ABSTRACT
Oskar Lange’s famous essay, “On the Economic Theory of Socialism” (1936–37), established to the satisfaction of many economists that “market socialism” is something more than a ludicrous contradiction in terms, and that at least some degree of “rational calculation” might be expected under an appropriate form of market-oriented socialism. The Langian proposal was in fact constructed in line with the latest theoretical developments of the 1930’s. Marginal cost pricing was recognized as a necessary condition for Pareto efficiency, and Joan Robinson’s analysis demonstrated compellingly that imperfectly competitive, profit maximizing firms would not meet this condition. Lange proposed that equilibrium prices be achieved by an administrative tâtonnement mechanism, and that firm managers be instructed to equate marginal costs of production to these equilibrium prices. According to Lange, a socialist economy would thus achieve not merely the traditional expectations of greater macroeconomic stability and equity, but optimal microeconomic efficiency as well.
