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The Free Market and Scientific Research

The Federal Government Increasingly Crowds Out Private Investment and Philanthropic Giving

MAY 01, 1998 by AARON STEELMAN

Aaron Steelman is staff writer at the Cato Institute.

Opponents of classical liberalism frequently argue that if scientific research is to be done, it must be done by the state. Private organizations, it is claimed, are too myopic to conduct research that frequently has no immediate value.

That attitude has manifested itself recently in discussion over AIDS research. President Clinton has called the development of a vaccine for AIDS “a new national goal for science,” one comparable to John F. Kennedy’s call for the United States to put a man on the moon. And AIDS activist Wayne Turner has urged the president to do even more, arguing that “great American presidents have mobilized resources in times of national crisis.”

But is such rhetoric reasonable? Is it true that the private sector is incapable of funding scientific research? The historical evidence suggests that the answer is no. In fact, the private sector has been responsible for some of mankind’s most important scientific breakthroughs.

  • In the 1780s Edward Jenner, an English country doctor, began work on a vaccination for smallpox. After more than a dozen years of experiments funded entirely out of his own pocket, he found one. Jubilant, Jenner wanted to share his discovery with a public that had been terrorized by the dreaded disease. He approached the Royal Society of London, hoping that the government-sponsored group would publish the results of his work. He was turned down, told that the concept was too revolutionary and the evidence weak.1 So he decided to publish the work himself. Appearing in 1798, An Inquiry into the Causes and Effects of Variolae Vaccinae quickly became one of the most important books of its kind. In addition to helping slow the spread of smallpox, the book sparked research into vaccinations for a number of other ills.
  • In the late 1880s Henry Mulford purchased the “Old Simes” drugstore in Philadelphia. Shortly after he acquired the business, he became bored and decided to enter pharmaceutical development, as did more than 140 other firms in Philadelphia during that period. Although H.K. Mulford Company, as it came to be called, was not initially profitable, Mulford and his investors carried on, and in 1894 they asked Dr. Joseph McFarland of the University of Pennsylvania to join the company. McFarland required a monthly salary of $100. Although money was tight and the company needed to sell 100 shares of stock to finance McFarland’s research, the board of directors agreed. McFarland’s first project was to develop a diphtheria antitoxin. He accomplished his goal within a year; in the early summer of 1895 Mulford was able to offer for sale the first commercial diphtheria antitoxin produced in the United States. The breakthrough was, as historians Louis Galambos and Jane Eliot Sewell have written, “a credit to an entrepreneurial firm.”2
  • The discovery of the structure of DNA was largely a product of private action. As Terence Kealey reports in his outstanding book, The Economic Laws of Scientific Research, O.T. Avery, while working on a cure for pneumonia at the privately funded Rockefeller Institute in the 1940s, became the first person to learn that DNA was the molecule of inheritance. “Once Avery had discovered the importance of DNA,” Kealey writes, “the subsequent development of molecular biology was inevitable—thus the discovery of the structure of DNA in 1953 became a race between three teams, Linus Pauling’s in Cal Tech, Watson and Crick in Cambridge, and Franklin and Wilkins in London.”3
  • Max Delbrück also considered the financial assistance he received from the Rockefeller Foundation to be critical. He began his career as a physicist but switched to genetics in the mid-1930s, eventually earning the Nobel Prize in medicine for his work on the genetic structure of viruses. “Without the encouragement of the Rockefeller Foundation in 1937 and their continuing support through the mid-forties,” Delbrück said, “I believe I would hardly have been able to make my contributions to biology.”4
  • The Rockefeller Foundation was instrumental in bringing penicillin to the market as well. Penicillin had been discovered in 1928 by English scientist Alexander Fleming, but most scientists—including Fleming—believed that it was an unstable substance and doubted its medicinal value. Nevertheless, Oxford researchers Howard Florey and Ernst Chain continued to explore its practical applications, and in early 1939 they applied to the government-run Medical Research Council in England for funding. Their request was rejected, so they turned to the Rockefeller Foundation. Florey, writes Gwyn Macfarlane, “decided to appeal to them for a grant that would support his penicillin research for three years. He asked, in November 1939, for £1,670 per annum for salaries and recurrent expenses and £1,000 for the initial cost of equipment, and he got even more than he asked for, since the Foundation gave him grants for five years. Chain and Florey were naturally elated. With financial worries allayed they could attack the real problem—the production, purification and testing of penicillin—from every available angle.”5 Less than two years later, Chain and Florey had completed their work, and Merck was producing penicillin for both the English and American markets. Chain and Florey shared the Nobel Prize with Fleming in 1945.
  • While polio has nearly been eradicated in the United States, it once was a very serious problem. In the early 1950s, on average, more than 300 new cases were reported each week; for some weeks, the figure rose to more than 2,500. And in a poll during that period, more than 60 percent of Americans said that they knew someone afflicted with the disease.6 Thanks to private organizations like the National Foundation for Infantile Paralysis, however, victims of polio received medical care, and beginning in the mid-1950s nearly all Americans were protected from the disease by vaccine. In her book Patenting the Sun: Polio and the Salk Vaccine, Jane S. Smith reports: “Operating without an endowment or a wealthy patron, the National Foundation raised enough money every year to pay for the hospital and rehabilitation costs of any polio patient who needed help.” Moreover, she states, “In its heyday in the early 1950s the privately supported and administered Foundation spent ten times as much on polio research as the tax-supported National Institutes of Health.”7

    In 1954 such funding led to the development of a vaccine effective against all three varieties of the polio virus. Galambos and Sewell write: “Much in the style of the large wartime projects, the undertaking sponsored in the early 1950s by the Technical Committee of the National Foundation for Infantile Paralysis had the goal of developing a killed-virus vaccine for polio.” They add that the “primary difference between the polio campaign and the wartime ventures was that the polio effort was coordinated by a private foundation and not by the federal government.”8

    Particularly notable is that the National Foundation was not atypical; in the first quarter of this century more than 75 groups were established to raise money to combat specific diseases. For example, the National Tuberculosis Association, the American Cancer Society, the National Society for Crippled Children (now the Easter Seal Society), and the American Heart Association all emerged between 1904 and 1924, years before the federal government became heavily involved in health issues and medical research.9

  • As late as the mid-1960s, few scientists thought that an effective vaccine for pneumonia could be developed, and as a result, the U.S. government spent essentially no funds on the disease.10 Nevertheless, two researchers at Merck, Maurice Hilleman and Robert Austrian, believed that it was possible to produce a vaccine. In 1970, without government support, they began working on the project, and in 1973 they tested their product, which proved effective in more than 90 percent of test cases. In 1977 Merck began selling the vaccine, named Pneumovax. The research that led to the development of Pneumovax was also critical in the development of a vaccine for bacterial meningitis.11

As these examples demonstrate, the private sector is more than capable of conducting important and valuable scientific research. However, today private groups face an important competitor—the federal government—that increasingly crowds out investment and philanthropic giving. Writing in 1950, H.M. Marvin, former president of the American Heart Association, argued: “What are we to say, for example, to the intelligent citizen who expresses the honest conviction that the Federal Government should assume the entire responsibility in such fields as cardiovascular diseases, cancer, tuberculosis and mental health? We must face realistically the fact that people with small, moderate, or large incomes are so variously and heavily taxed today that most of them are not only willing but eager to have the government pay for all possible activities out of those taxes.”12 Such a statement is even more true today than when Marvin penned it nearly 50 years ago. If Americans wish to see a renaissance of scientific discovery and innovation, then they must demand that the state sector retreat and allow the private sector to assume its historic role.


  1. Joel N. Shurkin, The Invisible Fire: Mankind’s Victory over Smallpox (New York: Putnam, 1979), p. 139.
  2. Louis Galambos and Jane Eliot Sewell, Networks of Innovation: Vaccine Development at Merck, Sharp & Dohme, and Mulford, 1895–1995 (New York: Cambridge University Press, 1995), p. 17.
  3. Terence Kealey, The Economic Laws of Scientific Research (New York: St. Martin’s Press, 1996), p. 218.
  4. Quoted in Robert Olby, The Path to the Double Helix (Seattle: University of Washington Press, 1974), p. 443.
  5. Gwyn Macfarlane, Alexander Fleming: The Man and the Myth (Cambridge, Mass.: Harvard University Press, 1984), p. 172.
  6. David L. Sills, The Volunteers: Means and Ends in a National Organization (Glencoe, Ill.: Free Press, 1957), pp. 123–28.
  7. Jane S. Smith, Patenting the Sun (New York: Morrow, 1990), p. 64.
  8. Galambos and Sewell, p. 59.
  9. Smith, p. 69.
  10. At this time, pneumonia was still the fourth leading cause of death in the United States. Barbara Gutman Rosenkrantz, From Consumption to Tuberculosis: A Documentary History (New York: Garland, 1994), p. 5.
  11. Galambos and Sewell, pp. 161–79.
  12. Quoted in Richard Carter, The Gentle Legions (New York: Doubleday, 1961), p. 20.

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