| Chieh on Education / Common currency (standardization) The theory of common currency reduces cost through the creation of de facto standards. Having de facto standards increases efficiency because it reduces the confusion of different formats, and it cuts out the overhead of translation. To most economists, the benefits of having a common currency are already well established. However, these same benefits may not be as obvious to the general public. So let me present an example to make this theory more clear. Let's say a company has a third of its workers speaking only German, a third speaking only English, and a third speaking both languages. If the workers all have to collaborate, a lot of confusion will result from misinformation and mistranslation. A third of the workers will also probably end up being translators instead of actually producing anything. The efficiency of the company, therefore, suffers due to the lack of a standard language. The theory of common currency simply says that efficiency would greatly increase if the company were to standardize to one single language. By increasing efficiency, we also increase productivity against cost. This particular example makes the theory of common currency quite obvious, and most people would agree that this theory appears to be simple common sense. However, the implementation of this theory in truth is not as easy when applied to other fields. For other situations, it is less apparent because we are accustomed to seeing currency as paper money. If a person only sees money as currency, it doesn't make a lot of sense what currency would mean in other situations. Instead of the common perception of currency, let me suggest an alternative view. In its most fundamental sense, currency is simply a standard we agreed upon—-just like standardizing a company to speak English in our previous example. It has nothing to do with money, but everything to do with the ability to exchange information accurately. In the previous example, we were improving the exchange of information through a common standard of speaking. By adopting a common standard, notice the immediate structural reduction of cost. The previous example is an active form of information transfer where we could see the actual movement of information passing from one to another. As for money, we are still using it to transfer information but in a passive way. Our common money, just like our common language, is also a standard we use to transfer information. If I were to tell you that I own a hundred dollars, few people would mistake the amount I own. However, if I were to tell you that I own a fish tank, a bag, and a pair of shoes, it now becomes immediately difficult to pinpoint my worth. Considering that people value possessions differently, I could potentially be worth any amount from zero to thousands of dollars. This situation starts to look like a German trying to speak to an Englishman with hand signals. Without money, we would lose the ability to communicate value and our entire economy would buckle. Think about all the extra costs we save by having a common currency. As a matter of fact, the standardization of money is so important, any economist would agree that the fastest way to destroy a nation is by rendering its currency meaningless. If we were to look at all the major standardizations of information in history, we would quickly realize that standardization has always revolutionized the industry that catches onto this train. Looking at the European Euro today, we see that it has propelled countries in Europe to another level of prosperity. That currency is stable because so many countries act as backers of that currency. Having a stable currency means greater leverage against inflation, resulting in benefits for all citizens. Look at computers and television. They, too, are nothing but standards that manufacturers agreed upon. Underneath the pretty covers of your cell phones and printers are just chips holding standards of 1s and 0s. The reason why the digital age has made the world so prosperous is precisely because of its ability to standardize all information into 1s and 0s. When information transfer efficiency is high, the cost of involved activities structurally decreases. There is no lack of examples to show why standardization is beneficial. So with this prolonged introduction to better understand the benefits of having a standard communication tool, we can now attempt to apply the same concept to education. I want to emphasize first that the key is not any particular proposal that I make in this essay, but the idea of standardization itself. The proposal here is only one of many possible ways to implement standardization. It is not the only way, nor would I argue that it is the best way. So what particular standards may come out of education? When discussing free information, we touched on an example of standardization. If our school boards were to come together to form a common standard for textbooks and other course materials, the digitization of these materials would provide a tremendous amount of savings. This would be an example of standardization combined with free information. Let me give you another example that mirrors currency in economics. In my opinion, the most valuable standard in education is the certification of knowledge. When students graduate from college, potential employers rely on their diplomas to convey competence. When students enter college, universities rely on SAT or ACT scores to convey competence. These are loosely organized standards that we have currently, and this is where standardization could make a big difference. Viewing the certification of knowledge as common currency immediately allows us to apply the laws of economics to reduce general costs. According to basic economics, to reduce cost we must either reduce demand or increase supply. To promote an educated society, it would be unwise to decrease demand, so the key here is to increase supply. For future reference, let’s look at this concept graphically. The picture below shows the result of having a supply shift. Currently, the universities and the schools are really the main sources of knowledge certification. The green line represents the original supply of these certifications. The supply line intersects the purple demand line, giving us the current cost of the education. By creating a system of increased standardized certification, we would greatly increase the supply of these certifications. With this increase, the supply line would shift right to give us a lower price on education while creating more educated people. Once we understand this general principle, there are countless ways to increase the supply of knowledge certifications. In some countries, the government provides standardized tests that allow students to earn credits. Here in the United States, we tend to rely on the private sector. Currently, there are companies that provide standardized tests to help students test out of college courses. By giving students more opportunity to earn college credits, this becomes a form of knowledge certification. In the economics section, I will propose a comprehensive plan that implements this exact model of incrementing the supply of knowledge certification. So for now, I will hold you in suspense regarding my final proposal. Until then, I would like you to concentrate on and understand the supply and demand graph above. This is going to become a famous graph that will ultimately save our education system from our problems with cost. Requirement for Common Currency The theory of common currency creates standards to reduce the communication cost, but as we will see, there are some requirements that must be fulfilled before this theory works. Without an understanding of the basic requirements, we could potentially implement a very good idea very badly. So the next natural goal is to discuss some major requirements for this theory to succeed. The first requirement is that it must be universally recognized. Like any currency, if you don't have confidence that the next person will take your money, its worth diminishes. If the certificate of knowledge is the currency of education, this certificate must also be universally recognized. The second requirement is that it must be participatory. This follows the free market concept that concentrates on upholding the value of the currency. Unlike a central planned economy, we do not force people to work to make money. Instead, we make money so attractive that people are willing to work for it. By doing so, we create an incentive-based system. The third requirement is a well-understood and legal approach. In our society, to earn an income, everybody knows that we either get a job or start our own business. This is what I mean by a well-understood and legal approach to earning currency. It would work the same way in educational currency. A well-understood and legal way must be established to ensure the buy-in of the public. No Child Left Behind Before we finish with this section, I must first discuss a very particular example of standardization. This is a very important case because it shows the results of badly implemented standardization. You might already have guessed it. I am talking about the “No Child Left Behind Act.” For anyone involved in education, standardization sounds like Section 6 of the No Child Left Behind Act of 2001. For readers who are not as familiar with the sections of the act, the schools were mandated to measure student progress annually in grades three through eight via standardized tests. Just this part of the act resulted in a stream of criticism from educators across the nation.1 Teachers often ended up teaching students how to pass the test rather than teaching them academic subjects. And many fields such as music and the arts were neglected since the national board emphasized math and science. The list of complaints went on for miles, and based on its experimental results, it appears to be a disaster. So if the idea of standardization was put in place with this act, what has gone wrong? The problem is that the act has ignored a very important part of standardization. Standardization only works well under a free market system. The free market system is such an important concept that I will dedicate the entire economics chapter to it and explain it in detail. For now, let's make a quick analogy. If we compare a free market system to a communistic (centrally planned) system, a communistic system gives jobs to their people to make money, while a free market system lets people decide their own professions to make money. In both cases, the end result is the acquisition of money while producing something for the society, but the approach is vastly different. In the free market approach, the government does not force its citizens to do anything. Instead, it enforces the value of the currency itself through legal measures. Neither does it force the people to do anything for the currency. Instead, it makes the currency so attractive that people are willing to do anything for it. We get the same end result in both the centrally planned and free market approaches, but the latter approach is much more advanced. If the certification of knowledge is the currency of education, then notice how we are running on a centrally planned education system. We are forcing our kids to take specific tests to gain the certification. We are forcing our schools to conform to these tests. Just like a central government mandating jobs for citizens to make a living, people don't have a choice, and there is no free will. There is nothing “free market” about this approach. If standardized tests are going to work, the focus must be on enticing students to take the tests willingly. |
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