The Plan and the Market: The Models of Oskar Lange

Abstract

The terms and market have been central concepts in the study of economic systems, but they have not always been treated with the necessary rigour. Some very important aspects of these two coordination mechanisms can be illuminated by means of a decision-theoretic ap proach to economic systems.1 It is not possible to present the full panoply of models in which the market, the plan, or a combination of the two are present. I shall con centrate on a comparison of three models. These models are based on those presented by Oskar Lange in his famous essay in the 1930s, which constituted a key part of the socialist controversy literature of the 1930s.2 The comparison of these models3 lends itself to examining some of the key distinctions between the plan and the market, as well as permitting us to analyze the relationship of these two mechanisms to the price system. Lange's essay was in response to the gaunt let flung at socialists by Ludwig von Mises, who argued that it was impossible to find an efficient way to organize the allocation of resources under socialism; one essential feature of socialism, so cial ownership of the means of production, pre vented the creation of a rational economic system.4