I suspect that the books don't circulate nearly as much as one would assume, too. Probably about as often per copy as when friends share books with each other (I know there are a few books in my personal library that have been passed around from friend to friend). Since the libraries purchase the books, the authors get compensated the same as they do when I buy a book and then lend it to friends.

But yeah, our library system is run on the local level. Lots of books are donated, as well, and the libraries can have big sales where you can buy older books from their collection on the cheap, with all funds going to support the library.