Socialist calculation debate in the context of "Capital markets"

Criticism of socialism is any critique of socialist economics and socialist models of organization and their feasibility, as well as the political and social implications of adopting such a system. Some critiques are not necessarily directed toward socialism as a system but rather toward the socialist movement, parties, or existing states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds, such as in the economic calculation problem and the socialist calculation debate, while others hold that certain historical examples exist and that they can be criticized on practical grounds. Because there are many types of socialism, most critiques are focused on a specific type of socialism, that of the command economy and the experience of Soviet-type economies that may not apply to all forms of socialism. Different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved. Critics of specific models of socialism might be advocates of a different type of socialism.

According to the Austrian School economist Ludwig von Mises, an economic system (specifically centralized economic planning) that does not use money, financial calculation, and market pricing would be unable to effectively value capital goods and coordinate production, and therefore in his view socialism is impossible because it lacks the necessary information to perform economic calculation in the first place. Another central argument leveled against socialist systems based on economic planning is based on the use of dispersed knowledge. Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals; this is known as the economic calculation problem. Other economists criticize models of socialism based on neoclassical economics for their reliance on the faulty and unrealistic assumptions of economic equilibrium and Pareto efficiency.

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 economic equilibrium and Pareto efficiency. In this model, the state owns non-labor factors of production, and market simulations are used by the planning organs to allocate final goods and consumer goods. The Lange model states that if all production is performed by a public body such as a democratic state, and there is a functioning price mechanism, this economy will be Pareto-efficient, like a hypothetical market economy under perfect competition. Unlike models of capitalism, the Lange model is based on direct allocation, by directing enterprise managers to set price equal to marginal cost in order to achieve Pareto efficiency. By contrast, in a capitalist economy, private owners seek to maximize profits, while competitive pressures are relied on to indirectly lower the price; this discourages production with high marginal cost and encourages economies of scale.

This model was first proposed by Oskar R. Lange in 1936 during the socialist calculation debate, and was expanded by economists like H. D. Dickinson and Abba P. Lerner. Although Lange and Lerner called it "market socialism", the Lange model is a form of centrally planned economy where a central planning board allocates investment and capital goods, while markets allocate labor and consumer goods. The planning board simulates a market in capital goods by a trial-and-error process first elaborated by Vilfredo Pareto and Léon Walras. The Lange Model is in practice a type of centrally planned economy and not a type of market socialism.