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This is also something addressed in Lyotard's book "Postmodern Condition"; the federal funding was more of the "end" than the "beginning", in the sense that it was when the purpose of the university became "output", rather than something else.

He presents two alternatives for "what is the purpose of academia?" that date back to the 19th century and earlier. On the one hand, is the "German" approach, of "the great encyclopedia of knowledge", where the universities steward research for its own sake, to discover truths about the world. The other hand is the "French" approach, where the goal of the university was to produce well-rounded, educated citizens. He argues that both of these goals are effectively obsolete, and what now matters is "performativity", i.e. producing "value".

My sense is that the immense military funding signals the initial shift, especially since the fundamental nature of the university changed so much as a result of mass admissions after the GI bill. No longer was it a sort of "special" place for intellectuals; now everybody goes to college, so these older, more "romantic" goals become problematized.