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Quotation of the Day…

… is from page 716 of volume 2 of The Collected Works of Armen A. Alchian (2006); specifically, it’s from Alchian’s and William Allen’s 1968 Michigan Quarterly Review article, “What Price Zero Tuition?“:

Since the fiasco in the Garden of Eden, mankind has suffered from scarcity: there cannot be enough goods and services to satisfy completely all the wants of all the people all the time.  Consequently, man has had to learn the hard way that in order to obtain more of this good he must forego some of that: most goods carry a price, and obtaining them involves the bearing of a cost.

Armen Alchian was born 100 years ago today.  I have believed and have said now for decades that Alchian is history’s greatest natural microeconomist – or, more specifically, what we economists call a “price theorist.”  I generally avoid the term “price theorist” because one mark of any competent price theorist is the recognition that monetary prices are only one of the many manifestations of human cooperation and competition.  Competent price theorists understand that monetary exchanges are ultimately exchanges of real goods, services, opportunities, or resources; they understand that people can and often do accept payment in ways not mediated by money prices; they understand that people can and often do compete for scarce goods, services, resources, and opportunities in ways that do not involve monetary payments.  (Of course, competent price theorists also understand well how monetary prices are determined, what roles monetary prices play, and the consequences of artificial interference with the formation and fluctuation of monetary prices.)

To me, one of the most distressing realities of the current state of the economics profession is the high portion of professional economists who give no evidence of being competent in, much less good at, price theory.  Either these economists have not read, or they have not read carefully, Armen Alchian’s voluminous works, or they (for whatever reason) are unable to grasp his analyses.  Either way, this state of affairs is a shame.  No one matched Alchian’s ability to detect and explain clearly the many different ways that people compete for scarce resources and opportunities – ways deeply influenced by the details of prevailing property rights.

Alchian was that rare scholar who gave us a useful and user-friendly tool – “the economic way of thinking” – to better understand society without our having to pretend that society is simpler than it really is.  It is a thinking tool that, when used as Alchian used it, instills in its users appropriate awe of the market process and humility toward that process.