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Retrospectives: Lange and von Mises, Large-Scale Enterprises, and the Economic Case for Socialism

Listed author(s):
  • Joseph Persky

In the debates over "economic calculation" launched by Ludwig von Mises in 1920 and extending well into the 1940s, the central issue concerned the ability of a socialist economy to achieve allocative efficiency. Von Mises emphasized that a collectivist state would have great difficulty in gathering and acting on relevant information; therefore, under socialism, even well-intentioned bureaucrats would lack a meaningful system of values on which to calculate. Defenders of socialism, such as Oskar Lange, countered that a market socialism could match demand to supply just as well as capitalism and meet the range of static conditions required for Pareto optimality. That debate is a rich and interesting story that has been told many times before. But in all that has been written, an important aspect of the original debate has been lost. Somewhat oddly, both the socialists like Oskar Lange and the advocates of private ownership like von Mises and Friedrich Hayek maintained that they were defending the progressive tendencies of competitive capitalism against the deadening hand of monopoly power. This historic paradox deserves consideration, if only because it serves to focus attention on our still incomplete theories of large-scale enterprises under socialism and capitalism.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 5 (1991)
Issue (Month): 4 (Fall)
Pages: 229-236

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Handle: RePEc:aea:jecper:v:5:y:1991:i:4:p:229-36
Note: DOI: 10.1257/jep.5.4.229
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  1. Mo-Yin S. Tam, 1981. "Reward Structures in a Planned Economy: The Problem of Incentives and Efficient Allocation of Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 96(1), pages 111-128.
  2. Evsey D. Domar, 1974. "On the Optimal Compensation of a Socialist Manager," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 1-18.
  3. Dearden, James & Ickes, Barry W & Samuelson, Larry, 1990. "To Innovate or Not to Innovate: Incentives and Innovation in Hierarchies," American Economic Review, American Economic Association, vol. 80(5), pages 1105-1124, December.
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