The controversy surrounding socialism does not so much concern the above; rather, it concerns production and how socialism can have accurate factor pricing without competition. Lange here introduces several rules that are intended to replace and improve upon capitalist production. The first rule is to have all producers equalize the ratios of marginal productivity to their prices, for all the factors of production (e.g., MPa ÷ Pa = MPb ÷ Pb = MPn ÷ Pn ).
The second rule, to be used in tandem with the above, is to price production equal to marginal cost, a principle first recommended by Fred Taylor and readily adopted by Lange. This marginal cost principle, the welfare ideal of neoclassical economics, is addressed not only to the singular firms but to the industries as well.
The above two rules regulating socialism’s capital structure can be viewed profitably alongside their free-market counterparts. Profit maximization under capitalism is replaced by producing at minimum average cost. Free entry/exit and the optimum size of plant in the market order are likewise duplicated by the same rule. The second rule, of setting price to marginal cost, conforms to the “pure and perfect competition” ideal under capitalism. Setting marginal benefits to marginal costs is seen as maximizing welfare (the Pareto optimality) for society. In all, the rules fully cover the economics of production, “determin[ing] the combination of factors of production and the scale of output” while also maximizing welfare.
—Robert Bradley Jr., “Market Socialism: A Subjectivist Evaluation,” Journal of Libertarian Studies 5, no. 1 (Winter 1981): 24-25.
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