Oskar R. Lange - Academic Contributions

Academic Contributions

The bulk of Lange's contributions to economics came during his American interlude of 1933-1945. Despite being an ardent socialist, Lange deplored the Marxian labor theory of value, being very much a believer in the neoclassical theory of price. In the history of economics, he is probably best known for his work On the Economic Theory of Socialism published in 1936, where he famously put Marxian and neoclassical economics together.

In this book, Lange advocated the use of market tools (especially the neoclassical pricing theory) in economic planning of socialism and Marxism. He proposed that central planning boards set prices through "trial and error", making adjustments as shortages and surpluses occurred rather than relying on a free price mechanism. Under this system, central planners "would arbitrarily pick a price for products manufactured in government factories and raise it or reduce it depending on whether it resulted in shortages or gluts. After this economic experiment had been run a few times, a mathematicians capable of solving complex simultaneous equations would be able to plan the economy If there were shortages, prices would be raised; if there were surpluses, prices would be lowered. Raising the prices would encourage businesses to increase production, driven by their desire to increase their profits, and in doing so eliminate the shortage. Lowering the prices would encourage businesses to curtail production in order to prevent losses, which would eliminate the surplus. Therefore, it would be a simulation of the market mechanism, which Lange thought would be capable of effectively managing supply and demand. Proponents of this idea argue that it combines the advantages of a market economy with those of socialist economics.

By this idea, Lange also argued that a state-run economy could at least be as efficient as — if not more efficient than — a capitalist or private market economy. He argued that this was possible if the government planners used the price system as if in a market economy and instructed state industry managers to respond parametrically to the state-determined prices (minimize cost, etc.). Lange's argument was one of the pivots of the Socialist Calculation Debate with the Austrian School, and the view among many economic thinkers at the time (particularly among the English socialists of the Fabian Society), was that Lange had won the debate.

His works provided the earliest model of market socialism.

Besides the work on market socialism, he also contributed in various areas. Lange was one of the leading lights of the "Paretian Revival" in general equilibrium theory during the 1930s. In 1942, he provided one of the first proofs of the First and Second Welfare Theorems. He initiated the analysis of stability of general equilibrium (1942, 1944). His critique of the quantity theory of money (1942) prompted his student, Don Patinkin, on to his remarkable "integration" of money into general equilibrium theory. Lange made several seminal contributions to the development of the neoclassical synthesis (e.g. 1938, 1943, 1944). He worked on integrating classical and neoclassical economics into a single theoretical structure (e.g. 1959). In his final years, Lange also worked on cybernetics and the use of computers for economic planning.

The International Institute of Social Studies (ISS) awarded an Honorary Fellowship to Oskar Lange in 1962