Oskar Lange's Market Socialism
Kowalik, Tadeusz
Oscar Lange is known in the West, above all, as the author of the classical and widely criticized model of markt socialism. An enormous amount has been written about this model, some of it...
...But this was clearly only part of the explanation...
...The Polish Background Lange grew up in the western part of the region that had been partitioned by Russia...
...The public bank would be obliged to provide investment loans to enterprises if warranted by the growth in employment...
...Later he spent more than twenty years in the bastion of modern capitalism, the United States...
...It stems from the great movement toward socialist democracy, which has permeated the country, from the setting up of workers' self-management, from the renewal of the self-governing cooperative movement, from the search for new forms of self-management and of social initiative among farmers.'° Second, there was a theoretical reason for Lange's change of mind...
...One possible answer is that bureaucratic power elites, protecting their vested interests, have successfully opposed such a system...
...Lange viewed the administrative system of economic planning and management in the Soviet Union as the result of the economy's subordination to political goals—the waging of war on two fronts: war against imperialism and civil war against technological and economic backwardness...
...One of these was purely human—Lange's fear for his own life...
...After returning to Poland in 1948, he linked his fate to the creation and then reform of the communist system...
...At the same time, Lange implicitly abandoned— at least in relation to the United States—his views of the 1930s regarding the unreformability of capitalism...
...Defining the Soviet economy as a kind of war economy, Lange believed that after winning both wars, and given conditions of international peace and cooperation, the Soviet Union would abandon administrative coercion in favor of an economy based on market mechanisms...
...This will ensure that the socialist economy will produce goods according to intensity of demand...
...The private sector, he wrote, gives the entire economy "a pliability and flexibility as well as an adaptive capability that private initiative alone can give...
...He produced largely for distant eastern markets, and when access to The Story of an Intellectual-Political Career these was cut off, the Lange family became impoverished...
...All prices were to be determined by the market...
...Sometimes he linked his fate to socialist revolution in the West...
...2 Oscar Lange and Fred M. Taylor, On the Economic Theory of Socialism, edited and with an introduction by B. Lippincott (McGraw-Hill, 1964), p. 109...
...6 Oscar Lange and Fred M. Taylor, On the Economic Theory of Socialism, p. 110...
...His father came from a family of assimilated German industrialists who had settled in Poland at the beginning of the nineteenth century and personified the "enclave" capitalism of a backward country...
...the latter was envisaged as a substitute for the free-entry rule in a private, competitive economy...
...Only such a radical change appeared to offer an effective means of eliminating poverty and backwardness...
...A complete answer to this question would demand a separate article, if not an entire book...
...The main problems were the semifeudal structure of agriculture, with its latifundia on the one hand 86 • DISSENT Market Socialism and the hidden unemployment of many millions on the other...
...8 In many of his writings, Lange expressed his concern to reduce further the scope of central administrative intervention in the economy...
...This may be better than trying to rehash old stuff.' It is baffling, then, that the surviving list of fifteen chapters of the book that he then began to write contains not a single chapter entitled "socialism" or "the socialist economy...
...What was it that caused Lange to consider his classical work "old stuff "? Toward the Model of a Mixed Economy Probably the most important factor that caused him to change his views was his encounter with America...
...The actual functioning of the future economy was to be equally simple and intelligible...
...In a book that Lange wrote with Abe Lerner, The American Way of Doing Business (1944), all references to socialism were reduced to demands for the socialization of the largest corporations and for policies that would increase social welfare...
...In the Hungarian model, the center had the power to decide the scale of investment and to determine most prices on the basis of its own preferences...
...What is now happening in Hungary with respect to detailed microregulation is not an accident...
...Party officials have intervened in both these institutions so frequently and to such a degree that "political investment" and "political prices" have become common phenomena...
...Translated from the Polish by JANE CAVE q Notes Janos Komai, "The Hungarian Reform Process: Visions, Hopes, and Reality," Journal of Economic Literature (December 1986):1,727...
...First, Lange had come to the conclusion that the visions of would-be reformers are worth little when compared with social experience...
...that market mechanisms ought to be a tool in the hands of central planners and that their operation should be subordinated to the need to determine consciously the direction of economic development...
...The greatest of these was the International Conference on Economic Cooperation, which Lange organized in Moscow in 1952, at the height of the cold war...
...At first, Lange accepted the offer, promising to rewrite two chapters and add one on full employment...
...Of course, he was not certain that he was right...
...Stalinism would thus dig its own grave by giving birth to social forces that would destroy the dictatorship of the bureaucracy and democratize the system...
...On the other hand, the public bank in the Lange-Breit model had no price-setting powers whatsoever, not even in relation to capital goods...
...6, 1987, p. 324...
...The proposals for a transition period, as well as the organization and functioning of a socialist economy, set out in this section foreshadowed Lange's classic work on socialism...
...Other political parties were allowed to function, including the Polish Socialist party, with Lange as one of its ideologists...
...For simplicity, Lange assumed the existence of a public sector alone and ignored the private sector...
...The first edition was no longer available...
...Lange's entire life was an exceptionally productive one, but his years in the United States were particularly rich in scholarly and sociopolitical activities...
...They considered that the latter was based largely on popular enthusiasm and on appeals from the leadership, which did not hold out the prospect of efficient functioning in the long run...
...To many Western specialists, Yugoslavia is more reminiscent of "the type of liberal market economy envisioned by Adam Smith than is the case in any country of Western Europe...
...Let us try to answer this question as briefly as possible...
...Hungarian economists (especially Janos Kornai) have shown that even in the best period of the Hungarian reform of 1968, market mechanisms were more a passive than an active tool of the central planning agency and were subordinated to its preferences...
...There is some truth to this assertion, given the Yugoslays' far-reaching decentralization, reduction in the role of central planning, and reliance on self-management, to which Lange attached great importance...
...This is inconsistent with Lange's model, which is based, as we have seen, on a combination of "visible and invisible hands...
...These refugees, including many Poles, found not only material financial support but also a place for social and political activity...
...The communists frequently made use of Lange's international prestige to lend luster to various propaganda exercises...
...Lange saw the New Deal as the beginning of a permanent policy of full employment...
...More often, however, Lange expressed the hope that restrictions on Poland's independence imposed by Moscow would be confined largely to foreign policy and that the country would have substantial freedom in domestic affairs...
...Similarly, the growth of economic monopolies had destroyed the market and free competition...
...Prewar Poland was not simply a backward or, in the terminology of the United Nations, a developing country...
...Lange's time in the United States coincided with the four-term presidency of Franklin D. Roosevelt...
...Their popularity can also be attributed in part to the fact that the communists have destroyed the noncommunist socialist and social-democratic left...
...The ensuing growth in output would bring down prices and, as a result, wages...
...4 Further: "The problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them...
...Referring to the trial-and-error method of simulating a capital-goods market, socialists have usually attacked Lange's model on the grounds that it abandons planning...
...It was this conviction that determined his attitude toward the Soviet Union...
...The impracticality of this "practical" proposal is so obvious that any detailed criticism is superfluous...
...It was based on the coexistence of two markets—a real market in the institutional sense and a market simulated by the central planning board...
...In general, then, it can be said that Lange's initial sharp distinction between socialist and capitalist economies was subsequently eroded...
...This combination was intended to provide free choice in consumption and occupation and also to make enterprises largely autonomous...
...Lange liked to say that he had never been a communist and that, like the Mensheviks, he had no illusions that the Bolsheviks would construct socialism...
...Thus, the task of socialism as a social movement was to salvage and broaden the scope of democracy and competition...
...For example, he wrote: "The real danger of socialism is that of the bureaucratization of economic life and not the impossibility of coping with the problem of resources...
...The Polish road to socialism, proclaimed by the communists, involved a limited political pluralism...
...To Lange, it seemed that the only effective solution lay in the revolutionary overthrow of capitalism and the construction of a socialist system...
...At the heart of Lange's views is the conviction that, by introducing fascism (which Lange considered genetically linked to monopolies and imperialism), the bourgeoisie was renouncing political democracy...
...This article is concerned not so much with the systematic exposition and criticism of Lange's model as with discussing the place it occupied in the development of his views on socialism...
...Interesting as such a comparison is for the economic theorist, it is not the real issue in the discussion of socialism...
...he was a member of the party leadership, a member of parliament, and the rector of the most important higher educational institution in the field of 92 • DISSENT Market Socialism economics...
...For Lange this was undoubtedly a personal catastrophe...
...From a purely pragmatic point of view, the evolution of communist systems toward some form of market socialism (with much greater pluralism of forms of ownership than envisaged in Lange's classical model) would be the easiest and least destabilizing path to take...
...II David Granick, Enterprise Guidance in Eastern Europe (Princeton University Press, 1975), p. 25...
...He published his antistatist program for a mixed economy with limited socialization of industry, and he cooperated in preparing for publication a Polish version of his book On the Economic Theory of Socialism (which did not actually appear until the beginning of the 1960s...
...The first of these two rules was designed to help eliminate less effective alternatives...
...It is interesting that he did not, however, return to his idea of market socialism...
...Lange and his colleagues advocated, as did the Yugoslays much later, a uniform system of self-management...
...In Hungary the absence of such a countervailing force to the bureaucracy led to the transformation of the "new economic mechanism" into a system of indirect centralization, in which spontaneous market mechanisms were crushed by intervention in enterprise activity on the part of bureaucrats at all levels...
...In my opinion, the failure of the Yugoslav model cannot be taken as proof of the failure of the very concept of market socialism...
...Thus, although his studies in the States had a substantial influence on his conceptual framework, his views on social issues were those that had been formed earlier, in Eastern Europe...
...5 Ibid., p. 84...
...All possibilities for a mixed economy with a limited role for central planning were eradicated...
...Here it is worth recalling the main features of Lange's model...
...demand for the work remained high, as it was required reading for many college courses...
...Thus, I am inclined to let the essay go out of print and to express my views in a completely new form...
...While fascism and war raged across Europe, the United States underwent an unusual spiritual and economic renaissance...
...It is difficult to explain Lange's cooperation with the communists during their worst period...
...The Lange-Breit approach bears some similarity to the Yugoslav model of a labormanaged market economy, a model that has its strong and weak points...
...it is dictated by his situation...
...All I can do here is express a general opinion...
...This is what he told his colleagues at the University of Chicago when they urged him not to abandon his academic career for a diplomatic one...
...To use the language of today, it could be said that Lange already then perceived the social-democratization of communism...
...When Poland regained its independence in 1918, the fourteen-year-old Oscar underwent his own baptism of fire...
...This was the case, for example, with his presidency of the Central Cooperative Union, a position that he held at a time when the cooperative movement was completely subordinate to the state administration...
...It was this that had brought about the Great Depression, exacerbating negative tendencies and conserving backwardness...
...Two of them are of particular significance...
...The model contains many other defects of far greater significance than the conceptual defects of Lange's model, and it was these that led to the failure of this system...
...In the immediate postwar period, a number of factors seemed to confirm such hopes...
...In a letter responding to criticism voiced by Hayek (1940), Lange wrote that his suggestion to empower the central planning board to fix capital-goods prices had been a methodological trick rather than a practical demand...
...To sum up, Lange and his colleagues believed that this model of a socialist economy would be superior to the capitalist economy of the Great Depression (which would not have been difficult) and would avoid all the obvious defects of the Soviet economy...
...He thus situated Poland between such countries as Spain, Hungary, and Argentina, whose per capita national income was greater, and countries that were less developed, such as Romania, Yugoslavia, Bulgaria, and Greece...
...Utopia or Missed Opportunity...
...In Lange's view, these corresponded to the changes taking place in the West, where fascism and monopoly capitalism had eliminated the division between the working class and the peasantry on the one hand and the lower strata of the middle classes on the other and where all were now united in the struggle against imperialism...
...However, a couple of weeks later he sent the publishers the following letter: The essay is so far removed from what I would write on the subject today that I am afraid any revision would produce a very poor compromise, unrepresentative of my thoughts...
...3 Kornai, "The Hungarian Reform Process," p. 1,727...
...When I asked him once why he had written those apologias for Stalin, Lange replied indirectly: in 1953 he had sent greetings to a foreign friend who had inquired through an intermediary, "Is Lange still alive...
...Both medium- and small-scale industry were to remain in private hands, and the maintenance of such a structure of ownership was to be one of the goals of the state's credit policy...
...In its organization, the socialist economy was to be extremely simple...
...He became the revisionists' idol, proclaiming the need for democratization and economic decentralization...
...In general, then, I do not think that the Yugoslav experience offers conclusive, negative evidence regarding the viability of market socialism...
...Lange argued for such a combination of ownership forms on the grounds that it would contribute both to democracy (the diffusion of ownership and thus of economic power) and to economic efficiency...
...The Public Bank will not be able to depart from these principles...
...As a result of the Great Depression, Poland's many problems came to form a "trap" or "vicious circle" of backwardness...
...An enormous amount has been written about this model, some of it developing Lange's idea and much of it criticizing its weaknesses...
...The bank was to determine the rate of accumulation and was to appropriate and allocate investment resources between individual enterprises and their associations (trusts...
...This revolutionary message was set out in a collective book, Gospodarka—Polityka—Taktyka— Organizacja Socjalizmu (The Economics, Politics, Tactics, and Organization of Socialism), published in 1934 and edited by Lange...
...The Central Planner and the Reformer In the West, and more recently in Poland, the following question is frequently asked: how was it possible that one of the founders of neoclassic economics and what is commonly called the Keynesian revolution, an advocate of market socialism with a highly limited role for the socialized sector, a socialist who strongly emphasized the need for, and the dangers to, freedom, could return to a country governed by communists who wielded power on behalf of Moscow...
...These two social forces would adapt the authoritarian superstructure to the demands of modern forces of production...
...Both were to function as substitutes for profit maximization...
...Liberals, on the other hand, have argued that the central planning board would get bogged down in red tape and would be unable to react quickly enough to market signals, and that the economy would thus become too rigid...
...Lange's proposals for economic reform can be summed up as central planning plus decentralized management...
...It is worth recalling these symbolic events, because they typify the early road taken by many Poles who invested so much hope in the newly independent Poland and then were so sorely disappointed...
...4 Joseph Schumpeter, Capitalism, Socialism, and Democracy (Harper and Row, 1962), p. 83...
...It seems to me that there were two major reasons for his rejection of his previous model...
...It was from this perspective that he viewed also the problem of mobilizing the American economy 90 • DISSENT Market Socialism for the needs of war and its subsequent transformation to meet the needs of peacetime...
...His own observations and studies had brought him to the belief that the market should be subject to debureaucratized and scientifically based central planning...
...Economic management was to be separated from the political apparatus of the state...
...After 1965, economic decentralization and the abandonment of macro-economic policy went beyond the bounds of rationality in Yugoslavia...
...Lange learned about economic backwardness and peripheral capitalism in prewar Poland...
...The Lange-Breit model differs from the Hungarian also in the demand that the entire organizational structure of the economy be based on a "system of workers' councils" from top to bottom (in other words, it would include a Chamber of Self-Management Representatives in the parliament...
...Realizing that a monopolistic economy, and with it the artificial escalation of prices and wages, might reemerge, Lange and Breit proposed that the state oblige enterprises to employ all those who applied for work...
...With one exception (about which more below), none of the countries in Eastern Europe adopted the model of market socialism to the extent necessary to allow us to say that it has been tested in practice...
...In the last ten years of his life Lange was fascinated by what Benjamin Ward has so accurately termed the "formalist revolution" and Egon Neuberger "computopia...
...WINTER • 1991 • 87 Market Socialism In this way [the authors declared] there will be no room for the arbitrariness in investment policy...
...This fascination, expressed in his definition of the market as a calculating machine of the pre-electronic era, was all the stranger in that Lange perceived with ever increasing clarity the emergence of social processes leading to long-term stagnation...
...In the Lange-Breit model, the central planning institution was to be the public bank...
...This was a year in which there was mounting evidence of the increasing Sovietization and Stalinization of Eastern and Central Europe...
...Thus, a more fundamental question arises: why has not a single country in Eastern Europe succeeded in introducing a form of market socialism that would have worked...
...Even if his model contained a clearly utopian (unrealistic) element, the Yugoslav model went to the other extreme in its politicization of the economy...
...This was to constitute an effective antidote to the dangers of bureaucratization...
...2, p. 472...
...In the economy, this was signalled by the program of forced industrialization and militarization, by the collectivization of agriculture, and by the shift to highly centralized planning...
...He promised to explain this in an article that he planned to write but never did...
...Not only did he make a rapid academic career for himself, but he immediately joined the struggle to restrict the economic and social might of large corporations, to make the New Deal program more coherent and long-lasting, and to broaden and secure the economic basis of democracy...
...It is worth, however, noting the authors' intention, their effort to retain a commodity and labor market in the strict institutional sense such that the entire economy, including the investment process, would operate according to automatic, and thus objective, market mechanisms reflecting the intensity of consumer needs...
...and, the publishers argued, a new edition would afford Lange an opportunity to discuss Hayek's controversial work, The Road to Serfdom...
...A bureaucrat must be interventionist because that is his role in society...
...Eventually there would emerge a modern society with a rapidly changing social structure...
...It will be based on a specific and automatic indicator of intensity of demand for individual commodities...
...Events in the Soviet Union following the death of Stalin and in Poland after 1956 seemed to confirm Lange's theory (which he derived from the work of the Austrian social democrat Otto Bauer...
...On this issue, liberals and socialists have been in agreement...
...Lange called the United States at that time "the arsenal of democracy...
...The central planning board was to use interest rates to determine the amount of national income to be allocated to accumulation...
...It can thus be taken as the starting point of Lange's "American evolution...
...A Supreme Economic Court was to supervise the entire economy to ensure that it functioned in accordance with the public interest...
...When Lange returned to Poland he is supposed to have told a friend: "Either there will be revolution in the West or I shall end up in Siberia...
...Without engaging in discussion of whether workers' self-management is compatible with a high level of economic efficiency, we should take note of one danger, which has made itself felt with full force in Yugoslavia...
...7 Oscar Lange, Dziela, Vol...
...If we compare the early Lange-Breit model with the Hungarian reform model of 1968, the radicalism of the former's approach to the market and the caution of the latter's approach to planning is immediately evident...
...Some people consider the Yugoslav model an exception (although Yugoslav economists claim that it was conceived without reference to or even knowledge of Lange's model and others similar to it...
...III ange's real drama began (or perhaps only then revealed itself) several months after his return to Poland from New York, in 1948 where he had served as Poland's temporary representative to the United Nations Security Council...
...Let us try to answer the question of how he reconciled his economic views with his participation in a communist system...
...To Lange, socialism was not simply the negation of capitalism but also its continuation—something that is often distorted by the revolutionary language of much propagandistic writing...
...Lange thought that the Soviet Union, although politically repugnant, constituted an effective system for economic modernization...
...Inherent in this model is the very real possibility that workers' councils will become bureaucratized as the result of a low level of social participation and lack of competence...
...He added that he knew both worlds better than most people and could help to build bridges in troubled times...
...This is what they wrote about the Soviet Union: We view the cultural and moral might of the Russian peasant and worker revolution with enormous admiration...
...Elsewhere they wrote, in a similar vein: "If the socialist economy does not fulfill the hopes invested in it, then indeed it will not be worth the toil and sacrifice that the working masses have endured in the struggle to achieve it...
...2 He considered his own model of socialism also open to such danger, although less so than the centralized models...
...9 Contributions to Political Economy, Vol...
...The central planners were also to ensure that enterprises and trusts followed two rules: they were to choose factors of production in such a way that average costs were at the lowest possible level, and they were to set the volume of output in the industry as a whole at a level where marginal cost was equal to price...
...Papers published after his death reveal the following story...
...An inherent tendency to recentralization prevails.' In Lange's model, the workers' councils were intended to limit the power of the bureaucracy, to counteract what another Hungarian economist, Laszlo Antal, has called the "illusion of regulation...
...This early work clearly reveals Lange's basic characteristics as a socialist thinker...
...2 (Warsaw, 1973), p. 553...
...Critics have doubted that production managers would keep to the two chief rules unless the central planning board had some means of forcing them to do so...
...The similarity with the Hungarian model is, though, of a purely formal nature, because the criteria governing the behavior of the central planners in the two systems were quite different, if not antithetical...
...8 Oscar Lange, "Ekonomiczne podstawy demokracji w Polsce," in Dziela, Vol...
...Lange did not exclude the possibility that the Stalinist regime would degenerate further if the international situation obliged the Soviet Union to continue arming itself and to engage in forced industrialization based entirely on its own resources...
...The basic weakness of both the Lange-Breit model and Lange's model is their static character...
...He took at face value Stalin's assurance that he wanted a strong and independent Poland...
...This work sets out Lange's first vision of a socialist economy that would constitute an alternative to both capitalism and "state socialism" of the Soviet kind...
...His former argument for the overthrow of this system thus lost its validity, and socialism began to appear as a distant result of an evolutionary process...
...But he continued to cooperate with the communists...
...In an article entitled Ekonomiczne podstawy demokracji w Polsce (The Economic Foundations of Democracy in Poland), written in 1943, Lange's previous vision of a socialism that accorded a dominant, and eventually exclusive, role to public ownership was replaced by one that envisaged the socialization of large-scale industry only...
...In renouncing his earlier work, he went so far as to forbid its publication in Polish...
...The new immigrants contributed not only to American industry, particularly the military sector, not only to science and technology, but also to intellectual life, to which they brought many new ideas and proposals for reforms...
...Nevertheless, he saw his mission as being to promote rapprochement in the postwar era and thus to increase the possibilities for democratic development in the Soviet Union...
...In the Soviet Union itself, the war was leading to similar processes...
...Lange saw the main causes of Poland's economic stagnation in the growing role of monopolies in the world economy...
...Lange entertained similar hopes in 1946-1947, although by then such hopes were certainly growing fainter...
...In line with this approach, Lange's chief concern became to "enlighten" central planners, to equip them with modern tools of analysis, forecasting, and planning...
...In the second half of the book, Lange anticipated some of the criticisms that would later be directed at his work...
...Lange wrote that the program of the Union of Polish Patriots in the USSR (which subsequently WINTER • 1991 • 91 Market Socialism created the postwar communist regime in Poland) had abandoned all Marxist terminology...
...He attributed these, however, to the backwardness of the Polish ruling group and not to deeper systemic factors inherent in the very concept of central planning in conditions of a highly developed system of needs and division of labor...
...Polish reform efforts were even further removed from Lange's model...
...At first glance, the Lange-Breit model seems similar to the Hungarian model of planning with the aid of financial parameters...
...Ludwik Landau, in his book Gospodarka Swiatowa (The World Economy), published in 1939, counted Poland among the "partly capitalist" countries...
...Thus, shortly after Khrushchev's speech denouncing Stalin and the workers' revolt in Poznan, Lange began to play a major role in the reform movement...
...I° Oscar Lange, Papers in Economics and Sociology (Warsaw, 1970), p. 439...
...Second, it is difficult to reconcile either market mechanisms or self-management with the leading role of the Communist party...
...In a series of public lectures entitled "On the Economic Operation of a Socialist Society," given in 1942, 9 Lange implicitly abandoned the idea of the state setting capital-goods prices, an idea that many of his critics considered to be the essence of his model...
...This spiritual revival was partly due to the fact that during the period of the New Deal the United States provided a haven for political refugees from Europe...
...In all its major points, 88 • DISSENT Market Socialism including the call for revolution, this famous work continues themes developed earlier...
...The program attacked monopolies rather than private property as such, it demanded the transfer of power to "the people" rather than the working class, it stressed the need for continuity in culture, and so on...
...But this did not prevent him from recognizing that the Soviet Union might develop toward democracy and socialism in the future...
...Asked in 1956 to say "How I See the Polish Economic Model" (the title of one of his most programmatic statements during this period), he stated: It cannot be formulated from above or worked out at a conference table...
...The person who summed this up most concisely was Lange's teacher at Harvard, Joseph Schumpeter: " A system . . . that at every given point of time fully utilizes its WINTER • 1991 • 89 Market Socialism possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point in time, because the latter's failure to do so may be a condition for the level or speed of long-run performance...
...In actual practice, said Lange, he would recommend free price-setting by the market wherever possible (where nonoligopolistic markets existed...
...5 Lange touched on this problem...
...In early 1945 the University of Minnesota Press suggested publishing On the Economic Theory of Socialism in an updated version, together with several other essays...
...Despite, then, the reference to a "planned economy" in the title and the terminology used in the text, it was not central planning but market competition that was to be the basis of the future economy...
...Their aim is to bring about the most radical possible rejection of the universally hated communist system...
...Kornai is unjust, then, when he writes that the Lange of the thirties "lived in a sterile world of Walrasian pure theory and did not consider the socio-political underpinning of his basic assumptions...
...It should be remembered, however, that Lange was dissatisfied with this work, and the subsequent evolution of his views led to his dramatic disavowal of the study that earned him world fame...
...the prominent role of foreign capital, which had little interest in developing domestic manufacturing industry...
...Similarly, investment resources were to be allocated not according to the preferences of the center but according to market forces generated by the needs of consumers...
...Lange's Model Lange published On the Economic Theory of Socialism in 1936, only two years after arriving in the United States...
...that decisions concerning the scale of investment and even the level of many prices ought to belong to the central planners...
...There are grounds for believing that, initially at least, Lange was convinced that Soviet communism was undergoing a profound transformation toward the kind of system that he advocated...
...He abandoned the demand contained in his model that the center be free to set the rate of accumulation...
...Two years later, during the Polish-Russian war, he signed up for an alternative to military service...
...Lange's preoccupation with unresolved social issues, his turn to socialism—first in its reformist and pacifist form and then its revolutionary version—reflected broader processes of radicalization in a country condemned to stagnation...
...If this is the case, however, why has market socialism not been advanced as an alternative to the communist systems that have been collapsing all around us during the past year...
...Forced industrialization, together with the revolution in education, would create a new working class and "socialist intelligentsia...
...Between the two there is room for a whole range of less extreme possibilities...
...and the absence of an entrepreneurial middle class...
...WINTER • 1991 • 95...
...Leaving aside the numerous interpretations of this model, many of them highly critical, it should be noted that Lange's classical model has most often been challenged on account of its lack of realism...
...3 It is, however, a fact that Lange underestimated at that time the scale of the perceived danger and that it was precisely this danger that made the issue of the allocation of resources such a horrendously difficult problem...
...Lange prepared the theoretical ground for the concept of the convergence of the two systems long before this concept became commonplace...
...Without considering all aspects of this question, I would draw attention to the most important ideas that inclined Lange to such cooperation...
...The craze for Thatcherism and Reaganomics is based largely 94 • DISSENT Market Socialism on the fact that they appear to be at the opposite end of the political and economic spectrum from this system...
...The real issue is whether the further maintenance of the capitalist system is compatible with economic progress.° Not only was Lange too pessimistic regarding the future of capitalism (in this he followed the example of his teacher), but, even worse, he did not raise the same question regarding the possibility of technical and economic progress in a socialist economy...
...Lange had certain intellectual reasons for considering cooperation with the communists worthwhile...
...Why did this liberal socialist support a communist regime, why did he contribute to the creation of central planning in its Soviet version, why did he become one of its theoreticians, and why did he subsequently try to reform it, albeit in a direction far removed from his earlier radical ideas...
...But we should remember that, in the long run, socialism will take root only if it manages to transcend its moral achievements to show that its economy functions better than capitalism...
...During his lifetime, Lange was able to observe firsthand all three of the worlds that currently coexist on this planet, and he encountered these worlds in the same order in which they follow each other in his scheme of the development of the modern world...
...These are not two separate issues but two aspects of the same problem...
...Comparing this aspect of his socialist model with the capitalism of large corporations, he added that the latter was open to the same or even greater danger and that "officials subject to democratic control seem preferable to private corporation executives who practically are responsible to nobody...
...It is rather the predictable, self-evident result of the mere existence of a huge and powerful bureaucracy...
...As long as this is not recognized, the investigator does a meaningless job...
...He expressed such views in the course of a dispute with Paul Sweezy in 1943 (Lange's letters to Sweezy were published only in Polish translation in the seventies, in his Works...
...The public sector itself was conceived as a system of three levels: industrial enterprises, branch associations in the form of industry trusts, and a central planning board...
...The bank was simply supposed to "serve" the market...
...He was on the right track when he wrote: The really important point in discussing the economic merits of socialism is not that of comparing the equilibrium position of a socialist and capitalist economy with respect to social welfare...
...This was the main thrust of all his works at this time (with the exception of his Ekonomia polityczna [Political Economy]), such as Wstep do WINTER • 1991 • 93 Market Socialism ekonometrii (Introduction to Econometrics), Optymalne decyze (Optimal Decision Making), and Wstep do cybernetyki eknomicznej (An Introduction to Economic Cybernetics...
...In private conversations he justified this on the grounds that he did not want to lend his support to proponents of "socialist laissez-faire...
...He joined a band of youths who seized weapons from soldiers of the retreating German army...
...A more sober assessment of the social and economic costs of the therapy adopted from the West will come only when we have mass unemployment and slums, when we have shocking inequalities in incomes and in access to education and health care...
...In all these positions, however, "he ruled but did not govern...
...Comparing the functioning of the Hungarian economy with the assumptions underlying the reform and with the vision of market socialism, Janos Kornai recently wrote: Power creates the irresistible temptation to make use of it...
...The current convulsions in Eastern and Central Europe are, above all, of a negative kind...
...Enterprises and trusts were to be directed by "public officials" subject to "democratically organized control...
...For political reasons, however, such a choice is unlikely to be made in the near future...
...One of the strangest of Lange's acts, and one of the hardest to explain, was his apologetic writing about Stalin's pamphlet, On the Economic Problems of Socialism in the USSR...
...A section of the book subtitled "The Road to a Planned Socialist Economy" was written by Lange together with Marek Breit, a brilliant young economist murdered by the Nazis...
...the preponderance of raw-material exports...
...I am writing a book on economic theory in which a chapter will be devoted to this subject...
...Lange, on the other hand, demanded a strict division between the system of economic planning and management and the political system in the narrow sense of the term...
...Prices of consumer goods and wages were to be freely determined by the market, while prices of capital goods were to be set by the central planning board...
...It was also to have the power to close inefficient enterprises and to transfer their assets to more efficient competitors and to check whether enterprises and trusts were employing "strict cost accounting...
...Numerous factors were at work...
Vol. 38 • January 1991 • No. 1
