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Theories of Planned and Market Socialism
Readings: Ch. 6 & 7
Gregory & Stuart, Comparing Economic Systems in the Twenty-First Century, 7th Ed
(Liberty and Economics; Ludwig von Mises )
(USSR Red Army/ Soviet Power! [Under Stalin's Government]
Marxism is a particular political philosophy, economic and sociological worldview based upon a materialist interpretation of history, a Marxist analysis of capitalism, a theory of social change, and a view of human liberation derived from the work of Karl Marx and Friedrich Engels.
Karl Marx (1818-1883)
Leninism is a political theory and practice of the dictatorship of the proletariat, led by a revolutionary vanguard party.
Lenin emphasized that inequalities and vestiges of capitalism would still exist under socialism and that, accordingly, coercive actions by the state would be necessary.
There was no need, Lenin argued, for specialists, because the tasks of management were quite routine.
Vladimir Illich Lenin (1870-1924)
“. . . the dictatorship of the proletariat — i.e. the organisation of the vanguard of the oppressed as the ruling class for the purpose of crushing the oppressors. . . . An immense expansion of democracy, which for the first time becomes democracy for the poor, democracy for the people, and not democracy for the rich: . . . and suppression by force, i.e. exclusion from democracy, for the exploiters and oppressors of the people — this is the change which democracy undergoes during the transition from capitalism to communism.”
Communism, the highest stage of social and economic development, would be characterized by the absence of markets and money and by abundance, distribution according to need, and the withering away of the state.
In their writings, Marx, Engels, and Lenin did notdealt with the fundamental question of how scarce resources were to be allocated during the socialist phase.
Socialist economic theory must explain how resources are to be allocated under socialism.
If the socialist economy is planned, how will planners make rational decisions about the use of scare resources?
Is private ownership necessary for the proper functioning of markets?
Socialism emphasizes central planning as a mechanism to organize resources allocation.
Socialism typically combines a strong state with public ownership and a set of policies designed to change economic outcomes.
In the socialist system, the primary source of income is labor, socialization of consumption is an objective, and egalitarian (equal) distribution of output is pursued.
The state exercises substantial control over economic growth and industrial expansion.Characteristics of socialist economy
Planned economy (or command economy) is an economic system in which the state directs the economy. It is an economic system in which the central government controls industry such that it makes all decisions regarding the production and distribution of goods and services.
The appeal of market socialism is its attempt to combine efficiency of markets (capitalism) with more equitable distribution of income (socialism).
Economic theorists who try to determine whether socialism might be feasible consider both the negative and the positive aspects of socialism in the absence of a paradigm of market socialism.
Functions: 1. Set prices of producer goods
2. Allocate social dividends
Functions: Determine sectoral expansion of industry
Market socialism is a system that combines social ownership of capital with market allocation.
The Lange model, named after Polish economist Oskar Lange, combines public ownership and a trial-and-error approach to determining output and equilibrium. Individual enterprises are expected to follow market-type rules, minimizing cost and producing where price equal to marginal cost.
“The quest of men to participate in the determination and decision-making of the activities in which they are personally and directly involved is one of the most important sociopolitical phenomenon of out times. It is very likely to be the dominant force of social evolution in the last third of the twentieth century.” (Jaroslav Vanek, a early advocate of the participatory economy)