[lbo-talk] Oskar Lange on Marx's second phase of communism.

Jim Farmelant farmelantj at juno.com
Wed Feb 7 05:28:49 PST 2018

Oskar Lange on Marx's second phase of communism. From On the Economic Theory of Socialism.

"The idea of distributing goods and services by free sharing sounds utopian, indeed. However, if applied to only a part of commodities free sharing is by no means such economic nonsense as might appear at a first glance. The demand for many commodities becomes, from a certain point on, quite inelastic. If the price of such a commodity is below, and the consumer’s income is above, a certain minimum, the commodity is treated by the consumer as if it were a free good. The commodity is consumed in such quantity that the want it serves to satisfy is perfectly saturated. Take, for instance, salt. Well-to-do people do the same with bread or with heating in winter. They do not stop eating bread at a point where the marginal utility of a slice is equal to the marginal utility of its price, nor do they turn down the heat by virtue of a similar consideration. Or would a decline of the price of soap to zero induce them to be so much more liberal in its use ? Even if the price were zero, the amount of salt, bread, fuel, and soap consumed by well-to-do people would not increase noticeably. With such commodities saturation is reached even at a positive price. If the price is already so low, and incomes so high, that the quantity consumed of those commodities is equal to the saturation amount, free sharing can be used as a method of distribution . Certain services are distributed in this way already in our present society.

"If a part of the commodities and services is distributed by free sharing, the price system needs to be confined only to the rest of them. However, though the demand for the commodities distributed by free sharing is, within limits, a fixed quantity, a cost has to be accounted for in order to be able to find out the best combination of factors and the optimum scale of output in producing them. The money income of the consumers must be reduced by an equivalent of the cost of production of these commodities. This means simply that free sharing provides, so to speak, a “socialized sector” of consumption the cost of which is met by taxation (for the reduction of consumers’ money incomes which has just been mentioned is exactly the taxation to cover the consumption by free sharing). Such a sector exists also in capitalist society, comprising, for instance, free education, free medical service by social insurance, public parks, and all the collective wants in Cassel’s sense (e.g., street lighting). It is quite conceivable that as wealth increases this sector increases, too, and an increasing number of commodities are distributed by free sharing until, finally, all the prime necessaries of life are provided for in this way, the distribution by the price system being confined to better qualities and luxuries. Thus Marx’s second phase of communism may be gradually approached."

His idea was that under socialism, this free sharing would become increasingly prevalent as time went by.

Lange did not cite Ronald Coase's notion of transaction costs here (presumably because Coase was still a nobody within economics at that time). But Coase's insight that the resorting to the price system and markets has its own costs seems relevant to Lange's argument.

Coase's relevance would be this:

In his 1937 paper, The Nature of the Firm, he pointed out that firms internally DO NOT work like markets and he made the argument why that should be rational behavior on their part, and more importantly, why firms should exist in the first place within a market economy.

When he wrote that, Coase was a socialist (he would later become a conservative). He was a close friend of Abba Lerner, and like Lerner, was at that time very much interested in the "socialist calculation" debate..

One of Coase's concerns at that time was to show how to reconcile the apparent economic success of the Soviet Union with the neoclassical economics that he was committed to. His paper, "The Nature of the Firm" sketched out the kind of economic reasoning which could reconcile support for socialist economic planning with a commitment to neoclassical economic theory. For Coase, the key concept here was that of "transaction costs", which denoted the costs incurred by relying on the market and price system for organizing economic activity. It's precisely because transaction costs are often of significant size that people turn away from direct reliance upon the market and price system. Coase also used the concept of transaction costs in his famous 1960 paper, "The Problem of Social Cost", where he presented what has come to be known as "Coase's Theorem."


Jim Farmelant http://independent.academia.edu/JimFarmelant http://www.foxymath.com Learn or Review Basic Math

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