Market socialism is a type of economic system involving social ownership of the means of production within the framework of a market economy. Various models for such a system exist, usually involving cooperative enterprises and sometimes a mix that includes public or private enterprises. In contrast to the majority of historic self-described socialist economies, which have substituted some form of economic planning for the market mechanism, market socialists wish to retain the use of supply and demand signals to guide the allocation of capital goods and the means of production. Under such a system, depending on whether socially owned firms are state-owned or operated as worker cooperatives, profits may variously be used to directly remunerate employees, accrue to society at large as the source of public finance, or be distributed amongst the population in a social dividend. Market socialism can be distinguished from the concept of the mixed economy because most models of market socialism propose complete and self-regulating systems, unlike the mixed economy. 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. Though the term "market socialism" only emerged in the 1920s during the socialist calculation debate, a number of pre-Marx socialists, including the Ricardian socialist economists and mutualist philosophers, conceived of socialism as a natural development of the market principles of classical economics, and proposed the creation of co-operative enterprises to compete 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 property owners. Although sometimes described as "market socialism", the Lange model is a form of market simulated planning where a central planning board allocates investment and capital goods by simulating factor market transactions, while markets allocate labor and consumer goods. The system was devised by 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. Real-world attempts to create market socialist economies have only partially implemented the measures envisioned by its theorists, but the term has sometimes been used to describe the results of various attempts at liberalization in the Eastern Bloc including Hungary's New Economic Mechanism, the economy of Yugoslavia, Soviet perestroika, and the reform and opening up of China, as well as Lenin's New Economic Policy.
Theoretical history
Classical economics The key theoretical basis for market socialism is the negation of the underlying expropriation of surplus value present in other 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 capitalistic free markets that he moved toward a more socialist bent, adding chapters to his Principles of Political Economy in defence 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 favour 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 favour. 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 Alfred Marshall's Principles of Economics. In later editions of Principles of Political Economy, Mill would argue that "as far as economic theory was concerned, there is nothing in principle in economic theory that precludes an economic order based on socialist policies". Mill also promoted substituting capitalist businesses with worker cooperatives, writing:
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 labourers 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. In his later thought, he advocated for a cooperative economic order, an economy based on enterprises run by workers themselves in an open market, rather than the employment-wage relationship of capitalist companies.
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.
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