The Review of Higher Education

How can scholars and pundits understand the complex issue of higher education finance in the twenty-first century? A good start would be to read Bruce Kimball and Sarah Iler's insightful new study, Wealth, Cost, and Price in American Higher Education: A Brief History. This is a timely, well-researched monograph that reveals the benefits of literally "following the money" when trying to account for the economic behavior of the modern American research university.

Part I—"The Formative Era, 1870-1920" (Chapters 1–6)—retraces the rise of the modern American research university and the changes in the political economy that funded it. Kimball and Iler begin their narrative at a time in which a key concept in university finance—endowment—began to take on its contemporary meaning. Although endowments had been a perennial fixture of elite colleges since their establishment during the early Republic, their meaning shifted during the last decades of the nineteenth century. Before the 1870s, "endowment" referred to the sum total of the institution's holdings—its permanent funds, yes, but also its buildings, faculty, and other educational accoutrements. Following the massive industrial expansion that enabled wealthy donors to make gifts at unprecedented levels, "endowment" increasingly referred to the "permanent, productive funds" held by the university.

According to the authors, the Darwinian logic of 'survival of the fittest' motivated the redefinition of endowment whereby universities with larger productive, permanent funds were considered more 'fit'—autonomous, flexible, and higher status—than their poorer, unfit peers. President Charles Eliot of Harvard embraced and popularized this approach to higher education finance, and it helped catapult Harvard from a traditional college to one of the fittest research universities in the country. Here the authors demonstrate the key link between endowment and knowledge production and the rise of the modern research university that emerged in the decades around the turn of the twentieth century.

The 'formative era' also witnessed two other key changes. First, by running a deficit, college presidents and administrators began deliberately cultivating a public perception that their universities required endless funding. According to Kimball and Iler, this strategy created the impression among donors that the university was ceaselessly expanding, and that generous donations played a key role in this growth. Second, new modes of fundraising emerged to coax wealthy donors to give. One such method was "the appeal to all alumni for donations," and another "the national, multiyear fundraising campaign run by paid staff" (p. 56). Fundraisers borrowed techniques from voluntary institutions like the Red Cross and the YMCA that depended on donations to survive. For a brief period, the Harvard Endowment Fund (HEF) and [End Page 130] the Yale Alumni Fund (YAF) associated efforts to encourage mass-giving with the democratic ethos of the Progressive Era. Other institutions eventually followed suit by using similar strategies as America's prestigious universities.

Part II—"Golden Ages, 1930–2020s" (Chapters 7–11)—evaluates in greater depth universities' seemingly limitless need for money. The Great Depression curtailed revenue from both mass-giving campaigns and wealthy donors and, as a result, some marginalized institutions were forced to close. The federal government came to the rescue during World War II, with the GI Bill of 1944 and funding for military research, that continued into the fat years of the Cold War. Universities, suddenly flush with funding, adopted new portfolio management techniques, especially the 60/40 investment rule for mixing stocks and bonds, to maximize the return on their accruing endowments.

Although savvy investment strategies and the availability of greater federal funding brought more and more wealth into the university sector, a new puzzle emerged: tuition kept escalating after World War II. Kimball and Iler explain that "during the 80 years from 1870 to 1950, the per-student educational cost of American colleges and universities had not escalated at all...