The Friedmans traced education underinvestment to capital market imperfections, not inadequate public funding

Evidence

From the beginning, Schultz had his critics. Friedman and Becker in particular developed a perspective on human capital which highlighted the value of private as opposed to public returns to investment and led to policy recommendations at complete variance with those of Schultz. In their 1962 publication, Capitalism and Freedom, Rose and Milton Friedman pronounced themselves decisively in favor of private investment in human capital. Here they argued that the returns to investment in education accrued entirely to the individual student and that any ostensible social benefits were merely the summation of private wage gains. The individual student should therefore be held responsible for the costs of his education. The Friedmans concurred with Schultz that there had been massive underinvestment in higher education, but unlike Schultz, believed that this failure could best be remedied through the liberalization of credit. The fact that low-income students were unable to pay for a degree and thus discriminated against in the labor market could be attributed to “imperfections in the capital market,” that is, the absence of a liquid market in private student loans. At best, the Friedmans conceded that the state might play a minimal role in remedying this state of affairs by providing loans repayable through the tax system and contingent on future earnings. But they clearly saw the private credit market as the most efficient source of funding for student loans and thought that government incentives to banks were the best way of stimulating this market. — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 252

Categorization

• XREF: This is the intellectual foundation of today’s student loan regime in the US; connects to the reader’s interest in how austerity doctrines were translated into policy (income-contingent loans, bank incentives). — connects to: US higher education policy since 1980 has followed Friedman-Becker prescriptions toward loans over grants — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 257; Human capital theory originally justified free public education as collective investment — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 250; Guaranteed equal high income would remove the incentive to invest in costly education
• ADDENDUM: Directly supports ‘On Sacrifice’ themes of deferred obligation — but more relevantly connects to how private debt substitutes for public spending, echoing the sacrifice framing.

Broader Connections

• US higher education policy since 1980 has followed Friedman-Becker prescriptions toward loans over grants #expands (0.80) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 257
• Human capital theory originally justified free public education as collective investment #qualifies (0.78) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 250
• Guaranteed equal high income would remove the incentive to invest in costly education #qualifies (0.75)