Market socialism

Market socialism is a term used to denote two different economic system(s) based in socialism which operate according to market principles. The first term relates to an economy directed and guided by socialist planners on either a local or state level, while the second refers to a system of free exchange with socialist organizations being predominant.^[1]

Theoretical history

The earliest models of this form of market socialism were developed by Enrico Barone (1908)^[2][3] and Oskar R. Lange (c. 1936).^[4] Lange and Fred M. Taylor^[5] proposed that central planning boards set prices through "trial and error," making adjustments as shortages and surpluses occurred rather than relying on a free price mechanism. If there were shortages, prices would be raised; if there were surpluses, prices would be lowered.^[6] Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production in order to prevent losses, which would eliminate the surplus. Therefore, it would be a simulation of the market mechanism, which Lange thought would be capable of effectively managing supply and demand.^[7]

A second form of market socialism is called by its proponents free market socialism because it does not involve planners.^[8] Pierre-Joseph Proudhon developed a theoretical system called mutualism, which attacks the legitimacy of existing property rights, subsidies, corporations, banking, and rent. Proudhon envisioned a decentralized market where people would enter the market with equal power, negating wage slavery.^[9] Proponents believe that cooperatives, credit unions, and other forms of worker ownership will become viable without being subject to the state. Market socialism has also been used to describe some individualist anarchist works^[10] which argue that free markets help workers and weaken capitalists.

HD Dickinson published two articles proposing a form of market socialism: Price Formation in a Socialist Community (The Economic Journal 1933) and The Problems of a Socialist Economy (The Economic Journal 1934). Dickinson proposed a mathematical solution whereby the problems of a socialist economy could be solved by a central planning agency. The central agency would have the necessary statistics on the economy, as well as the capability of using statistics to direct production. The economy could be represented as a system of equations. Solution values for these equations could be used to price all goods at marginal cost and direct production. Hayek (1935) refuted the proposal to simulated markets with equations. Dickinson (1939) adopted the Lange-Taylor proposal to simulate markets through trial and error.

The Lange-Dickinson version of market socialism kept capital investment out of the market. Lange (1926 p65) insisted that a central planning board would have to set capital accumulation rates arbitrarily. Lange and Dickinson saw potential problems with bureaucratization in market socialism. According to Dickinson “the attempt to check irresponsibility will tie up managers of socialist enterprises with so much red tape and bureaucratic regulation that they will lose all initiative and independence" Dickinson 1938 p214). In the Economics of Control (1944) Abba Lerner admitted that capital investment would be politicized in market socialism.

Although the name is similar, it markedly differs from the socialist market economy which is practiced within the People's Republic of China in its form of socialism with Chinese characteristics. Within a socialist market economy, much of industry is state owned, but prices are not set by a central planning board.

Proponents of market socialism argue that it combines the advantages of a market economy with those of socialist economics. Economist John Roemer (who developed 'Coupon Socialism') and philosopher David Schweickart, whose version of market socialism is called "Economic Democracy," are two separate advocates of socialist market.

Bardham and Roemer suggested a form of Market Socialism where there was a 'stockmarket' that distributed capital fairly between the workers. In this stockmarket, there is no buying or selling of stocks, which leads to negative externalities associated with a concentration of capital ownership. The Bardham and Roemer model satisfied the main requirements of both Socialism (workers own all the factors of production - not just labour) and market economies (prices determine efficient allocation of resources). A New Zealand Economist, Steven O'Donnell, expanded on the Bardham and Roemer model and decomposed the capital function in a general equilibrium system to take account of entreprenurial activity in market socialist economies. O'Donnell (2003) set up a model that could be used as a blueprint for transition economies, and the results suggested that although market socialist models were inherently unstable in the long term, in the short term they would provide the economic infrastructure necessary for a successful transition from Socialist to market economy.

Theoretical basis

The key theoretical basis for market socialism is the negation of the underlying expropriation of surplus value present in other, exploitative, modes of production.

An important base for the first definition of market socialism in economic theory is the Lange Model, which states that an economy in which all production is performed by the state, but in which there is a functioning price mechanism, has similar properties to a market economy under perfect competition, in that it achieves Pareto efficiency.

Other uses of the term

Market socialism has also been used as a name for any attempt by a Soviet-style economy to introduce market elements into its economic system. In this sense, "market socialism" was first attempted during the 1920s in the Soviet Union as the New Economic Policy (NEP), but soon abandoned. Later, elements of "market socialism" were introduced in Hungary (where it was nicknamed "goulash communism"), Czechoslovakia and Yugoslavia (see Titoism) in the 1970s and 1980s. Modern Vietnam and Laos also describe themselves as market socialist systems. The Soviet Union attempted to introduce a market socialist system with its perestroika reforms under Mikhail Gorbachev.

Historically, these kinds of "market socialist" systems attempt to retain government ownership of the commanding heights of the economy, such as heavy industry, energy, and infrastructure, while introducing decentralised decision making and giving local managers more freedom to make decisions and respond to market demands. Market socialist systems also allow private ownership and entrepreneurship in the service and other secondary economic sectors. The market is allowed to determine prices for consumer goods and agricultural products, and farmers are allowed to sell all or some of their products on the open market and keep some or all of the profit as an incentive to increase and improve production.

The Chinese experience with socialism with Chinese characteristics is frequently referred to as a 'Socialist Market Economy' in which the 'commanding heights' remain in public ownership, but a substantial portion of the economy is governed by free market practices, including a stock exchange for trading equity.

See also

• Mutualism
• Lange Model

References

1. ^ "Socialism" Encyclopædia Britannica. 2006. Encyclopædia Britannica Online.
2. ^ F. Caffé (1987), "Barone, Enrico," The New Palgrave: A Dictionary of Economics, v. 1, p. 195.
3. ^ Enrico Barone, "Il Ministro della Produzione nello Stato Collettivista", Giornale degli Economisti, 2, pp. 267-293, trans. as "The Ministry of Production in the Collectivist State," in F. A. Hayek, ed. (1935), Collectivist Economic Planning, pp. 245-90.
4. ^ Robin Hahnel (2005), Economic Justice and Democracy, Routlege, p. 170
5. ^ Fred M. Taylor (1929). "The Guidance of Production in a Socialist State," American Economic Review, 19(1), pp. 1-8.
6. ^ Mark Skousen (2001), Making Modern Economics, M.E. Sharpe, pp. 414-415.
7. ^ János Kornai (1992),The Socialist System: the political economy of communism, Oxford University Press, p. 476.
8. ^ Mutualist Blog: Free Market Anti-Capitalism: "J.S. Mill, Market Socialist"
9. ^ Mutualist Blog: Free Market Anti-Capitalism: Eugene Plawiuk on Anarchist Socialism
10. ^ Murray Bookchin, Ghost of Anarcho-Syndicalism
    Robert Graham, The General Idea of Proudhon's Revolution)

• Tadeusz Kowalik (1987). "Lange-Lerner mechanism," The New Palgrave: A Dictionary of Economics, v. 3, pp. 129-30.
• Joseph Stiglitz, Whither Socialism, MIT Press, ISBN 0-262-19340-X.
• Bertell Ollman ed. (1998). Market Socialism: the Debate Among Socialists, with other contributions by James Lawler, Hillel Ticktin and David Schewikart. Preview.
• Steven O'Donnell (2003). Introducing Entreprenurial Activity Into Market Socialist Models, University Press, Auckland
• John E. Roemer et al. (E. O. Wright, ed.) {1996). Equal Shares: Making Market Socialism Work, Verso.

External links

• Market Socialism: the Debate Among Socialists, edited by Bertell Ollman, also with contributions by James Lawler, Hillel Ticktin and David Schewikart.
• Hillel Ticktin, Marxist Method 1-3, 'Documents' page, Studies in Anti-Capitalism.

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