Universal Economics is a successor to the authors highly regarded economics textbook
Exchange and Production: Competition, Coordination, and Control (1969; reprint,
Belmont, Calif.: Wadsworth, 1983). It is published under the editorship of Jerry Jordan,
former president of the Cleveland Fed, because the work on the book was interrupted
with the passing of one of the authors, Armen Alchian, in 2013 at the age of ninetyeight.
Universal Economics is a microeconomics textbook in the sense that it explains the
basic principles of how scarcity leads to competition for resources, how resources are
allocated through market prices, and how social coordination is achieved through
market exchanges. But it is unique among microeconomics textbooks in squarely
addressing the indispensable role of property rights, the significance of information (or
lack thereof), and the conundrum of teamwork. It is also unique among microeconomics
textbooks in incorporating interest rates as essential to capital valuation and
The coverage of Universal Economics is wide ranging. It has forty-two chapters
divided into four parts: part 1, Demand, Exchange, and Property Rights; part 2,
Specialization, Production, Teams, and Firms; part 3, Wealth, Rates of Return, and
Risk; and part 4, Employment and Inflation. A typical modern microeconomics
textbook relegates the topics of part 3 to finance, and the topics of part 4 to macroeconomics,
limiting itself to a subset of the topics covered in parts 1 and 2. Such a
typical microeconomics textbook leaves out some of the topics that are central to
Universal Economicsfor example, the role of property rights in enabling exchanges,
what difference alternative institutional arrangements make, and market solutions to the
problem of shirking and dependenciesrelegating them to industrial organization or
new institutional economics.
One of the most attractive features of Universal Economics is its step-by-step exposition
of economic principles, illustrated with examples in life and, where needed, with
simple numerical examples that are fully worked out to delineate implications. For example,
The Saga of Codelandia (chapter twenty-two) uses the example of a simple production schedule to illustrate some of the most important concepts in economics
individual production versus teamproduction; implications of innovation/discovery under
different institutional arrangements (economic democracy versus private property, nationalization
of private business, government control of enterprises); profit as a reflection
of business contribution to social output; profit versus quasi-rent; the question of
management competency in explaining the difference between the expected return from
the purchase of a business and actual return; the problem of opportunistic behavior on
dependencies arising from firm-specific investment; and the necessary association between
innovation/discovery and increase in inequality on the one hand and economic development
on the other. This is just one of many economic stories that Universal Economics tells to make economics sing.
In addition, lessons in each chapter are reinforced by a dozen or so end-of-chapter
questions and meditations (with suggested answers) for the student-reader to test his
or her comprehension of the chapters lessons. I believe that if readers patiently work
through the book (and perhaps reread it carefully), they can truly learn sound basic
economics and gain a sense of how they may use economic principles in everyday life.
That would be true not only for those who are studying economics for the first time but
also for many who call themselves economists. Universal Economics is a worthy successor
to Exchange and Production.
Universal Economics has retained the useful distinctions first introduced in Exchange
and Productionfor example, price takers and price searchers. The term market
clearing in place of market equilibrium is also retained. The book also introduces more
new terms. One example is personal worth in place of personal use value (used in Exchange
and Production) for the more typical term utility. So, in Universal Economics one
reads about total personal worth or marginal personal worth instead of total
utility or marginal utility. The most significant new term introduced in Universal
Economics is dependency. Early in the book, the authors introduce the concept of
dependence (meaning reliability) as an important consideration in exchanges within
the context of extensive social division of labor (pp. 5657). They elaborate the relevance
of the concept of dependence in subsequent chapters: Protecting Your Dependencies
(chapter 24) and Dependency Assurance by Reputation and Predictable
Price (chapter 25).
Universal Economics provides two useful chapters on the time value of money, illustrating
the concept with many examples. I see that the interest-rate tables, such as
Compound Future Value of Present $1 (chapter thirty), Present Value of $1 Received
at the End of Each Year (chapter thirty-one), and Uniform Annual Payments at End of
Each Year to Retire $1 of Debt (chapter thirty-one), are carried over from Exchange and
Production and fromthe authors even earlier book University Economics (Belmont,Calif.:
Wadsworth, 1964). No one pores over interest-rate tables anymore, though. Students can
easily use MS Excel or LiberOffice Calc to do the calculations.
Use of new (and somewhat idiosyncratic) terms is not in itself a problem for
learning economics from Universal Economics. All the terms used in the book are carefully defined, their use amply illustrated, and their meaning consistently maintained.
A person trying to learn economics for the first time, therefore, may in fact be delighted
by the simplicity of the jargon-free expositions of Universal Economics. However, the
new terminology may require some translation for those who have had prior exposure
to economics through other economics textbooks. For example, in observing that the
term market failures is a misnomer for phenomena arising from an absence of property
rights, Universal Economics suggests the possibility of rendering these types of situations
nonproblematic through private exchanges among property owners, if transaction costs
are not prohibitive. But this is done without any reference to the widely used Coase
Theorem. The omission is not necessarily a bad thing if ones main goal is not so much
to pick up economic lingo as to learn sound and useful economics. Overall, I regard
Universal Economics as one of the best, if not the best, economics textbooks from which
one can learn sound and useful economics.
Moreover, this more than seven-hundred-page, well-made book is available in
paperback at a bargain price of $14.50 (a typical principles-of-microeconomics textbook
currently sells for around $250). Exhibiting high quality for a low price, Universal
Economics is a value proposition difficult to beat.
But will the excellence of Universal Economics translate into success in the market
for textbooks? Not necessarily. Prime examples of how the excellence of an economics
textbook does not necessarily guarantee its success in the market are this books highly
esteemed predecessors, University Economics and Exchange and Production.
Success would be guaranteed if the consumerthe student or simply someone
who wants to learn economicswants the best value for his or her money. But in the
market for economic textbooks, the consumer is not the student but the instructor.
Why might this pose a problem, though? Doesnt the instructor want the best value for
When I began to teach economics in the mid-1980s, I adopted by chance Exchange
and Production, 3rd edition, for my principles-of-economics class. I must
confess that after consuming the limited economic diet of Hal Varians Microeconomics
Analysis (New York: Norton, 1979) in graduate school, I was glad I could finally
appease my hunger with Exchange and Production. I believe that I benefitted much
more than my students from teaching out of it. But soon Exchange and Production went
out of print.
Since then, I have experimented with dozens of popular economics textbooks. A
few are not so bad, but none of them compares to Exchange and Production in featuring
the centrality of property rights in exchange or the necessity of interest rates in profit
calculation or the complexity that team production introduces in firms.
All of the economics textbooks I have seen since reflect the publishers effort to
adopt the winning formula in the marketplacecolorful graphs and diagrams, formulaic
lessons for memorization and spoon-feeding, and the resources to make
teaching less burdensome for the instructor, such as the computerized test bank, Power
Point slides, online study guides, and online self-grading assignments and quizzes. To show that they are up to date, they also feature a description of the latest developments
in economics, such as experimental games and behavioral economics. One exception I
can think of is Paul Heynes The Economic Way of Thinking, 2nd edition (New York:
McGraw-Hill, 1977), inspired by University Economics.
The dominance and proliferation of economic textbooks adhering to the winning
formula are proof of what really works in the market for economics textbook, where the
consumer is not the student, but the instructor. Instructors decide which textbook they
want to use in class. The price of a textbook doesnt matter much because the students
(or their parents) pay, not the instructors. The content of the majority of microeconomic
textbooks is similar. The margin on which the instructors adoption decision rests
is convenience in teaching. Publishers supply all sorts of teaching supplements to make
teaching easier. These are the necessary conditions for commercial success (i.e.,
adoption in the classroom) in the economics textbook market.
Therefore, I predict that Universal Economics will develop a group of loyal followers,
as did Exchange and Production and University Economics, but it is not likely to
have the kind of market success that N. Gregory Mankiws Principles of Microeconomics (Boston: Cengage, 2017) has had, for example. The authors of Universal Economics most likely well understand the incentives in the market for economic textbooks. The
publisher, Liberty Fund, interested not so much in the books commercial success as in
making an excellent book available for a future generation of genuine students of
economics at a good price, may not at all regard the outcome a failure.