The Lange Model of Socialism
http://cupola.gettysburg.edu/cgi/viewcontent.cgi?article=1033&context=ger
https://libcom.org/library/capitalism-socialism-defence-paresh-chattopadhyay
The recent rise to popularity of Bernie Sanders – the socialist senator from Vermont – has brought the idea of socialism into the national spotlight. Many Americans, however, remain ignorant to socialist ideas and believe that socialism could not be economically viable. Socialism describes a broad family of systems in which people collectively own certain enterprises. The form of socialism promoted by Sanders is democratic socialism, his brand of which concerns itself primarily with collectivist enterprises such as universal healthcare. I will not attempt to defend or critique Sanders’ economic policies here but rather I will attempt to explain how a very different model of socialism – the Lange Model – could potentially be economically viable.
The Lange Model describes a method of determining market-clearing prices in a socialist economy. In such a system, the government controls the production of goods. All manufacturers are told to produce to the point that the price of a good is equal to its marginal cost. As buyers start to buy these products, sellers are told to increase the price arbitrarily if there is a shortage of the product and decrease the price arbitrarily if there is a surplus of the product. This guess-and-check process continues until prices settle. This process directly mirrors the process we discussed in class of creating a set of market-clearing prices, so it is no surprise that even in the absence of capitalist competition this socialist system of pricing results in market-clearing prices. Prices set this way will be social welfare maximizing, which is of course one of the goals of socialism. Lange argued that in capitalism, the market-clearing prices would not be truly social-welfare-maximizing because demand prices would not necessarily reflect the true needs of individuals given unequal ownership of the means of production. Of course the Lange Model has faced a lot of scrutiny since it was proposed, but it remains relevant to discussions of socialist economics today. Hopefully the Lange model also provides some intuition for how a socialist economy could be feasible.