Socialist Economics - Criticisms

Criticisms

Criticism of socialist economics comes from market economists, including the classicals, neoclassicals and Austrians, as well as from some anarchist economists. Besides this, some socialist economic theories are criticized by other socialists. Libertarian socialist, mutualist, and market socialist economists, for example, criticize centralized economic planning and propose participatory economics and decentralized socialism.

Market economists generally criticise socialism for eliminating the free market and its price signals, which they consider necessary for rational economic calculation. They also consider that it causes lack of incentive. They believe that these problems lead to a slower rate of technological advance and a slower rate of growth of GDP.

Austrian school economists, such as Friedrich Hayek and Ludwig Von Mises, have argued that the elimination of private ownership of the means of production would inevitably create worse economic conditions for the general populace than those that would be found in market economies. They argue that without the price signals of the market, it is impossible to calculate rationally how to allocate resources. Mises called this the economic calculation problem. Polish economist Oskar Lange and Abba Lerner rebutted Mises' argument by developing the Lange Model during the Economic calculation debate. The Lange model states that an economy in which all production is performed by the state, where there is a functioning price mechanism, has similar properties to a market economy under perfect competition, in that it achieves Pareto efficiency.

The neoclassical view is that there is a lack of incentive, not a lack of information in a planned economy. They argue that within a socialist planned economy there is a lack of incentive to act on information. Therefore, the crucial missing element is not so much information as the Austrian school argued, as it is the motivation to act on information.