Table Of ContentFOUNDATIONS
OF THE
MARKET-PRICE
SYSTEM
UNIVERSITY
PRESS OF
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Copyright ©1985 by
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ISBN (Perfect): 0-8191-4543-2
ISBN (Cloth): 0-8191-4542-4
Copyright 1974 by Milton M. Shapiro
Originally published by California State Polytechnic University,
Pomona, California
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TO MY PARENTS
Baruch and Rivkah,
who gave me life
and
TO MY FAMILY
Jeanne, Johanna and Arthur,
who fulfill that life.
iii
IV
ACKNOWLEDGMENTS
First, intellectual debts. The greatest of
them, and most gratefully acknowledged, are to those
thinkers who helped create, shape, and nourish the
Austrian tradition in economics. Chief among these men
are Ludwig von Mises and Friedrich A. Hayek—who never
lost sight of the bridges linking economics with the
other sciences of human action—and Murray N. Rothbard
and Israel, M. Kirzner, current regenerators of the
tradition and innovators on their own. The Austrians
have taught us to view man as a whole person and not as
mere "economic man" geared to a materialist calculus,
nor as a figment of abstract mechanical constructs—that
is, man in his total reality instead of the fore-
shortened reality viewed through the prism of mathe-
matical models. Thus they have treated economics as but
one facet of the general science of human action.
In this connection I must also mention the late
Professor Clyde W. Phelps, who fortunately turned me on
to the Austrians in the first place during the final
years of my graduate studies, and Henry Hazlitt, whose
works feature tributes to the Austrians. Also, like an
oasis in the desert was the Foundation for Economic
Education, Irvington-on-Hudson, N.Y., whose monthly
The Freeman has featured works by the Austrians and on
the free-market system, and whose inspired president,
the late Leonard E. Read, made sure there was always
enough water to refresh the "remnants."
Other intellectual debts are no less noteworthy.
Important insights were provided by Armen A. Alchian and
William R. Allen in their pathbreaking texts, Univer-
sity Economics and Exchange and Production. Other of
these debts are expressed in my references throughout
these pages, while still other debts may regretfully go
without specific acknowledgement owing to infirmities of
memory.
Gratitude of another sort is extended to those
who took time out to review early drafts, particularly
Professors Rothbard, Alchian, and Ludwig M. Lachmann.
Needless to say, none of the above can be held respon-
sible for any misinterpretation or misuse of their work
on my part.
On a more practical level, this book would not
have been possible without creative and Sabbatical
leaves granted by the California State Polytechnic
University, Pomona, nor without fellowships and grants
from the Institute for Humane Studies, Menlo Park. At
the Institute it was my good fortune to receive from the
outset the personal encouragement of the late Floyd A.
Harper, as well as Kenneth S. Templeton, Jr., both of
them dedicated spokesmen for liberty and property rights
in a humane society, as well as promoters of research
and writing on the free market.
In a similar vein, I am most grateful to the
directors of the University Press of America reprint
program for their recognition of this book's merits and
for this opportunity to reach a much wider audience.
Finally, but no less deserving of recognition
are Karen Meade, for her typing skills and editorial
acumen, and Robert M. Marvos, for his bold graphics.
vi
CONTENTS
Acknowledgments v
Contents vii
Tables and Figures ix
Tables ix
Figures ix
Preface xi
Introductions to Chapters xvii
Chapters:
I. How Can People Get By? 1
II. Scarcity—the Basic Economic Problem 9
III. Division of Labor and the Origin of Money.. 31
IV. Production, Income, and Economic Growth.... 59
V. Scarcity and Individual Choice 81
VI. The Demand Side of the Market 115
VII. Price-Elasticity of Market Demand 145
Appendix: The Coefficient of Elasticity 177
VIII. How the Market Determines Prices 179
Appendix: Will the Real Supply Stand Up?.. 229
IX. Profits — and Other Incomes 235
X. The Consumers' Sovereignty Problem 279
Appendix: The Galbraith Effect.., 312
XI. Competition: "Perfect" vs. Real 319
For Further Reading 373
Index 383
vii
viii
TABLES AND FIGURES
Tables
I. Demand for Gasoline 129
II. An Increase in Demand for Gasoline 133
III. Compound Interest on One Dollar 247
IV. Present Discounted Value of a
Future Dollar 248
V. Present Discounted Value of a
One-Dollar Annuity 262
VI. Marginal Revenue 344
Figures
1. Scarcity Implies Production 15
2. Relations Between Households and Firms 18
3. Production is the Source of Income 21
4. The Firm As Intermediary 22
5. Basic Elements of the Market-Price System.... 24
6. "Non-Income" Sources of Purchasing Power 26
7. Effect of a New Technique of Production
on Profit-Margin 70
8. Demand for Gasoline 128
9. Different Degrees of Elasticity of Demand.... 131
10. Shifts in the Demand Schedule 134
11. Elasticity of Demand in the Case
of a Price Cut 148
12. Elasticity of Demand in the Case
of a Price Increase 153
13. Degrees of Elasticity Preferred
by the Firm 156
14. Price-Changes and Price-Elasticity
of Demand 159
15. Availability of Substitutes and
Elasticity of Demand 161
16. Preference-Ranking and Elasticity
of Demand 167
17. Social Income-Structure and
Elasticity of Demand 170
18. The Ex-Post Supply Schedule 181
19. Demand, Supply, and Market-Price 185
20. Surpluses, Shortages, and Selling Prices 187
21. Supply Restriction and Shortages 189
22. Surplus, Shortage, and Quantities
Supplied 197
IX
