Revisiting the Socialist Calculation Debate: The Role of Markets and Finance in Hayek’s Response to Lange’s Challenge

Theoretical and political debates on the character of socialist planning and the so-called ‘law of value’ under socialism had emerged at the end of the 19th century and became an issue of significance in the wake of the Bolshevik Revolution in the 1920s. The issues raised soon attracted the attention of the liberal thought of the period; in an essay published in 1920, Ludwig von Mises challenged socialist and engineering-techno- cratic schema, stating that every attempt to abolish markets and money would result in economic disaster: the construction of a viable socialist economy was an impossible task.1 In fact, the aim of Mises’ theoretical and political intervention was not focused solely upon the nature of socialist economies; he was also concerned with all forms of state inter- vention, including that which was taking place in Austria and Germany at the time (though he approved of state subsidies to the opera). It was not, however, until the 1930s ,when Friedrich Hayek re-circulated Mises’ article, that the socialist calculation debate actually started. The most famous reply came from two eastern European economists: the Romanian Abba Lerner and the Polish Oskar Lange. This chapter will not go through the details of this debate but focus on the reasoning of two of the protagonists: Lange and Hayek.