Exchange and Production is a textbook that is unique in economics. It is much more literary and humorous than any other modern economics textbook that deals with complex issues for an undergraduate audience. Example: “Since the fiasco in the Garden of Eden, most of what we get is by sweat, strain, and anxiety.” It also welcomes controversy rather than shying away from it, in the process daring the reader to disagree.
Because of its literary quality and complexity, the textbook generally did not work with undergraduate or even M.B.A. classes. But its impact was out of all proportion to its sales. Many graduate students, particularly at the University of California at Los Angeles, where Alchian began teaching in 1946, and at the University of Washington (where Alchian student Steven Cheung taught), learned their basic economics from this book. Some of the University of Washington students went on to write best-selling textbooks that made many of Alchian and Allen’s insights more understandable to an undergraduate audience. Alchian and Allen’s textbook was truly a public good—a good that created large benefits for which its creators could not charge. And while Alchian played the role of selfish cynic in his class, some who studied under him had the feeling that he put so much care and work into his low-selling text—and into his students—because of his concern for humanity.
“Before condemning violence (physical force) as a means of social control, note that its threatened or actual use is widely practiced and respected—at least when applied successfully on a national scale. Julius Caesar conquered Gaul and was honored by the Romans; had he simply roughed up the local residents, he would have been damned as a gangster. Alexander the Great, who conquered the Near East, was not regarded by the Greeks as a ruffian, nor was Charlemagne after he conquered Europe. Europeans acquired and divided—and redivided—America by force. Lenin is not regarded in Russia as a subversive. Nor is Spain’s Franco, Cuba’s Castro, Nigeria’s Gowon, Uganda’s Amin, China’s Mao, our George Washington.”
Armen A. Alchian
Armen Albert Alchian (1914) is an American economist and an emeritus professor of economics at the University of California, Los Angeles (UCLA).
In 1946, he joined the Economics Department at UCLA, where he spent the rest of his career. For many years, he was affiliated with the Rand Corporation. In 1996, he became a Distinguished Fellow of the American Economic Association.
Alchian is the founder of the "UCLA tradition" in economics, a member of the Chicago School of Economics, and one of the more prominent price theorists of the second half of the 20th century. He is the author of pathbreaking articles on information and uncertainty, and the theory of the firm. Through his writings on property rights and transition costs, he is a founder of the new institutional economics. A surprising fraction of Alchian's writings have touched on topics conventionally viewed as macroeconomic: money, inflation, unemployment, and the theory of business investment. His writings are characterized by lucid witty exposition and a minimum of mathematical formalism.
Alchian is the coauthor (with William Allen) of the curious and influential introductory economics text Exchange and Production. This was the first American introductory text to discuss information, transaction costs, property rights, and a market economy as a discovery process. This text also contains the classic statement of what has come to be known as the Alchian-Allan Theorem. This proposition, colloquially known as "ship the good apples out," states that when output varies in quality, the lower quality output is consumed nearby while the higher quality output is shipped long distances. The reason is simple: transportation costs vary with the weight and bulk, but not the quality, of that which is transported. The added per-unit amount decreases the relative price of the higher-grade product.
William R. Allen
William R. Allen has labored primarily in the scholarly fields of international economics, monetary economics, and the history of economic theory. He has educated the public through his popular writings and radio work as “the Midnight Economist.” After serving in the Army Air Corps, he obtained his A.B. (1948) from Cornell College and Ph.D. (1953) from Duke University. He taught at Washington University prior to joining the UCLA faculty in 1952. Like the economists interviewed in the present paper, he has worked for government as consultant to the Balance of Payments Division of the Department of Commerce. He has received teaching awards from theUCLA Alumni Association, the Western Economic Association, and the Freedoms Foundation at Valley Forge. He has been Vice President and President of the Western Economic Association, Vice President of the History of Economics Society, and Vice President and a member of the Executive Committee of the Southern Economic Association. Among his many publications is his University Economics, coauthored with Armen Alchian. From 1978 to 1992 more than 200 radio stations carried daily broadcasts of “the Midnight Economist” written and delivered by Allen. He has been Chair of theUCLA Department of Economics, President of the International Institute for Economic Research, Vice President of the Institute for Contemporary Studies, and Associate of the Reason Foundation.