Alchian correctly identifies scarcity as the fundamental economic problem, but he could emphasize more strongly that this analysis is purely logical and deductive, not empirical. The science of economics derives from the axiom of human action and the logical implications that follow. Market prices are not just data points but expressions of subjective valuations through voluntary exchange. The cost concept Alchian presents—opportunity cost—is indeed fundamental, but we must remember it is subjective and can only be assessed by the acting individual.

The emphasis on choice under scarcity is well-placed, but Alchian's framing here doesn't fully capture the knowledge problem. The critical issue isn't merely that resources are scarce, but that knowledge of how to use them is dispersed throughout society. No central mind possesses the information necessary to make all these choices efficiently. The price system serves as a mechanism for communicating this dispersed knowledge. When Alchian discusses 'systematic consequences,' he should note that these emerge from decentralized decision-making, not from any conscious design.

While Alchian's definition is standard, it overlooks the crucial role of transaction costs in economic organization. The choice between alternative uses of resources doesn't occur in a frictionless vacuum. Real-world economic activity requires coordination, and this coordination has costs. These transaction costs determine whether resources are allocated through markets, within firms, or through other institutional arrangements. The 'systematic consequences' Alchian mentions depend critically on the institutional framework that governs exchange.

The price mechanism indeed coordinates action, but Alchian understates its foundation in private property and voluntary exchange. Prices aren't merely 'signals'—they are the outcome of real exchanges between property owners. Without secure property rights, the price system cannot function because there would be no basis for legitimate exchange. Furthermore, the 'automatic' operation Alchian describes depends on the absence of coercive intervention. Government price controls, subsidies, and regulations distort these signals, leading to systematic misallocation of resources.

Alchian here captures the essence of what I have called the price system's role as a communication device. Prices convey information that would be impossible to gather centrally. Each price change transmits information about scarcities and preferences throughout the economy, allowing economic actors to adjust their behavior appropriately without understanding the complete causal chain. This is the fundamental insight that socialist calculation cannot replicate—markets process information that could never be collected and analyzed by a planning board.

Alchian's account of prices is correct but incomplete. He focuses on prices in anonymous markets, but many economic decisions occur within organizations where prices play little direct role. Within a firm, resource allocation happens through managerial direction, not market prices. The question is: why? The answer lies in transaction costs. When the costs of using the price mechanism exceed the costs of organizational coordination, firms emerge. Alchian's analysis needs to explain not just how prices work, but when they work better than alternative coordination mechanisms.

Alchian properly distinguishes between monopoly as market dominance and monopoly as legal privilege, but he doesn't go far enough. The only meaningful monopoly is government-granted monopoly. A firm that achieves market dominance through superior service to consumers is not exploiting anyone—it is being rewarded for efficiency. The problem arises when government uses its coercive power to prevent competition, whether through licensing requirements, tariffs, regulations, or outright grants of exclusive privilege. These interventions create genuine monopolies by forcibly excluding competitors.

The emphasis on competition as a discovery process is exactly right. The perfect competition model fails to capture the essence of competition because it describes an end-state where all discovery has already occurred. Real competition is a procedure for discovering facts that would not be known without it—which suppliers can deliver at what price, which products consumers prefer, which production methods are most efficient. This process necessarily involves differentiation, innovation, and the kind of 'imperfect' conditions that textbook models treat as market failures.

Alchian's distinction between earned and protected monopoly is valuable, but the analysis needs more institutional detail. A firm's market position depends on the costs of entry, which in turn depend on factors like economies of scale, capital requirements, and regulatory barriers. Natural monopoly arises when one firm can serve the market at lower cost than multiple firms, typically due to large fixed costs. But even natural monopolies face competitive constraints from potential entry and substitute products. The real question is whether monopoly power persists because of genuine efficiency or because of barriers erected by government.

The emphasis on voluntary exchange and property rights is sound, but Alchian doesn't sufficiently emphasize that property rights must be derived from legitimate ownership. Property rights don't just exist because government declares them—they arise from the mixing of labor with unowned resources and from voluntary transfer. Government's proper role is to defend these natural property rights, not to create them arbitrarily. When government redistributes property or regulates its use, it violates the rights of legitimate owners and undermines the very foundation of beneficial exchange.

Alchian's point about the importance of clear property rights is crucial, but he could elaborate on how property rights economize on knowledge. Defined property rights allow individuals to make decisions about resource use without needing to consult others or obtain collective approval. Each owner can act on their local knowledge without requiring permission from those who don't possess that knowledge. This decentralization of decision-making is essential for utilizing the dispersed knowledge in society. Unclear property rights force collective decision-making, which cannot access this dispersed information.

Alchian correctly identifies property rights as foundational to exchange, and his emphasis on transaction costs is welcome. However, the analysis should go deeper into how property rights assignments affect resource allocation. When transaction costs are zero, the initial distribution of property rights doesn't matter for efficiency—resources will end up in their highest-valued use through voluntary exchange. But transaction costs are never zero, so the initial rights assignment does matter. Legal rules effectively allocate property rights in ways that minimize transaction costs and facilitate value-creating exchanges.