Market socialism

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Market socialism is a term used to define a number of economic system(s) in which there is a market economy directed and guided by socialist planners.[1] The earliest model of market socialism was developed by Oskar R. Lange (c. 1936).[2] Lange and Fred M. Taylor 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.[3] 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.[4]

Proponents of market socialism argue that it combines the advantages of a market economy with those of socialist economics. Others argue that the theory is fundamentally contradictory to orthodox Marxism and oppose the theory on the grounds that it "yearns for the impossible: commodities without capital, capital without exploitation, money without speculation. In short, Utopia." [1]

However Marx stated the exact opposite. Marx stated that money and commodities exist outside capital, writing that, "In themselves money and commodities are no more capital than are the means of production and of subsistence. They want transforming into capital." [Marx, K., The Secret of Primitive Accumulation, being Ch. XXVI, Capital Vol. 1, p668 in Progress Publishers' 1977 reprint].

Marx differentiated money, commodities, labour, wealth and value from capital and capitalist production. He stated in Chapter XVI, Absolute and relative Surplus Value, that;

"Capitalist production is not merely the production of commodities, it is essentially the production of surplus value" [Pg 477 in Progress Publishers' 1977 reprint].

He also maintained this view in his analysis of the export of capitalism to Australia under the Wakefield Plan.

Based on his theory of circulation, it would appear that Marx was a market socialist [see Marx, K., "Money, Or The Circulation of Commodities", being Ch. III, Capital Vol. 1, pg 113-115 and fn. pg 115]. In particular, Marx identified the market as 'the scene of action' for commodity exchange [pg 107].

Proponents of market socialism include economist John Roemer (who developed the interesting if overly complicated 'Coupon Socialism') and the philosopher David Schweickart, whose version of market socialism is called "Economic Democracy".

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 market socialism in economic theory is the Lange-Lerner-Taylor theorem, 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 socialism"), 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 has been described by some as another case of market socialism.


  1. "Socialism" Encyclopædia Britannica. 2006. Encyclopædia Britannica Online.
  2. Economic Justice and Democracy, by Robin Hahnel, Routlege 2005, page 170
  3. Making Modern Economics, by Mark Skousen, M.E. Sharpe 2001, pages 414-415
  4. The Socialist System: the political economy of communism, by János Kornai, Oxford University Press 1992, page 476
  • Whither Socialism, Joseph Stiglitz, MIT Press, ISBN 0-262-19340-X.
  • Market Socialism: the Debate Among Socialists, edited by Bertell Ollman, also with contributions by James Lawler, Hillel Ticktin and David Schewikart.
  • Equal Shares: Making Market Socialism Work, John E. Roemer et al. (E. O. Wright, ed.), Verso, 1996.