Market socialism is distinguished from the concept of the mixed economy because unlike the mixed economy, models of market socialism are complete and self-regulating systems. Market socialism also contrasts with social democratic policies implemented within capitalist market economies: while social democracy aims to achieve greater economic stability
and equality through policy measures such as taxes, subsidies and
social welfare programs, market socialism aims to achieve similar goals
through changing patterns of enterprise ownership and management.
Although economic proposals involving social ownership with factor markets have existed since the early 19th century, the term "market socialism" only emerged in the 1920s during the socialist calculation debate. Contemporary market socialism emerged from the debate on socialist calculation during the early-to-mid 20th century among socialist economists who believed that a socialist economy could neither function on the basis of calculation in natural units
nor through solving a system of simultaneous equations for economic
coordination, and that capital markets would be required in a socialist
economy.
Early models of market socialism trace their roots to the work of Adam Smith and the theories of classical economics,
which consisted of proposals for cooperative enterprises operating in a
free-market economy. The aim of such proposals was to eliminate
exploitation by allowing individuals to receive the full product of their labor
while removing the market-distorting effects of concentrating ownership
and wealth in the hands of a small class of private owners. Among early advocates of market socialism were the Ricardian socialist economists and mutualist philosophers. In the early 20th century, Oskar Lange and Abba Lerner outlined a neoclassical model of socialism which included a role for a central planning board (CPB) in setting prices equal to marginal cost to achieve Pareto efficiency.
Even though these early models did not rely on genuine markets, they
were labeled "market socialist" for their utilization of financial
prices and calculation. In more recent models proposed by American
neoclassical economists, public ownership of the means of production is
achieved through public ownership of equity and social control of investment.
Theoretical history
Classical economics
The
key theoretical basis for market socialism is the negation of the
underlying expropriation of surplus value present in other,
exploitative, modes of production. Socialist theories that favored the
market date back to the Ricardian socialists and anarchist economists, who advocated a free-market combined with public ownership or mutual ownership of the means of production.
Proponents of early market socialism include the Ricardian socialist economists, the classical liberal philosopher John Stuart Mill and the anarchist philosopher Pierre-Joseph Proudhon.
These models of socialism entailed "perfecting" or improving the
market-mechanism and free-price system by removing distortions caused by
exploitation, private property and alienated labor.
This form of market socialism has been termed "free-market socialism" because it does not involve planners.
John Stuart Mill
Mill's early economic philosophy was one of free markets. Later he altered his views toward a more socialist bent, adding chapters to his Principles of Political Economy in defense of a socialist outlook, and defending some socialist causes.
Within this revised work he also made the radical proposal that the
whole wage system be abolished in favor of a co-operative wage system.
Nonetheless, some of his views on the idea of flat taxation remained, albeit altered in the third edition of the Principles of Political Economy
to reflect a concern for differentiating restrictions on "unearned"
incomes, which he favoured, and those on "earned" incomes, which he did
not favor.
Mill's Principles, first published in 1848, was one of the most widely read of all books on economics in the period. As Adam Smith's Wealth of Nations had during an earlier period, Mill's Principles dominated economics teaching. In the case of Oxford University it was the standard text until 1919, when it was replaced by Marshall's Principles of Economics.
Mill promoted substituting capitalist businesses with worker cooperatives. He says:
The form of association, however, which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice in the management, but the association of the laborers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.
Mutualism
Pierre-Joseph Proudhon developed a theoretical system called mutualism, which attacks the legitimacy of existing property rights, subsidies, corporations, banking, and rent. Proudhon envisioned a decentralized market where people would enter the market with equal power, negating wage slavery.
Proponents believe that cooperatives, credit unions, and other forms of
worker ownership would become viable without being subject to the state. Market socialism has also been used to describe some individualist anarchist works which argue that free markets help workers and weaken capitalists.
American anarchism
For American anarchist historian Eunice Minette Schuster "[i]t is apparent ... that Proudhonian
Anarchism was to be found in the United States at least as early as
1848 and that it was not conscious of its affinity to the Individualist
Anarchism of Josiah Warren and Stephen Pearl Andrews ... William B. Greene presented this Proudhonian Mutualism in its purest and most systematic form". Josiah Warren is widely regarded as the first American anarchist, and the four-page weekly paper he edited during 1833, The Peaceful Revolutionist, was the first anarchist periodical published, an enterprise for which he built his own printing press, cast his own type, and made his own printing plates.
Warren was a follower of Robert Owen and joined Owen's community at New Harmony, Indiana. Josiah Warren termed the phrase "Cost the limit of price", with "cost" here referring not to monetary price paid but the labor one exerted to produce an item.
Therefore, "[h]e proposed a system to pay people with certificates
indicating how many hours of work they did. They could exchange the
notes at local time stores for goods that took the same amount of time
to produce". He put his theories to the test by establishing an experimental "labor for labor store" called the Cincinnati Time Store
where trade was facilitated by notes backed by a promise to perform
labor. The store proved successful and operated for three years after
which it was closed so that Warren could pursue establishing colonies
based on mutualism. These included "Utopia" and "Modern Times". Warren said that Stephen Pearl Andrews' The Science of Society, published in 1852, was the most lucid and complete exposition of Warren's own theories.
Later Benjamin Tucker fused the economics of Warren and Proudhon and published these ideas in Liberty calling them "Anarchistic-Socialism".
Tucker said: "[T]he fact that one class of men are dependent for their
living upon the sale of their labor, while another class of men are
relieved of the necessity of labor by being legally privileged to sell
something that is not labor. . . . And to such a state of things I am
as much opposed as any one. But the minute you remove privilege. . .
every man will be a laborer exchanging with fellow-laborers . . . What
Anarchistic-Socialism aims to abolish is usury . . . it wants to
deprive capital of its reward".
Neoclassical economics
Early 20th century
Beginning in the early twentieth century, neoclassical economic theory
provided the theoretical basis for more comprehensive models of market
socialism. Early neoclassical models of socialism included a role for a
central planning board (CPB) in setting prices equal marginal cost to achieve Pareto efficiency.
Even though these early models did not rely on genuine markets, they
were labeled "market socialist" for their utilization of financial
prices and calculation. Alternative outlines for market socialism
involve models where socially owned enterprises or producer
co-operatives operate within free markets
under the criterion of profitability. In recent models proposed by
American neoclassical economists, public ownership of the means of
production is achieved through public ownership of equity and social control of investment.
The earliest models of neoclassical socialism were developed by Leon Walras, Enrico Barone (1908) and Oskar R. Lange (c. 1936). Lange and Fred M. Taylor (1929)
proposed that central planning boards set prices through "trial and
error", making adjustments as shortages and surpluses occurred rather
than relying on a free price mechanism. If there were shortages, prices would be raised; if there were surpluses, prices would be lowered.
Raising the prices would encourage businesses to increase production,
driven by their desire to increase their profits, and in doing so
eliminate the shortage. Lowering the prices would encourage businesses
to curtail production to prevent losses, which would eliminate the
surplus. Therefore, it would be a simulation of the market mechanism,
which Lange thought would be capable of effectively managing supply and
demand.
Although the Lange–Lerner model
was often labelled as "market socialism", it is better described as
"market simulation" because factor markets did not exist for the
allocation of capital goods. The objective of the Lange–Lerner model was
explicitly to replace markets with a non-market system of resource
allocation.
H. D. Dickinson published two articles proposing a form of market socialism: "Price Formation in a Socialist Community" (The Economic Journal 1933) and "The Problems of a Socialist Economy" (The Economic Journal
1934). Dickinson proposed a mathematical solution whereby the problems
of a socialist economy could be solved by a central planning agency. The
central agency would have the necessary statistics on the economy, as
well as the capability of using statistics to direct production. The
economy could be represented as a system of equations. Solution values
for these equations could be used to price all goods at marginal cost
and direct production. Hayek (1935) argued against the proposal to
simulate markets with equations. Dickinson (1939) adopted the
Lange-Taylor proposal to simulate markets through trial and error.
The Lange-Dickinson version of market socialism kept capital
investment out of the market. Lange (1926 p65) insisted that a central
planning board would have to set capital accumulation rates arbitrarily.
Lange and Dickinson saw potential problems with bureaucratization in
market socialism. According to Dickinson "the attempt to check
irresponsibility will tie up managers of socialist enterprises with so
much red tape and bureaucratic regulation that they will lose all
initiative and independence" Dickinson 1938 p214). In the Economics of
Control (1944) Abba Lerner admitted that capital investment would be
politicized in market socialism.
Late 20th century
Economists active in the former Yugoslavia, including Czech-born Jaroslav Vanek and Croat-born Branko Horvat, promoted a model of market socialism dubbed the Illyrian model, where firms were socially owned by their employees and structured on workers' self-management and competed with each other in open and free markets.
American economists in the latter half of the 20th century developed models based such as "Coupon Socialism" (by the economist John Roemer) and "Economic Democracy" (by the philosopher David Schweickart).
Pranab Bardhan and John Roemer
proposed a form of Market Socialism where there was a "stock market"
that distributed shares of the capital stock equally among citizens. In
this stock market, there is no buying or selling of stocks, which leads
to negative externalities associated with a concentration of capital
ownership. The Bardhan and Roemer model satisfied the main requirements
of both socialism (workers own all the factors of production – not just
labor) and market economies (prices determine efficient allocation of
resources). A New Zealand economist, Steven O'Donnell, expanded on the
Bardhan and Roemer model and decomposed the capital function in a
general equilibrium system to take account of entrepreneurial activity
in market socialist economies. O'Donnell (2003) set up a model that
could be used as a blueprint for transition economies, and the results
suggested that although market socialist models were inherently unstable
in the long term, in the short term they would provide the economic
infrastructure necessary for a successful transition from planned to
market economies.
In the early 21st century, the Marxian economist Richard D. Wolff
refocused Marxian economics giving it a microfoundational focus. The
core idea was that transition from capitalism to socialism required the
reorganization of the enterprise from a top-down hierarchical capitalist
model to a model where all key enterprise decisions (what, how, and
where to produce and what to do with outputs) were made on a one-worker,
one vote basis. Wolff called them workers self-directed enterprises
(WSDEs). How they would interact with one another and with consumers was
left open to democratic social decisions and could entail markets or
planning or likely mixtures of both.
Anti-equilibrium economics
Another form of market socialism has been promoted by critics of central planning and generally, of neoclassical general equilibrium theory. The most notable of these economists were Alec Nove and Janos Kornai.
In particular, Alec Nove proposed what he called feasible socialism, a
mixed economy consisting of state-run enterprises, autonomous publicly
owned firms, cooperatives and small-scale private enterprise operating
in a market economy that included a role for macroeconomic planning.
In practice
A number of market socialist elements have existed in various economies.
The economy of the former Socialist Federal Republic of Yugoslavia
is widely considered to be a model of market-based socialism, which was
based on the predominance of socially-owned cooperatives, worker
self-management and market allocation of capital.
Some of the economic reforms introduced by leader of Czechoslovakia Alexander Dubček during the Prague Spring included elements of market socialism.
The Mondragon Cooperative Corporation in the Basque Country and Coop corporation in Italy
are widely cited as highly successful co-operative enterprises based on
worker- or consumer-ownership and democratic management.
Peter Drucker described the U.S. system of regulated pension funds providing capital to financial markets as "pension fund socialism". William H. Simon
characterized pension fund socialism as "a form of market socialism",
concluding that it was promising but perhaps with prospects more limited
than those envisioned by its enthusiasts.
The modern Cuban economy under the rule of Raúl Castro has been described as attempting market socialist reforms.
Similar policies to the market socialist proposal of a social dividend and basic income scheme have been implemented on the basis of public ownership of natural resources in Alaska (Alaska Permanent Fund) and in Norway (The Government Pension Fund of Norway).
Belarus ruled by Alexander Lukashenko is described as market-socialist.
Relation to political ideologies
Marxism–Leninism
The phrase "market socialism" has occasionally been used in reference to any attempt by a Soviet-type planned economy
to introduce market elements into its economic system. In this sense,
"market socialism" was first attempted during the 1920s in the Soviet
Union as the New Economic Policy (NEP) before being abandoned. Later, elements of "market socialism" were introduced in Hungary (where it was nicknamed "goulash communism"), Czechoslovakia and Yugoslavia in the 1970s and 1980s. The contemporary Economy of Belarus has been described as a "market socialist" system. The Soviet Union attempted to introduce a market system with its perestroika reforms under Mikhail Gorbachev. During the later stages there was talk within top circles that the USSR should move toward a market-based socialist system.
Historically, these kinds of "market socialist" systems attempt to retain state ownership of the commanding heights of the economy,
such as heavy industry, energy, and infrastructure, while introducing
decentralized decision making and giving local managers more freedom to
make decisions and respond to market demands. Market socialist systems
also allow private ownership and entrepreneurship in the service and other secondary economic sectors. The market
is allowed to determine prices for consumer goods and agricultural
products, and farmers are allowed to sell all or some of their products
on the open market and keep some or all of the profit as an incentive to
increase and improve production.
Socialism with Chinese characteristics
The term market socialism has been used to refer to reformed economic systems in Marxist–Leninist states, most notably in reference to the contemporary economy of the People's Republic of China, where a free price system
is used for the allocation of capital goods in both the state and
private sectors. However, Chinese political and economic proponents of
the "socialist market economy" do not consider it to be a form of market socialism in the neoclassical sense
and many Western economists and political scientists question the
degree to which this model constitutes a form of market socialism, often
preferring to describe it as "state capitalism".
Although similar in name, market socialism differs markedly from the "socialist market economy" and "socialist-oriented market economy" models practiced in the contemporary People's Republic of China and Socialist Republic of Vietnam,
respectively. Officially these economic systems represent market
economies that are in the long-term process of transition toward
socialism.
Key differences between models of market socialism and the Chinese and
Vietnamese models include the role of private investment in enterprises,
the lack of a social dividend or basic income system to equitably
distribute state profits among the population, and the existence and
role of financial markets in the Chinese model – markets which are
absent in the market socialist literature.
The Chinese experience with socialism with Chinese characteristics
is frequently referred to as a "socialist market economy" where the
"commanding heights" are state-owned, but a substantial portion of both
the state and private sectors of economy are governed by free market
practices, including a stock exchange for trading equity, and the
utilization of indirect macroeconomic market mechanisms (i.e. fiscal, monetary and Industrial policies)
to influence the economy in the same manner governments affect the
economy in capitalist economies. The free-market is the arbitrator for
most economic activity, with economic planning being relegated to
macro-economic government indicative planning that does not encompass
the microeconomic decision-making that is left to the individual
organizations and state-owned enterprises. This model includes a
significant amount of privately owned firms that operate as a business
for profit, but only for consumer goods and services.
In the Chinese system, directive planning based on mandatory
output requirements and quotas were displaced by free-market mechanisms
for most of the economy, including both the state and private sectors,
although the government engages in indicative planning for large state enterprises. In comparison with the Soviet-type planned economy, the Chinese socialist market model is based on the corporatization
of state institutions, transforming them into joint-stock companies. As
of 2008, there were 150 state-owned corporations directly under the
central government.
These state-owned corporations have been reformed and become
increasingly dynamic and a major source of revenue for the state in
2008, leading the economic recovery in 2009 during the wake of the global financial crises.
This economic model is defended from a Leninist
perspective, which states that a planned socialist economy can only
emerge after first developing the basis for socialism through the
establishment of a market economy and commodity-exchange economy, and
that socialism will only emerge after this stage has exhausted its
historical necessity and gradually transforms itself into socialism. Proponents of this model argue that the economic system of the former USSR and its satellite states
attempted to go from a natural economy to a planned economy by decree,
without passing through the necessary market economy phase of
development.
Democratic socialism
Some democratic socialists advocate forms of market socialism, some
of which are based on self-management; while others advocate for a
non-market participatory economy based on decentralized economic planning.
Anarchism
Portrait of philosopher Pierre-Joseph Proudhon (1809–1865) by Gustave Courbet. Proudhon was the primary proponent of anarchist mutualism, and influenced many later individualist anarchist and social anarchist thinkers.
The French philosopher Pierre Joseph Proudhon is the first person to call himself an "anarchist", and considered among its most influential theorists. He is considered by many to be the "father of anarchism". He became a member of the French Parliament after the revolution of 1848, whereon he referred to himself as a "federalist". His best-known assertion is that Property is Theft!, contained in his first major work, What is Property? Or, an Inquiry into the Principle of Right and Government (Qu'est-ce que la propriété? Recherche sur le principe du droit et du gouvernement),
published in 1840. The book's publication attracted the attention of
the French authorities. It also attracted the scrutiny of Karl Marx,
who started a correspondence with its author. The two influenced each
other: they met in Paris while Marx was exiled there. Their friendship
finally ended when Marx responded to Proudhon's The System of Economic Contradictions, or The Philosophy of Poverty with the provocatively titled The Poverty of Philosophy. The dispute became one of the sources of the split between the anarchist and Marxian wings of the International Working Men's Association. Mutualism is an economic theory and anarchist school of thought that advocates a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market.
Integral to the scheme was the establishment of a mutual-credit bank
that would lend to producers at a minimal interest rate, just high
enough to cover administration. Mutualism is based on a labor theory of value
that holds that when labor or its product is sold, in exchange, it
ought to receive goods or services embodying "the amount of labor
necessary to produce an article of exactly similar and equal utility".
Mutualism originated from the writings of philosopher Pierre-Joseph Proudhon.
Mutualists oppose the idea of individuals receiving an income through
loans, investments, and rent, as they believe these individuals are not
laboring. Though Proudhon opposed this type of income, he expressed that
he had never intended "to forbid or suppress, by sovereign
decree, ground rent and interest on capital. I think that all these
manifestations of human activity should remain free and voluntary for
all: I ask for them no modifications, restrictions or suppression,
other than those which result naturally and of necessity from the
universalization of the principle of reciprocity which I propose". Insofar as they ensure the worker's right to the full product of their labor, mutualists support markets (or artificial markets) and property
in the product of labor. However, they argue for conditional titles to
land, whose ownership is legitimate only so long as it remains in use or
occupation (which Proudhon called "possession"), thus advocating personal property, but not private property.
Josiah Warren is widely regarded as the first American anarchist, and the four-page weekly paper he edited during 1833, The Peaceful Revolutionist, was the first anarchist periodical published. For American anarchist historian Eunice Minette Schuster "It is apparent...that Proudhonian
Anarchism was to be found in the United States at least as early as
1848 and that it was not conscious of its affinity to the Individualist
Anarchism of Josiah Warren and Stephen Pearl Andrews...William B. Greene presented this Proudhonian Mutualism in its purest and most systematic form". Later the American individualist anarchist Benjamin Tucker
"was against both the state and capitalism, against both oppression and
exploitation. While not against the market and property he was firmly
against capitalism as it was, in his eyes, a state-supported monopoly of
social capital (tools, machinery, etc.) which allows owners to exploit
their employees, i.e. to avoid paying workers the full value of their
labour. He thought that the "laboring classes are deprived of their
earnings by usury in its three forms, interest, rent and profit".
Therefore, "Liberty
will abolish interest; it will abolish profit; it will abolish
monopolistic rent; it will abolish taxation; it will abolish the
exploitation of labor; it will abolish all means whereby any laborer
can be deprived of any of his product". This stance puts him squarely in
the libertarian socialist tradition and, unsurprisingly, Tucker
referred to himself many times as a socialist and considered his
philosophy to be "[a]narchistic socialism".
Benjamin Tucker, American individualist anarchist
French individualist anarchist Emile Armand
shows clearly opposition to capitalism and centralized economies when
he said that the individualist anarchist "inwardly he remains refractory
– fatally refractory – morally, intellectually, economically (The
capitalist economy and the directed economy, the speculators and the
fabricators of single systems are equally repugnant to him.)"
He argued for a pluralistic economic logic when he said that "Here and
there everything happening – here everyone receiving what they need,
there each one getting whatever is needed according to their own
capacity. Here, gift and barter
– one product for another; there, exchange – product for representative
value. Here, the producer is the owner of the product, there, the
product is put to the possession of the collectivity".
The Spanish individualist anarchist Miguel Gimenez Igualada
thought that ""capitalism is an effect of government; the disappearance
of government means capitalism falls from its pedestal
vertiginously...That which we call capitalism is not something else but a
product of the State, within which the only thing that is being pushed
forward is profit, good or badly acquired. And so to fight against
capitalism is a pointless task, since be it State capitalism
or Enterprise capitalism, as long as Government exists, exploiting
capital will exist. The fight, but of consciousness, is against the
State". His view on class division and technocracy
are as follows "Since when no one works for another, the profiteer from
wealth disappears, just as government will disappear when no one pays
attention to those who learned four things at universities and from that
fact they pretend to govern men. Big industrial enterprises will be
transformed by men in big associations in which everyone will work and
enjoy the product of their work. And from those easy as well as
beautiful problems anarchism deals with and he who puts them in practice
and lives them are anarchists.... The priority which without rest an
anarchist must make is that in which no one has to exploit anyone, no
man to no man, since that non-exploitation will lead to the limitation
of property to individual needs".
Left-wing market anarchism, a form of left-libertarianism and individualist anarchism is associated with scholars such as Kevin Carson, Roderick T. Long, Charles Johnson, Brad Spangler, Samuel Edward Konkin III, Sheldon Richman, Chris Matthew Sciabarra, and Gary Chartier,
who stress the value of radically free markets, termed "freed markets"
to distinguish them from the common conception which these libertarians
believe to be riddled with statist and capitalist privileges. Referred to as left-wing market anarchists or market-oriented left-libertarians, proponents of this approach strongly affirm the classical liberal ideas of self-ownership and free markets, while maintaining that, taken to their logical conclusions, these ideas support anti-capitalist, anti-corporatist, anti-hierarchical, pro-labor positions in economics; anti-imperialism in foreign policy; and thoroughly liberal or radical views regarding such cultural issues as gender, sexuality, and race.
The genealogy of contemporary market-oriented left-libertarianism – sometimes labeled "left-wing market anarchism" – overlaps to a significant degree with that of Steiner–Vallentyne left-libertarianism as the roots of that tradition are sketched in the book The Origins of Left-Libertarianism. Carson–Long-style left-libertarianism is rooted in 19th-century mutualism and in the work of figures such as Thomas Hodgskin and the individualist anarchists Benjamin Tucker and Lysander Spooner.
While with notable exceptions market-oriented libertarians after Tucker
tended to ally with the political right, relationships between such
libertarians and the New Left thrived in the 1960s, laying the groundwork for modern left-wing market anarchism. Left wing market anarchism identifies with left-libertarianism (or left-wing libertarianism) which names several related but distinct approaches to politics, society, culture, and political and social theory, which stress both individual freedom and social justice. Unlike right-libertarians, they believe that neither claiming nor mixing one's labor with natural resources is enough to generate full private property rights and maintain that natural resources (land, oil, gold and trees) ought to be held in some egalitarian manner, either unowned or owned collectively.
Those left-libertarians who support private property do so under the
condition that recompense is offered to the local community.
