Can education be a market?

Let’s First Define What the Market Is

People often say that “the market decides,” “the market prefers,” “the market thinks,” or “the market responds.” All of these expressions create the false impression that the market is some mysterious force detached from human beings, operating independently and indifferent to social concerns.

It is the same thing that happens when we talk about the State and personify it, forgetting that it is not independent from the politicians, bureaucrats, and public officials who make it up.

The same applies here.

The market is not a group of businessmen or a committee of wise experts. It is neither a place nor some strange abstract entity. The market is made up of people—of you, your family members, your neighbors, your friends, and everyone else. It is nothing more than the process of social cooperation through which we voluntarily exchange goods and services.

That is why, when some people claim that something “should not be left to the market” (such as education), what they are really saying is that decisions should not be left in the hands of ordinary people.

What is curious is that, at the very same time, they propose that these decisions should instead be left to politicians, public officials, bureaucrats, and experts, who coordinate and intervene in our choices through coercive means.

Fair enough. But then how do markets actually work?

To answer that question and illustrate the point, I want to share a story written by Leonard Read: "I, Pencil". Afterwards, I will connect its lessons to education.

A worthwhile detail: this is the very same story that Milton Friedman used in the opening episode of his famous television series Free to Choose.

The story goes something like this

You see what appears to be a simple pencil. At first glance, it seems like something any person could make.

Yet I would argue that it is far more complex than we tend to imagine.

To show that producing a pencil is anything but simple—and that it is, in many ways, something close to a miracle—I want to tell the story of the pencil's family tree.

A pencil contains wood, which may come from Oregon, where someone with an axe is cutting down a tree. Once felled, that tree is loaded onto a truck alongside many others and transported by another worker to a sawmill. There, the wood is cut and shaped into something that begins to resemble a pencil. It is then shipped to a factory where, together with countless other inputs, it eventually becomes part of the production process that gives us a finished pencil.

Several important ideas emerge from this story

The Division of Labor

The production of a pencil requires many different people performing different tasks and relying on different forms of knowledge.

This is one of the central insights developed by Adam Smith.

Specialization

The man cutting down trees does not do so because he knows that the wood will eventually become a pencil.

He does it because he is compensated for performing a productive task. The income he receives serves as an incentive to act.

Social Coordination

Hundreds of thousands of people contribute to the creation of things without knowing exactly what they are helping to produce.

The person cutting down a tree is not motivated by the idea that he is contributing to the production of a pencil. He is guided by the income he expects to earn for each tree he cuts.

The same is true for the truck driver transporting the wood to the sawmill. It makes little difference to him what material he is hauling. He performs the task because he receives compensation for the distance traveled and the cargo entrusted to him.

In this way, the countless individuals involved in a production process are coordinated, even though they may never meet one another and may not even know what final product their efforts help create.

Spontaneous Order

This brings us to another important idea, one associated with the Scottish Enlightenment and thinkers such as Adam Smith, David Hume, and Adam Ferguson.

Their insight was that social order can emerge without central direction.

A pencil can be produced without anyone centrally guiding all the individuals involved in its creation. There is no master planner moving and coordinating thousands of pieces in order to bring a pencil into existence.

Adam Smith would describe this phenomenon through the metaphor of the Invisible Hand, which coordinates the production process without conscious central control.

And this is only the beginning.

Within a single pencil there is wood, paint, rubber, metal, and graphite. If we were to trace the family tree of each of those components, we would discover not a handful of people, but hundreds of thousands of individuals scattered across different regions, industries, and countries, all contributing in some small way to the inputs that ultimately become part of a single pencil.

What we see, then, is a process—one in which entrepreneurship plays a crucial role—involving vast numbers of people coordinating their actions over long and often indirect periods of time, ultimately making something as simple as a pencil possible.

In other words, consumer demand over time guides entrepreneurs and shapes production.

Friedrich Hayek, in his 1945 essay The Use of Knowledge in Society, which predates Leonard Read's story, argued that knowledge is dispersed throughout society and cannot be centralized within a single authority or planning agency. Individuals and businesses possess information that is specific to their own circumstances, information that no central authority can fully access or replicate.

Hayek argued that even if a ruler or government had the best possible intentions and genuinely wished to coordinate society through mandates and directives, it would still be impossible. The reason is simple: no planner could ever gather the immense amount of information required to do so.

To coordinate an economy successfully, one would need to know the preferences of millions of individuals: what goods and services they want, in what quantities, in what forms, and at what points in time.

• Do I prefer more education, more healthcare, more national defense, or more justice?

• What will I prefer tomorrow?

• What goods and services will tens of millions of people living in Argentina prefer today, tomorrow, and next year? And how much of each?

• More fundamentally, how do we even define what counts as a good or service?

For example, what exactly do we mean by "education"? Attending school? Having access to the internet? Working with a tutor? Enjoying meaningful conversations at home? Or perhaps having parents who actively teach their children?

A central planner—a minister, bureaucrat, public official, or expert—does not have access to this information because it exists primarily in the minds of individuals. It only becomes visible through what economists call revealed preferences: the choices people make when they voluntarily purchase goods and services.

Imagine this idea of dispersed knowledge through the analogy of a beach.

Consider each grain of sand as an individual within an economy. Every grain has its own unique structure, shape, and position across the vast expanse of the shoreline, just as every person possesses unique knowledge, experiences, and preferences shaped by their own circumstances.

In theory, one could attempt to count every grain of sand, although doing so would be extraordinarily difficult. Yet even that challenge is trivial compared to understanding the knowledge, beliefs, desires, and preferences held by each individual in society.

Here lies a crucial distinction.

A grain of sand is a physical object that can, at least in principle, be counted and measured. Knowledge, opinions, preferences, creativity, and personal experience are not.

We cannot count knowledge the way we count physical objects.

Human knowledge is abstract, intangible, and constantly evolving. It changes continuously in response to personal experiences, social interactions, economic conditions, and countless other influences.

Furthermore, just as the ocean constantly reshapes the shoreline—changing both the number and position of grains of sand—markets and economies are also in a perpetual state of change.

Every day brings new consumers, changing preferences, evolving technologies, shifting market conditions, and countless other developments.

The economy is never static.

Like waves reshaping a beach, these forces continuously rearrange the landscape. Grains move, appear, disappear, and settle into new configurations.

Attempting to centrally plan an economy is therefore like trying to map and control every grain of sand on a beach while simultaneously predicting every wave and how it will reshape the shoreline.

It is a futile task.

The system—whether the beach or the economy—is a dynamic and complex order that continually reorganizes itself in ways that no central authority could ever fully predict or comprehend.

Just as a beach emerges and organizes itself through the independent interaction of waves and particles of sand, an economy emerges and grows through the independent actions of millions of individuals.

These actions are coordinated through the price system, which functions as a mechanism for transmitting information, and through the process Adam Smith famously described as the Invisible Hand.

Recognizing this requires a certain degree of humility.

It requires acknowledging that some natural and social systems possess an intrinsic wisdom and a capacity for self-organization that no centralized plan can hope to replicate or improve upon.

There is another important insight—one that begins with Hayek and is further developed by Esteban Thomsen in his essay Prices and Information. Rather than relying on a central planner, people make use of decentralized information and coordinate their activities through the price system.

Prices communicate and coordinate the dispersed information we have been discussing: the decisions, preferences, and priorities of millions of individuals.

They are the most effective mechanism for doing so.

Prices allow the knowledge of each person to be reflected in the economic decisions they make, leading to a more efficient allocation of resources.

By reflecting the voluntary choices of consumers and producers, free prices reveal which goods and services society values most highly.

This is why many economists describe the market as democratic.

What does that mean?

When a consumer walks into a supermarket, chooses a product, and purchases it, they are effectively voting for that product to continue being produced. Conversely, when consumers consistently refrain from purchasing a particular product, they are voting for its production to cease.

In this sense, the consumer is sovereign.

If the price of oil rises significantly, that signals that society is demanding greater quantities of oil. That price signal alone is enough to encourage entrepreneurs—always seeking opportunities for profit—to increase production or search for new reserves.

Likewise, if demand for cassette tapes falls, their price will decline as well, signaling to producers that they should redirect their efforts toward other goods if they wish to continue serving consumers.

Free prices thus become the most reliable guide for the production process.

They encourage entrepreneurs to make investment and production decisions that align with consumer demand.

The result is greater economic efficiency, sustained growth, rising prosperity, and ultimately a reduction in poverty.

Turning to Education

Once we understand that education involves both supply and demand, we begin to see that it is, in fact, a market.

In that sense, the answer to the title of this article becomes clear: education should not be considered a market because education already is one.

On the supply side, we find:

• Mathematics teachers, English teachers, guitar instructors, judo coaches, art teachers, cooking schools, and virtually any other discipline or activity one can imagine.

  
  

• We also find preschools, schools, institutes, colleges, and universities—both public and private.

  
  

On the demand side, we find:

• Children, teenagers, and adults seeking to acquire knowledge, skills, and capabilities.

  
  

There are many things we can debate about education.

What we cannot reasonably deny is that it involves the exchange of educational services between those who provide them and those who seek them.

In that sense, it functions as a market.

Once we recognize this, we can view educational institutions much like any other organization operating within a market environment.

Whether they are for-profit firms, nonprofits, cooperatives, or something else entirely is a separate question.

What matters is that they offer educational programs to clients—whom we typically call students—who are engaged in a process of learning and skill development that helps them improve their opportunities in the labor market or pursue goals that are personally meaningful to them.

Consider, for example, a university that stubbornly insists on offering programs that few people value.

It will continue paying professors, maintaining classrooms, and allocating resources toward services that nobody wants.

Over time, this will generate losses, and eventually those resources will be exhausted.

Conversely, if an institution offers a high-quality educational experience that students genuinely value—one that provides knowledge and skills they believe will improve their lives—it will attract increasing numbers of students.

If demand eventually exceeds classroom capacity, the institution may open additional sections, expand to new campuses, build new facilities, or, if it chooses, raise prices.

In essence, what we should see behind every educational institution is a group of entrepreneurs attempting to provide the highest-quality educational services at the best possible price.

As in any other market, this process would generate a remarkable diversity of educational offerings.

The result would be an ecosystem characterized by a vast and varied demand for education and training across countless fields, matched by a diverse supply of academies, institutes, schools, colleges, and universities.

Most importantly, there would be freedom of entry.

Anyone could decide to create a new school, university, academy, or educational program and offer it to the public.

From there, supply and demand would shape prices, quality, innovation, and diversity.

The educational system that emerged would be fundamentally different from the one we know today—far more dynamic, adaptive, and responsive to the needs of learners.

Educational institutions would determine the content of their curricula.

Students, in turn, would validate—or reject—those curricula through their choices.

By choosing to attend, or choosing not to attend, they would effectively determine which subjects, teaching methods, educational approaches, and institutions continue to exist.

But Doesn't Education Already Work This Way?

The market is the most flexible system imaginable for serving consumers.

It is precisely this flexibility—and the ingenuity of individuals to create, experiment, and offer new solutions—that bureaucracy lacks, whether that bureaucracy is democratically controlled or not.

The problem is that such a process is largely impossible within education today because the sector operates under a highly regulated and centrally planned framework.

This framework prevents much of the creativity and experimentation that could otherwise emerge.

For a long time, governments around the world have assumed responsibility for administering and centrally planning education.

As a result, bureaucracies have effectively declared:

• We will decide which subjects are taught and what their content will be.

  
  

• We will determine how many years children must spend in primary school and how many years young people must spend in secondary school.

  
  

• We will decide when a student should repeat a grade, how many hours per day should be devoted to study, how long each class should last, and how knowledge should be assessed and certified.

  
  

• We will also determine which credentials and degrees are officially recognized.

Under this arrangement, the State defines and approves the curriculum and ultimately decides what does and does not qualify as a legitimate school.

As a result, a distinction emerges between a formal educational system and an informal one.

Operating outside the formal system often means lacking accredited credentials, facing barriers to higher education, and being excluded from many opportunities that depend upon official recognition.

Most countries today operate largely capitalist economies.

Yet there remain certain areas of social life that are controlled by the State and governed through centralized planning.

Education is one of those areas.

In that sense, while most economies are broadly market-oriented, education itself often operates according to principles that are far more centralized.

Because the State maintains extensive control over the supply of educational services, the politicians, bureaucrats, and officials who manage the system become increasingly detached from the interests and needs of the people they are meant to serve.

The result is an educational system that often becomes insensitive to the goals, preferences, and aspirations of children, teenagers, and adults.

If education were allowed to operate with significantly greater freedom, what would happen to access?

I will address this question in greater detail in a future article.

For now, it is enough to observe that if education were placed more fully in the hands of entrepreneurs and subjected to the forces of competition, it would likely follow a path similar to that of food, clothing, technology, automobiles, transportation, and countless other industries.

Never in human history has the average person enjoyed greater access to these goods and services than today.

This was not the result of chance.

It was the result of industries operating within open, decentralized, and competitive markets.

Education has the potential to become dramatically more affordable than it is today. Many of the costs associated with educational services are not inherent to education itself, but rather stem from the regulatory structures surrounding it.

Conclusion

Education requires open doors and open windows.

It requires the greatest possible flow of fresh ideas within a competitive environment.

If governments did not suppress entrepreneurial creativity by forcing educational providers into a single model, individuals would be free to experiment with new approaches, create new institutions, design innovative programs, and attract outstanding teachers and researchers capable of enriching the educational landscape.

The result would be a level of dynamism from which everyone could benefit.

It is impossible to predict all the remarkable outcomes that might emerge from greater educational freedom.

After all, progress consists precisely in discovering what we do not yet know.

The future is revealed gradually, as human creativity and ingenuity find an institutional framework that allows them to flourish.

This is what the human spirit longs for.

And it is found only where people are free to pursue it.