Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms would be used to directly remunerate employees or would be the source of public finance or could be distributed amongst the population through a social dividend. Theoretically, the fundamental difference between market socialism and a non-market socialism is the existence of a market for the means of production and capital goods. Market socialism is distinguished from models of mixed economies, because unlike the mixed economy, models of market socialism are complete and self-regulating systems. Additionally, market socialism is contrasted with social democratic policies implemented in capitalist market economies. While social democracy aims to achieve greater equality through taxes, subsidies and social welfare projects, market socialism does so through changes in patterns of enterprise ownership and management.
Early forms of market socialism consisted of proposals for cooperative enterprises operating in a free-market economy, so that exploitation would be eliminated and individuals would receive the full product of their labor. Early market socialism was expressed by Ricardian socialists, mutualists and individualist anarchists and was based on the theories of classical economics.
Contemporary models of market socialism are based on neoclassical economic theory beginning in the early twentieth century. Early neoclassical models of socialism include a role for a central planning board (CPB) in setting prices to equal marginal cost in order to achieve pareto efficiency. Alternative models of market socialism outlined models where socially-owned enterprises operate free markets to maximize economic profit. In contemporary models proposed by economists such as John Roemer and James Yunker, public ownership is achieved through public ownership of equity.
Market socialism has also been used to refer to reformed economic systems in Marxist-Leninist states, such as the People's Republic of China, where a free price system is utilized for the allocation and distribution of all resources in the state sector. In this model, state ownership is reserved for "strategic" sectors of the economy. Within this model, the state would utilize indirect market mechanisms (fiscal, monetary and Industrial policy) to influence economic activity in the same manner governments affect economic decisions in capitalist economies, including the use of (external) regulation over the otherwise autonomously-operating state enterprises. However, proponents of this model do not consider it to be a form of market socialism in the neoclassical sense, and instead describe it as an alternative economic model called the "socialist market economy".
Read more about Market Socialism: Theoretical History, Theoretical Basis, Implementation, Other Uses of The Term
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—Alexander Herzen (1812–1870)