what entrepreneurs have provided, compared to alternative uses of their money. Even those without a sophisticated understanding of economics understand that competition is important for consumers: that when competition is hindered, where there’s a monopoly, as in the case of government schools, that’s bad for consumers.
When we understand monopolies as government privileges, as Rothbard does, we can easily see that government schools have strong monopoly privileges. They don’t participate in anything close to a free market in education. Their revenue does not come from consumers demonstrating that they want the service. They don’t lose money when students leave. They also have a territorial monopoly vis-à-vis other government schools: In most cases, parents aren’t able to send their kids to a government school outside the district their address is in.
Another important aspect of competition is that it’s a necessary ingredient for economic calculation, and the importance of economic calculation is one of the most important Austrian insights that non-Austrians seem to ignore. Economic calculation is necessary for developing meaningful prices for the factors of production, including teachers.
On my way here, I came across some billboards that said, “Want better schools? Then pay the dadgum teachers more.” There’s this perennial claim that teachers are underpaid, and I’m not sure on what basis it is made. The basis I would find most justifiable is this: How much do consumers value this factor of production? We can only know that when there’s a competitive market for those factors of production. In a free market, factors tend to get paid their discounted marginal revenue product: How much does hiring an additional unit of this factor contribute to the firm’s bottom line? For teachers, there’s not this competitive environment; it’s very much government dominated, so this information doesn’t exist.
Government schools are bureaucracies. The defining feature—or maybe the defining bug, for Ludwig von Mises—of bureaucracies is that they cannot engage in profit-and-loss calculation. They can calculate their revenues, but since those revenues come from taxes rather than from consumers buying their goods and services, there’s no necessary relationship between revenues and how much consumers value government outputs. There is no marginal revenue product to speak of.
As for their expenses, bureaucracies can calculate those too; and to the extent that their inputs— such as paper clips, which both government schools and private firms buy—have a robust private market, you could say that bureaucracies’ prices more or less accurately reflect the economic costs of their inputs, in terms of their alternative uses. But the greater the extent to which certain inputs, such as schoolteachers, are specific to a government bureaucracy, the less confident we can be that the prices actually reflect the opportunity cost of the services.
When we’re talking about government employees, we know that the minimum they must be paid has to be greater than their opportunity cost in the private sector—otherwise they’d be employed elsewhere; the government has to pay at least enough to bid them away. It’s a bit harder to say what the upper bound is; at the very most it’s whatever the government budget constraint is.
So government employees’ wages fall somewhere between these two bounds, and it’s hard to determine whether they’re being overpaid or underpaid. Since governments are more of a monopsony buyer of teacher services, all else equal, that would lead to lower wages. But there are also countervailing factors that tend to increase teacher pay. So I have to remain agnostic on whether teachers are overpaid or underpaid.
I think this insight lets us say some things about teachers’ unions. Over the last several decades, private-sector union membership has significantly declined, which means a growing portion of the unionized labor force is in government. Why does that decline exist?
In the private sector, there’s a check on unions when there’s competition: If they demand compensation greater than the marginal product of their labor, the firm that agrees to pay it will be at a competitive disadvantage against other firms—the entrepreneur will be losing money on that factor of production. But in the government sector, this competition doesn’t exist, so teachers’ unions are able to demand greater compensation without facing that competitive pressure.
Unionization is often justified on the basis of this idea that teachers are underpaid. This analysis applies to more than just wages; it also applies to working conditions. Thomas Sowell, in his book Inside American Education, is very critical of the state certifications teachers are often required to have to teach in government schools. He notes that to get these certifications, they often have to go to teachers’ colleges, and their training isn’t focused so much on subject-matter expertise to help students learn a subject as on certain pedagogical fads. He also notes that education majors tend to have lower average test scores than most other majors—and these are the ones teaching your kids.
Now, I don’t think there’s anything wrong per se with certifications in a competitive environment: A school entrepreneur can decide that the teachers he hires will have a certain certification, and in that environment consumers can ultimately decide whether those certifications are worth having. But in a monopolized, unionized environment, certifications mostly serve as a barrier to entry.
Incumbents are protected from competition from would-be teachers who lack these certifications, and the certifications also create more demand for these teachers’ colleges than would otherwise exist.
So, thinking about what a good understanding of economics would entail, I don’t think it’s surprising that students in government schools are not taught these things. It would be awkward for the unionized schoolteacher to really emphasize the results of this monopolistic situation. Again, I don’t think that schools are intentionally keeping this knowledge from students, but rather that they don’t really have a reason to teach these things—because imparting this understanding would lead to less justification for the desirability of government schools as such.
Thinking more specifically about the economic justifications for government involvement in schooling, one well-known article that comes to mind is Milton Friedman’s in favor of school vouchers. Though Friedman is often thought of as a free-market advocate, at least in some areas, he thought the government had a role in education—not by directly providing government schools, but by subsidizing education. His argument was that someone being educated benefits their neighbors; it’s better for you if your neighbors are more educated rather than less, for various reasons. He called these effects “neighborhood effects,” but they’re now more commonly called positive externalities—or, maybe with public schools, negative externalities.
The idea is that you want to subsidize the things with positive externalities and tax those with negative externalities such that private marginal benefit equals marginal social benefit. I would argue that a good understanding of economics would lead us to be skeptical of such justifications for government subsidies or taxes because we really can’t measure these things.
We can’t measure marginal social benefits. They’re not demonstrated by action; they’re mostly imagined. They really just function as a justification for basically anything we want: We can say that just about anything has a social benefit and therefore should be subsidized. The only limit is our imagination.
When I tried to search for economic justifications for government schools specifically, most of what I found was justified in economist-y language— that fully private education results in some kind of “market failure.” But none of what was described in these arguments was actually a market failure as it’s commonly understood, where private action leads to a situation in which individuals would unanimously agree to an alternative state of affairs and an alternative allocation of resources. Instead, market failure meant that the author’s preferences wouldn’t be realized: They didn’t think leaving people to their own freedom, their own private decision-making, would result in what the author wanted, whether that was a more democratic mindset, or civic feeling, or more egalitarianism. A major concern was that if people aren’t forced into government schools, there will be social stratification, where wealthier individuals will choose better schools. They called these would-be results market failures, but really it’s just a failure of people to have the same preferences as these social planners.
A good understanding of economics would lead us to be very skeptical of, if not to outright reject, these so-called economic justifications for government schools.
To conclude, I want to offer some final thoughts.
Even though I think understanding economics is important, if our goal is to decrease state involvement in education and work toward more private alternatives, I think perhaps even more important than economic understanding is people being able to see the alternatives.
For most people, the default mindset is to accept what they see; if it’s tolerable, then that’s good enough—especially if they think the alternative is nothing. When I ask students whether the government should have a role in education, a number of them seem to think the alternative to state involvement is that there would be nothing, especially for lower-income families.
That mentality—“well, it’s better than nothing”— can lead one to justify a very poor quality of government schooling, because no matter how bad it gets, it still seems better than nothing. So, to the extent that people directly or indirectly experience private alternatives to government schools, I think that will be the most effective teacher, in terms of getting people to consider those alternatives feasible: “Look, it exists.”
For this reason, I want to encourage any educational entrepreneurs, homeschoolers, and so on—thank you for your efforts.
