The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the

law of value The law of the value of commodities (German: ''Wertgesetz der Waren''), known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic '' The Poverty of Philosophy'' (1847) again ...

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money ar ...

, financial prices for

capital good The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...

s and

private ownership Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property and personal property, which is owned by a state entity, and from collective or ...

of the

means of production The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as a ...

. More specifically, the debate was centered on the application of

economic planning Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources ...

for the allocation of the means of production as a substitute for capital markets and whether or not such an arrangement would be superior to

capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...

in terms of efficiency and productivity. The historical debate was cast between the

Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian scho ...

represented by

Ludwig von Mises Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberalism. He is ...

and

Friedrich Hayek Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Hayek ...

, who argued against the feasibility of socialism; and between neoclassical and Marxian economists, most notably Cläre Tisch (as a forerunner), Oskar R. Lange, Abba P. Lerner,

Fred M. Taylor Fred Manville Taylor (July 11, 1855, Northville, Michigan – August 7, 1932) was a U.S. economist and educator best known for his contribution to the theory of market socialism. He taught mostly history at Albion College from 1879 to 1892. He t ...

, Henry Douglas Dickinson and

Maurice Dobb Maurice Herbert Dobb (24 July 1900 – 17 August 1976) was an English economist at Cambridge University and a Fellow of Trinity College, Cambridge. He is remembered as one of the pre-eminent Marxist economists of the 20th century. Dobb was bo ...

, who took the position that socialism was both feasible and superior to capitalism. A central aspect of the debate concerned the role and scope of the law of value in a socialist economy. Although contributions to the question of economic coordination and calculation under

socialism Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes th ...

existed within the socialist movement prior to the 20th century, the phrase socialist calculation debate emerged in the 1920s beginning with Mises' critique of socialism.''A Companion to the History of Economic Thought'', Wiley-Blackwell by Biddle, Jeff and Samuels, Warren and Davis, John. 2006. (p. 319): "What became known as the socialist calculation debate started when von Mises (1935 920 launched a critique of socialism." While the debate was popularly viewed as a debate between proponents of capitalism and proponents of socialism, in reality a significant portion of the debate was between socialists who held differing views regarding the utilization of markets and money in a socialist system and to what degree the law of value would continue to operate in a hypothetical socialist economy.''Economic Calculation under Socialism: The Austrian Contribution'', by Vaughn, Karen. 2004. Economic Inquiry, vol. 18, issue 4, p. 537. 1980: Although it is conventional to treat the economic calculation controversy as a debate between those who favored socialism and those who opposed it, this is not descriptive of the actual course of events...by that time, the real debate, in so far as one took place in the journals, was among the socialists themselves..." Socialists generally held one of three major positions regarding the unit of calculation, including the view that money would continue to be the unit of calculation under socialism; that labor time would be a unit of calculation; or that socialism would be based on calculation ''

in natura ''In natura'' (Latin for "in Nature") is a phrase to describe conditions present in a non-laboratory environment, to differentiate it from ''in vivo'' (experiments on live organisms in a lab) and ''ex vivo'' (experiments on cultivated cells isolate ...

'' or

calculation performed in-kind __NOTOC__ Calculation in kind or calculation in-natura is a way of valuating resources and a system of accounting that uses disaggregated physical magnitudes as opposed to a common unit of calculation. As the basis for a socialist economy, it wa ...

. Debate among socialists has existed since the emergence of the broader socialist movement between those advocating

market socialism Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy, or one that contains a mix of worker-owned, nationalized, and privately owned ...

centrally planned economies A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, parti ...

and

decentralized planning A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, ...

. Recent contributions to the debate in the late 20th century and early 21st century involve proposals for

and the use of

information technology Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology syste ...

and

distributed networking Distributed networking is a distributed computing network system where components of the program and data depend on multiple sources. Overview Distributed networking, used in distributed computing, is the network system over which computer prog ...

as a basis for decentralized economic planning.

Foundations and early contributions

Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...

and

Friedrich Engels Friedrich Engels ( ,"Engels"
'' common ownership Common ownership refers to holding the assets of an organization, enterprise or community indivisibly rather than in the names of the individual members or groups of members as common property. Forms of common ownership exist in every econom ...

of the

and

workers' self-management Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-management is a def ...

within economic enterprises and where production of economic value for profit would be replaced by an ''ex ante'' production directly for use which implied some form of economic planning and planned growth in place of the dynamic of

capital accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...

and therefore the substitution of commodity-based production and market-based allocation of the factors of production with conscious planning.''The Rise and Fall of Socialist Planning'', Ellman, Michael. (p. 17): "Marx devoted most of his life to the analysis of capitalism and was notoriously opposed to attempts to design utopias. Nevertheless, from his scattered observations about socialism, and from those of his close comrade Engels, his followers drew the idea that in a socialist economy the market mechanism would be replaced by economic planning...Similarly, the superiority of planning, which would enable society as a whole to coordinate production ex ante, became a widespread view in the international Marxist movement." Although Marx and Engels never elaborated on the specific institutions that would exist in socialism or on processes for conducting planning in a socialist system, their broad characterizations laid the foundation for the general conception of socialism as an economic system devoid of the

and

law of accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...

and principally where the category of value was replaced by calculation in terms of natural or physical units so that resource allocation, production and distribution would be considered technical affairs to be undertaken by engineers and technical specialists. An alternative view of socialism prefiguring the neoclassical models of market socialism consisted of conceptions of

based on

classical economic Classical economics, classical political economy, or Smithian economics is a school of thought in political economy that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smi ...

theory and

Ricardian socialism Ricardian socialism is a branch of classical economic thought based upon the work of the economist David Ricardo (1772–1823). The term is used to describe economists in the 1820s and 1830s who developed a theory of capitalist exploitation from ...

, where markets were utilized to allocate capital goods among worker-owned cooperatives in a

free-market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are ...

. The key characteristics of this system involved direct worker ownership of the means of production through producer and consumer cooperatives and the achievement of genuinely

free markets In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...

by removing the distorting effects of private property, inequality arising from private appropriation of profits and interest to a rentier class,

regulatory capture In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests ...

, and economic exploitation. This view was expounded by mutualism and was severely criticized by Marxists for failing to address the fundamental issues of capitalism involving instability arising from the operation of the law of value, crises caused by overaccumulation of capital and lack of conscious control over the

surplus product Surplus product (german: Mehrprodukt, links=no) is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Roughly speaking, it is the extra goods produced above the amount needed for a community of workers to ...

. This perspective played little to no role during the socialist calculation debate in the early 20th century. Early arguments against the utilization of central economic planning for a socialist economy were brought up by proponents of decentralized economic planning or

, including

Pierre-Joseph Proudhon Pierre-Joseph Proudhon (, , ; 15 January 1809, Besançon – 19 January 1865, Paris) was a French socialist,Landauer, Carl; Landauer, Hilde Stein; Valkenier, Elizabeth Kridl (1979) 959 "The Three Anticapitalistic Movements". ''European Socia ...

Peter Kropotkin Pyotr Alexeyevich Kropotkin (; russian: link=no, Пётр Алексе́евич Кропо́ткин ; 9 December 1842 – 8 February 1921) was a Russian anarchist, socialist, revolutionary, historian, scientist, philosopher, and activist ...

and

Leon Trotsky Lev Davidovich Bronstein. ( – 21 August 1940), better known as Leon Trotsky; uk, link= no, Лев Давидович Троцький; also transliterated ''Lyev'', ''Trotski'', ''Trotskij'', ''Trockij'' and ''Trotzky''. (), was a Russian ...

. In general, it was argued that centralized forms of economic planning that excluded participation by the workers involved in the industries would not be sufficient at capturing adequate amounts of information to coordinate an economy effectively while also undermining socialism and the concept of workers' self-management and democratic decision-making central to socialism. However, no detailed outlines for decentralized economic planning were proposed by these thinkers at this time. Socialist market abolitionists in favour of decentralized planning also argue that whilst advocates of

and the

in particular recognize equilibrium prices do not exist, they nonetheless claim that these prices can be used as a rational basis when this is not the case, hence markets are not efficient. Other market abolitionist socialists such as Robin Cox of the Socialist Party of Great Britain argue that decentralized planning allows for a spontaneously self-regulating system of stock control (relying solely on

calculation in kind __NOTOC__ Calculation in kind or calculation in-natura is a way of valuating resources and a system of accounting that uses disaggregated physical magnitudes as opposed to a common unit of calculation. As the basis for a socialist economy, it wa ...

) to come about and that in turn decisively overcomes the objections raised by the economic calculation argument that any large scale economy must necessarily resort to a system of market prices.

Early neoclassical contributions

In the early 20th century, Enrico Barone provided a comprehensive theoretical framework for a planned socialist economy. In his model, assuming perfect computation techniques, simultaneous equations relating inputs and outputs to ratios of equivalence would provide appropriate valuations in order to balance

supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...

Proposed units for accounting and calculation

Calculation in kind

Calculation in kind, or calculation in-natura, was often assumed to be the standard form of accounting that would take place in a socialist system where the economy was mobilized in terms of physical or natural units instead of money and financial calculation. Otto Neurath was adamant that a socialist economy must be moneyless because measures of money failed to capture adequate information regarding material well-being of consumers or failed to factor in all costs and benefits from performing a particular action. He argued that relying on any single unit, whether they be labor-hours or

kilowatt-hours A kilowatt-hour ( unit symbol: kW⋅h or kW h; commonly written as kWh) is a unit of energy: one kilowatt of power for one hour. In terms of SI derived units with special names, it equals 3.6 megajoules (MJ). Kilowatt-hours are a common bi ...

, would be inadequate and that demand and calculations be performed by the relevant disaggregated natural units, i.e. kilowatts, tons, meters and so on.Cockshott, Paul (2008)
"Calculation in-Natura, from Neurath to Kantorovich"
p. 12. Retrieved 15 June 2020. In the 1930s, Soviet mathematician

Leonid Kantorovich Leonid Vitalyevich Kantorovich ( rus, Леони́д Вита́льевич Канторо́вич, , p=lʲɪɐˈnʲit vʲɪˈtalʲjɪvʲɪtɕ kəntɐˈrovʲɪtɕ, a=Ru-Leonid_Vitaliyevich_Kantorovich.ogg; 19 January 19127 April 1986) was a Soviet ...

demonstrated how an economy in purely physical terms could use determinate mathematical procedure to determine which combination of techniques could be used to achieve certain output or plan targets.

Debate on the use of money

In contrast to Neurath,

Karl Kautsky Karl Johann Kautsky (; ; 16 October 1854 – 17 October 1938) was a Czech-Austrian philosopher, journalist, and Marxist theorist. Kautsky was one of the most authoritative promulgators of orthodox Marxism after the death of Friedrich Engels ...

argued that money would have to be utilized in a socialist economy. Kautsky states the fundamental difference between socialism and capitalism is not the absence of money in the former; rather, the important difference is in the ability for money to become capital under capitalism. In a socialist economy, there would be no incentive to use money as

financial capital Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provi ...

, therefore money would have a slightly different role in socialism.

Labor-time calculation

Jan Appel drafted a contribution to the socialist calculation debate which then went through a discussion process before being published as ''Foundations of Communist Production and Distribution'' by the General Workers' Union of Germany in 1930. An English translation by Mike Baker was published in 1990.

Interwar debate

Economic calculation problem

believed that private ownership of the means of production was essential for a functional economy, arguing: His argument against socialism was in response to Otto Neurath arguing for the feasibility of central planning. Mises argued that money and market-determined prices for the means of production were essential in order to make rational decisions regarding their allocation and use.''Calculation in-Natura, from Neurath to Kantorovich'', Cockshott, Paul. (p. 9): "Mises was initially debating against Otto Neurath. In an article dated 1919 Neurath had argued that a socialist economy would be able to operate calculations in-natura rather than by means of money."

Criticism of the calculation problem

Bryan Caplan Bryan Douglas Caplan (born April 8, 1971) is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor ...

, a

libertarian Libertarianism (from french: libertaire, "libertarian"; from la, libertas, "freedom") is a political philosophy that upholds liberty as a core value. Libertarians seek to maximize autonomy and political freedom, and minimize the state's en ...

economist, has criticized the version of the calculation problem advanced by Mises arguing that the lack of economic calculation makes socialism impossible and not merely inefficient. Caplan argues that socialism makes economic calculation impossible, yet that problem may not be severe enough to make socialism impossible "beyond the realm of possibility". Caplan points out that the

fall of the Soviet Union The dissolution of the Soviet Union, also negatively connoted as rus, Разва́л Сове́тского Сою́за, r=Razvál Sovétskogo Soyúza, ''Ruining of the Soviet Union''. was the process of internal disintegration within the Sov ...

does not prove that calculation was the main issue there. He suggests that more likely the problems resulted from bad incentives arising out of the

one-party A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government ...

political system and degree of power granted to the party elite.Caplan, Bryan (January 2004). "Is socialism really "impossible"?" ''Critical Review''. 16. pp. 33–52.

Knowledge problem

Proponents of decentralized economic planning have also criticized central economic planning.

believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and so they would be unable to respond to local conditions quickly enough to effectively coordinate all economic activity. Trotsky argued:

Lange model

Oskar Lange Oskar Ryszard Lange (27 July 1904 – 2 October 1965) was a Polish economist and diplomat. He is best known for advocating the use of market pricing tools in socialist systems and providing a model of market socialism. He responded to the econo ...

responded to Mises' assertion that socialism and social ownership of the means of production implied that rational calculation was impossible by outlining a model of socialism based on

neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...

. Lange conceded that calculations would have to be done in value terms rather than using purely natural or engineering criteria, but he asserted that these values could be attained without capital markets and private ownership of the means of production. In Lange's view, this model qualified as socialist because the means of production would be publicly owned with returns to the public enterprises accruing to society as a whole in a

social dividend The social dividend is the return on the capital assets and natural resources owned by society in a socialist economy. The concept notably appears as a key characteristic of market socialism, where it takes the form of a dividend payment to eac ...

while workers' self-management could be introduced in the public enterprises.''Revisiting the Socialist Calculation Debate: The role of markets and finance in Hayek's response to Lange's challenge'', by Auerbach, Paul and Sotiropoulos, Dimitris. 2012. Kingston University London, Economics Discussion Paper 2012-6, pp. 1–2: "Lange took up the challenge of Mises’ claim of the impossibility of constructing a socialist economy. He readily acceded to the need for efficiency calculations to be made in value terms rather than using purely natural or engineering criteria, but claimed that these values could emerge along lines consistent with neoclassical value theory, without the need for a market in capital goods and without private ownership over the means of production. Lange drew heavily upon the dominant neoclassical tradition to defend socialism." This model came to be referred to as the

Lange model The Lange model (or Lange–Lerner theorem) is a neoclassical economic model for a hypothetical socialist economy based on public ownership of the means of production and a trial-and-error approach to determining output targets and achieving ec ...

. In this model, a Central Planning Board (CPB) would be responsible for setting prices through a trial-and-error approach to establish equilibrium prices, effectively running a Walrasian auction. Managers of the state-owned firms would be instructed to set prices to equal

marginal cost In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity. In some contexts, it refers to an increment of one unit of output, and in others it ...

() so that

economic equilibrium In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the st ...

and

Pareto efficiency Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engi ...

would be achieved. The Lange model was expanded upon by

Abba Lerner Abraham "Abba" Ptachya Lerner (also Abba Psachia Lerner; 28 October 1903 – 27 October 1982) was a Russian-born American-British economist. Biography Born in Novoselytsia, Bessarabia, Russian Empire, Lerner grew up in a Jewish family, which ...

and became known as the Lange–Lerner theorem. Paul Auerbach and Dimitris Sotiropoulos have criticized the Lange model for degrading the definition of socialism to a form of "capitalism without capital markets" attempting to replicate capitalism's efficiency achievements through economic planning. Auerbach and Sotiropoulos argue that

provided an analysis of the dynamics of capitalism that is more consistent with

Marxian economics Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian ...

' analysis because Hayek viewed finance as a fundamental aspect of capitalism and any move through collective ownership or policy reform to undermine the role of capital markets would threaten the integrity of the capitalist system. According to Auerbach and Sotiropoulos, Hayek gave an unexpected endorsement to socialism that is more sophisticated than Lange's superficial defense of socialism.''Revisiting the Socialist Calculation Debate: The role of markets and finance in Hayek's response to Lange's challenge'', by Auerbach, Paul and Sotiropoulos, Dimitris. 2012. Kingston University London, Economics Discussion Paper 2012-6, pp. 2–3: "Hayek implicitly realized the danger of undermining functional capitalist behaviour and therefore the nature of capitalist relations. If we see economic behaviour in capitalism as the outcome of capitalist social relations of power, then Hayek's perspective renders capital markets as a central arena in the organization of capitalism as a system of exploitation. He also perceives every movement towards collective ownership of the means of production as a real threat to the reproduction of the logic of capitalism. In this sense, he implicitly ends up giving an unexpected endorsement to socialism that is much deeper and sophisticated than the superficial 'defence' of Lange."

Contemporary contributions

Networked digital feedback

Peter Joseph Peter Joseph is an American independent filmmaker and activist. He is best known for the ''Zeitgeist'' film series, which he wrote, directed, narrated, scored, and produced. He is also the founder of the related Zeitgeist Movement. Other wor ...

argues for a transition from fragmented economic data relay to fully integrated, sensor-based digital systems, or an

Internet of things The Internet of things (IoT) describes physical objects (or groups of such objects) with sensors, processing ability, software and other technologies that connect and exchange data with other devices and systems over the Internet or other com ...

. Using an internet of sensory instruments to measure, track and feed back information, this can unify numerous disparate elements and systems, greatly advancing awareness and efficiency potentials. In an economic context, this approach could relay and connect data regarding how best to manage resources, production processes, distribution, consumption, recycling, waste disposal behavior, consumer demand and so on. Such a process of networked economic feedback would work on the same principle as modern systems of inventory and distribution found in major commercial warehouses. Many companies today use a range of sensors and sophisticated tracking means to understand rates of demands, exactly what they have, where it is or where it may be moving and when it is gone. It is ultimately an issue of detail and scalability to extend this kind of awareness to all sectors of the economy, macro and micro. Not only is price no longer needed to gain critical economic feedback, but the information price communicates is long delayed and incomplete in terms of economic measures required to dramatically increase efficiency. Mechanisms related networked digital feedback systems make it possible to efficiently monitor shifting consumer preference, demand, supply and labor value, virtually in real time. Moreover, it can also be used to observe other technical processes price cannot, such as shifts in production protocols, allocation, recycling means, and so on. As of February 2018, it is now possible to track trillions of economic interactions related to the supply chain and consumer behavior by way of sensors and digital relay as seen with the advent of Amazon Go.

Cybernetic coordination

Paul Cockshott, Allin Cottrell, and Andy Pollack have proposed new forms of coordination based on modern information technology for non-market socialism. They argue that economic planning in terms of physical units without any reference to money or prices is computationally tractable given the high-performance computers available for particle physics and weather forecasting. Cybernetic planning would involve an ''a priori'' simulation of the equilibration process that idealized markets are intended to achieve.

Participatory economics

Proposals for decentralized economic planning emerged in the late 20th century in the form of

participatory economics Participatory economics, often abbreviated Parecon, is an economic system based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impa ...

and negotiated coordination.

Decentralized pricing without markets

David McMullen argues that social ownership of the means of production and the absence of markets for them is fully compatible with a decentralized price system. In a

post-capitalist society The Post-Capitalist Society (1993) is a book by management professor and sociologist Peter Drucker. Overview The book states that the " First World Nations" and in particular the United States have entered a post-capitalism system of productio ...

, transactions between enterprises would entail transfers of social property between custodians rather than an exchange of ownership. Individuals would be motivated by the satisfaction from work and the desire to contribute to good economic outcomes rather than material reward. Bids and offer prices would aim to minimize costs and ensure that output is guided by expected final demand for private and collective consumption. Enterprises and startups would receive their investment funding from project assessment agencies. The required change in human behavior would take a number generations and would have to overcome considerable resistance. However, McMullen believes that economic and cultural development increasingly favors the transition.

Market socialism

James Yunker argues that public ownership of the means of production can be achieved the same way private ownership is achieved in modern capitalism through the

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal o ...

system that separates management from ownership. Yunker posits that social ownership can be achieved by having a public body, designated the Bureau of Public Ownership (BPO), owning the shares of publicly-listed firms without affecting market-based allocation of capital inputs. Yunker termed this model pragmatic market socialism and argued that it would be at least as efficient as modern-day capitalism while providing superior social outcomes as public ownership of large and established enterprises would enable profits to be distributed among the entire population rather than going largely to a class of inheriting rentiers.

Mechanism design

Beginning in the 1970s, new insights into the socialist calculation debate emerged from mechanism design theory. According to mechanism design theorists, the debate between Hayek and Lange became a stalemate that lasted for forty years because neither side was speaking the same language as the other, partially because the appropriate language for discussing socialist calculation had not yet been invented. According to these theorists, what was needed was a better understanding of the informational problems that prevent coordination between people. By fusing

game theory Game theory is the study of mathematical models of strategic interactions among rational agents. Myerson, Roger B. (1991). ''Game Theory: Analysis of Conflict,'' Harvard University Press, p.&nbs1 Chapter-preview links, ppvii–xi It has appli ...

with

information economics Information economics or the economics of information is the branch of microeconomics that studies how information and information systems affect an economy and economic decisions. One application considers information embodied in certain types ...

, mechanism design provided the language and framework in which both socialists and advocates of capitalism could compare the merits of their arguments. As Palda (2013) writes in his summary of the contributions of mechanism design to the socialist calculation debate, " seemed that socialism and capitalism were good at different things. Socialism suffered from cheating, or '

moral hazard In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk ...

', more than capitalism because it did not allow company managers to own shares in their own companies. ..The flip side of the cheating problem in socialism is the lying or '

adverse selection In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might participate selectively in trades at the expe ...

' problem in capitalism. If potential firm managers are either good or bad, but telling them apart is difficult, bad prospects will lie to become a part of the firm".

Relation to neoclassical economics

In his book ''Whither Socialism?'',

Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the J ...

criticized models of market socialism from the era of the socialist calculation debate in the 1930s as part of a more general criticism of neoclassical

general equilibrium theory In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an ov ...

, proposing that market models be augmented with insights from information economics.

Alec Nove Alexander Nove, FRSE, FBA (born Aleksandr Yakovlevich Novakovsky; russian: Алекса́ндр Я́ковлевич Новако́вский; also published under Alec Nove; 24 November 1915 – 15 May 1994) was a Professor of Economics at the ...

and János Kornai held similar positions regarding economic equilibrium. Both Nove and Kornai argued that because perfect equilibrium does not exist, a comprehensive economic plan for production cannot be formulated, making planning ineffective just as real-world market economies do not conform to the hypothetical state of perfect competition. In his book ''The Economics of Feasible Socialism'', Nove also outlined a solution involving a socialist economy consisting of a mixture of macro-economic planning with market-based coordination for enterprises where large industries would be publicly owned and small- to medium-sized concerns would be organized as cooperatively-owned enterprises.