The foregoing discussion has been confined to the price system as it exists in capitalist economies. The communist countries have prices, but not autonomous price systems; in those countries the direction of economic activity is largely in the hands of the central authorities, and prices are used mainly as accounting devices. None of the three allocative functions of an economy—determination of what will be produced, of how it will be produced, and of who will get the product—is performed by the price mechanism in the socialist economies.

The relative scarcities that money prices measure exist, of course, in all countries and would exist in a world where no money or exchanges were allowed. Robinson Crusoe had a problem of allocating his time between sleep, garnering food, building shelter, etc.; and he confronted implicit costs of extending any one activity, for more food meant less of other things. The economist calls these implicit exchange ratios “shadow prices,” and they appear in all areas of life in which deliberate choices are made.

Price systems are therefore the result of scarcity. The basic proposition of economics, that scarcities are essentially ubiquitous, is often phrased as “there is no such thing as a free lunch”; and it reminds one that the price of the lunch may be future patronage, a reciprocal lunch, or a boring monologue. The task of economic organization is the task of devising price systems that allow a society to achieve its basic goals.

The classic work on the history of economic theory, particularly of value theory, is Joseph Schumpeter, History of Economic Analysis, ed. by Elizabeth Boody Schumpeter (1954, reissued 1986). Pioneering works on the informational role of the price system are presented in F.A. Hayek, Individualism and Economic Order (1948), in particular the essays “The Use of Knowledge in Society” and “Economics and Knowledge.” An excellent brief discussion can be found in George J. Stigler, Essays in the History of Economics (1965, reprinted 1987), especially essays 5, 6, and 12. Advanced works on modern value theory are J.R. Hicks, Value and Capital, 2nd ed. (1950, reissued 1974); and Paul A. Samuelson, Foundations of Economic Analysis, enlarged ed. (1983).

Major historical treatises include Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vol. (1776, reissued in 1 vol., 1991); and John Stuart Mill, Principles of Political Economy, 2 vol. (1848, reissued in 1 vol., 1994). Selected applied analyses include R.A. Radford, “The Economic Organization of a P.O.W. Camp,” Economica, 12:189–201 (1945), an account of the evolution of a cigarette-based price system; and Reuben A. Kessel, R.H. Coase, and Merton H. Miller (eds.), Essays in Applied Price Theory (1980).

Seminal works in the history of value theory include David Ricardo, On the Principles of Political Economy and Taxation (1817, reissued 1981); F.Y. Edgeworth, Mathematical Psychics (1881, reprinted 1967); Vilfredo Pareto, Cours d’économie politique, 2 vol. (1896–97); J.R. Hicks and R.D.G. Allen, “A Reconsideration of the Theory of Value,” Economica, New Series, 2 parts, 1:52–76,196–219 (1934); R.G.D. Allen, “Professor Slutsky’s Theory of Consumers’ Choice,” The Review of Economic Studies, 3:120–129 (1936); Carl Menger, Principles of Economics (1950, reissued 1981; originally published in German, 1871); Léon Walras, Elements of Pure Economics; or, The Theory of Social Wealth (1954, reprinted 1984; originally published in French, 1874); W. Stanley Jevons, The Theory of Political Economy, 5th ed. (1957); and Alfred Marshall, Principles of Economics, 9th ed., 2 vol. (1961), also discussing price.