Free Market University

The Gist: How to make college much cheaper and better.


Imagine a free market university. You are probably thinking of (or perhaps hoping for) something that turns out thoughtful capitalists instead of woke Marxists, maybe with a mandatory curriculum in classical economics and an aggressive internship placement office that gives kids a taste of entrepreneurial America.

David Friedman has something different in mind.

What if a university used free market principles in its operations? No more central planning by increasingly expensive administrators who allocate alumni donations and government-subsidized tuitions according to their whim. In fact, no one annual price (“tuition”) that covers a wide smattering of services within the commune from housing to food to recreation to, occasionally, education. Wonder of wonders: Students pay rent for apartments of various quality and convenience! Magically: students patronize restaurants of various specializations and health department grades! Amazing: students join a gym (or not), subscribe to a local newspaper (or not), grab tickets to a play or game (or not), take three months off to travel the world (or not), go see a psychologist (or not), or pay dues to support a club (or not).

LSU lazy river

Figure 1. “Students” will just have to look elsewhere for college necessities like LSU’s $85 million recreation center and lazy river, MTU’s 112 acre ski resort, and Syracuse’s unlimited tanning services.


That’s the easy part – turns out that Free Market U. itself does not need to offer any of these and students can bid farewell to the debt they incur as a result of subsidizing all the services and amenities they never use. 

But what about the purported purpose of college? F.M.U. is proud to own and operate world-class facilities but, true to its name, it allocates resources according to the market. Every hour in every classroom is auctioned off to faculty who themselves auction off seats to students. Naturally, there is no tenure at FMU. In fact, there’s not necessarily faculty employment, either. But a popular teacher could capture precisely her worth. If she couldn’t be bothered with the auctioneering mechanics, she could give a percentage to a service that specialized in the arrangement. Other universities can force their professors to publish or perish, delegating the fate of faculty to the editors of obscure journals. FMU forces its faculty to create value for its students. Or, in other words, teachers teach.

auction bid

Figure 2. F.M.U. is naturally a placeholder title until the naming rights can be auctioned off – though we’re willing to be preempted by an attractive initial offer to become, say, Peter Thiel University. 


Notably, teachers themselves don’t require any credential at all. Friedman notes, “Some members of the community might be simultaneously teaching elementary courses in a subject and paying other members for advanced instruction.” One professor might depict an alphabet after his name but if his expertise in ecofeminist interpretations of park squirrels  does not attract paying students, he won’t get paid. On the other hand, if a college dropout – Bill Gates or a more typical American who has nevertheless developed a teachable skill – proves to be popular, he is welcome to reap the rewards. FMU even welcomes one-off guest lectures from people who happen to be in town. Ivory being a scarce resource, we don’t plan any fancy towers.

There does not have to be an admissions department. Students could just log onto the FMU app and bid. But perhaps students would not have to pay at all. A student might interview and present his standardized test scores to a near-campus bank which would then make a judgment about lending risk, either giving the conventional lump sum to be spent however the student desires to be paid back with interest or perhaps staking the student in specific courses the bank knows from experience actually yield positive results and taking a small percentage of the graduate’s future income. Other universities assign an indifferent professor or a random bureaucrat to advise students on their educational journey (though their primary knowledge might be getting hired by a university). FMU empowers students to find an informed adviser who has a personal stake in their goals.


Figure 3. For example, aspiring musicians and actors might be guided to courses preparing them for their exciting careers in the restaurant industry.


Alternatively, the bank could facilitate scholarships provided by charities or generous donors – but, crucially, students are not given automatic rights to sit in whatever class they’d like. The charities or donors could of course dictate that they’d like students to take certain classes – but otherwise, students are empowered to responsibly shepherd their finite resources to get the best education (and send a price signal to educators about what students value). Ideally, students would keep whatever money they didn’t spend! Relatedly, FMU would be sensitive about taking government funds – government-subsidies are a big driver of other colleges’ costs: according to the New York Federal Reserve Bank, colleges may increase tuition by 65 cents for every dollar increase in government lending. 

But maybe other universities have completely misunderstood who their consumer really is. FMU gladly accepts money from the students themselves or their parents or their bankers – or also prospective employers. Any company that wants employees who know certain things is welcome to bid for space to teach a subject and evaluate those who take the course or stake students in courses and see how they do. Different from a bank, a company might agree to stake a student through FMU in exchange for the opportunity to employ them for a certain number of years of service at a specified salary. Employers’ desire for genuine evaluations of prospective employees may be the very best solution to grade inflation (where the average grade, but not necessarily the average performance, has crept up and up and up) as well as superfluous but otherwise popular classes.

At this point, you might think that FMU is really just a real estate firm (not a bad business) that may be exempt from property taxes, but there is something else. While students of any age are of course welcome to take courses at FMU forever (so long as they have the funds!), the vast majority are expected to seek some sort of credential. The second (and final) part of FMU’s tuition consists of students paying to take exams (and have them graded). If a student desires a degree in American history, she must pay to have her knowledge evaluated in the subject. She might build that knowledge through bidding for the best classes in the subject – FMU might publish the grade curve for how every class’ students do on associated exams. Or she could simply hit the library and learn the facts herself. FMU is happy to warrant to the general public that a graduate has requisite knowledge for a degree regardless of whether they took any classes at all. 

There may be still other things consumers want and FMU may contemplate providing them (at the right price, of course) or simply defer to a nimble entrepreneur to provide it instead. FMU’s majestic Latin mottos are Quid Pro Quo and Caveat Emptor. You get what you pay for. If college is about community or networking, sororities, the local Chamber of Commerce, Mensa Club, and lots else stands ready to help. If college is about dating, there’s an app (or 100) for that. If college is about drinking rather than thinking, a thriving local bar scene is likely to develop. FMU is even willing to build a stadium if it can rent it out at a profit. And let’s not forget our faculty associates: if a company would like to pay them to research something or if a publisher would like to sell their books, FMU is happy to facilitate the connections – and let the personnel collect!

robber baron

Figure 4. In 1975, students voted to become the Stanford Robber Barons – a democratic decision thoroughly rejected by the administration which instead went with the perpetually confusing choice of the color, not the bird, Cardinal. F.M.U. suspects that the railroads of the 19th century were too subsidized to be a proper model for its students but, as always, welcomes with open arms those with open checkbooks.


Ultimately, the cost of college in the United States has grown a lot faster than any other expense except medical care in the last 20+ years. We’ve already discussed one reason why: colleges have raised their prices to capture the most that they can from federal loan subsidies. The Manhattan Institute adds others: “administrative bloat, overbuilding of campus amenities, a model dependent on high-wage labor.” F.M.U. tackles them all to give students the best bargain in the world: a bare minimum of administrators and amenities, with labor that is paid according to its value, not its credentials. 

Could FMU ever work? Maybe it could not attract the best faculty because they desire the prestige and low responsibility of tenure at a major university – but that would be reflected in the price students would pay. (And, of course, if an existing prestigious university wanted to switch things up, that’s welcome!) Maybe students would want something more conventional because of fears of employability or because they enjoy the present all-expenses-paid extended vacation that is so much of the present college experience or because of some other preference that consumers express every single day in how they spend their money. But I, for one, would love to see, somewhere, amidst the 4,000+ colleges in the United States and more beyond, some institution try something different. Maybe we can start with an economics department!

machinery of freedom

Figure 5. Click here to acquire David Friedman’s the Machinery of Freedom, a book that questions basically everything that the government provides. This newsletter is inspired by a couple of short chapters within the whole book (one of which is just a reprint of Adam Smith’s critique that Oxford professors didn’t really care about their students because they were paid by an endowment. Friedman says that’s now supplemented by the government). There are of course potential problems with a total dedication to catering to the preferences of students, some proportion of whom will want high grades for occasional attendance of edu-tainment. Shifting the perspective to treat employers as consumers may help fight that – but also bear in mind that qualified students are also highly interested in expressing their skills and diligence and F.M.U. can hopefully create a standard that employers trust will actually mean something. One final thought: F.M.U. would ideally be open to all comers, but disruptive students who actively make learning harder on others would very likely have to be ejected (sadly, the price of related security would therefore have to be incorporated into the costs of the facilities!)


Thanks for reading! If you enjoyed this, forward it to a friend: know anyone interested in education? How about resource allocation? Or do you know someone who has been to college and might find this alternative take illuminating?

I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

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