The evolution of the two-sector theory of public and private colleges in the American system of higher education is discussed. The analysis covcrs developments from the colonial period to the present. The granting of a charter to the college and creation of a board of trustees were critical moves that signified the mixed public/private nature of the college. The alliances between government and colleges that had developed during the colonial period continued into the national period. The efforts of the states to become more directly involved in the management of the established institutions and the efforts to develop new state or public institutions are considered. The role of colleges as the colonies established themselves as states and wrote new constitutions is examined. During the second quarter of the nineteenth century the two sectors began to take on identifiable characteristics. The several states had created "literary funds," in large part as a result of the federal land grants, and older colleges competed with common schools for state monies. Other colleges were also being established, both independent and state-linked. Demands were also growing for education emphasizing the practical and less on the classics that still dominated the older colleges. Distinctions between public and private sectors increased in particular in the last quarter of the nineteenth century. Developments in specific states, including the role of the state in higher education, are traced. It is suggested that a diversity of institutions is important in the United States. (SW)