Oskar Lange's Famous "Market-Socialist" Response to Mises's Challenge of the Impossibility of Rational Central Planning

The entire debate concentrated on attempts to answer the initial challenge by Mises that rational central planning of the vast and complex modern economy would be "impossible." Without private ownership of the means of production, he argued, there could be no competitive market for these capital goods, and without markets, there could be no prices for the various scarce means of production. Lacking the guide of market prices, the central planners would be "in the dark" as to the relative scarcity of different components of the capital structure and so would invariably fail to combine and use them efficiently.

The famous "market-socialist" response by Lange is generally understood to have effectively answered Mises by first admitting the indispensability of "markets" and "prices," and by then arguing that these could be reconciled with "public" or "common" ownership of the means of production. Lange considered the Walrasian simultaneous-equation formulation that had been advanced by Enrico Barone in 1908 to be a rigorous and conclusive answer to Mises' claim that socialism was "theoretically impossible." He invoked Fred Taylor's "trial and error" method as a refutation of the Hayek-Robbins thesis that socialism, though theoretically possible, was impracticable.

However, this entire elaborate answer to the Austrian challenge is premised upon a particular neoclassical reading of that challenge. Clearly if, as this paper contends, the neoclassicals, including Lange himself, fundamentally misunderstood the Austrian challenge they are supposed to have refuted, the challenge ought to he considered anew. However, before we can confidently embark on such a reconsideration, we should attempt to offer a plausible explanation of how the economics profession came to misunderstand the calculation debate so thoroughly.

--Don Lavoie, "A Critique of the Standard Account of the Socialist Calculation Debate," Journal of Libertarian Studies 5, no. 1 (Winter 1981): 41-42.