Essays after the Collapse of Communism
New Thinking in Political Economy series
Chapter 12: Does Market Socialism Have a Future? From Lange and Lerner to Schumpeter and Stiglitz
12. Does market socialism have a future? From Lange and Lerner to Schumpeter and Stiglitz Joseph Stiglitz dropped a bomb on the post-communist literature with the publication of his Whither Socialism? in 1994. I had argued in the previous chapter that the modern welfare state has emerged as the Left’s ideal, and yet Stiglitz, an eminently respectable economist, published a defense of market socialism shortly thereafter. Surely Stiglitz must be taken seriously. In this chapter I shall explore Stiglitz’s general case for a renewed vision for market socialism.1 I think, of course, that Stiglitz still misunderstands the Mises–Hayek case against socialist planning. But I also believe Stiglitz focused too much on Lange’s idealized model of market socialism, and failed to consider Schumpeter’s. In fact, the market socialist models of Lange and Schumpeter seem to be treated as complementary in the literature on socialist calculation. (Perhaps this is one reason why Stiglitz focuses almost exclusively on the Langean variant and oﬀers no citations to Schumpeter’s model.) I shall attempt to disentangle and critically compare the two models. By doing so, we shall ﬁnd that many of Stiglitz’s present concerns, and ﬂaws, are remarkably similar to Schumpeter’s. We shall also ﬁnd that Stiglitz is really much more mainstream than the title of his book suggests: he is really trying to save, in the name of ‘market socialism’, the modern welfare state. ARROW, DEBREU, AND STIGLITZ Stiglitz (1994, pp.15–26) argues that market socialism failed in Eastern Europe because it was...
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