In light of a certain piece from the Harvard Crimson recently featured here at College Insurrection, I’m inclined to agree.

Richard Vedder writes at Bloomberg View.

Cut Off Harvard to Save America

College endowments totaled $448.6 billion in the fiscal year ended June 30, 2013, an increase of 11.7 percent compared with a year earlier, according to recently released data.

As we know, this wealth is concentrated among a privileged few. Harvard, Yale and Princeton universities all have almost $2 million in endowment funds for every student.

We’ve heard the argument that what these institutions do with their privately raised money is their business and that they provide a lot of financial aid opportunities for less affluent students. But these endowments are of dubious value and can be attacked on two grounds. First, they promote inefficiency through misallocation of resources. Second, they are anti-meritocratic.

Regarding inefficiency, Adam Smith got it right more than 200 years ago in “The Wealth of Nations.” College endowments, he said, “have necessarily diminished more or less the necessity of application in the teachers.” At the University of Oxford, he complained, “public professors have, for these many years, given up altogether even the pretense of teaching.”

This sounds similar to situations at some universities today. Before endowments were large, professors sometimes had to earn their salaries by collecting tuition fees from students. When endowments provided professors a guaranteed salary, the incentive of offering high-quality instruction to paying students largely disappeared.

The negative consequences of endowments as well as other third-party subsidies (state appropriations, alumni donations, foundation grants) are huge. Faculty can neglect students to do obscure research that no one uses or reads. Endowments have also enabled university administrative bureaucracies to explode.

Compare private universities, which rely heavily on endowments, with public universities, which rely much less on them. Adjusting for enrollments, administrative staffs have grown more robustly at the highly endowed private schools.