Academic journal article The European Journal of Comparative Economics

Growth Propensities under Capitalism and Profit-Oriented Market Socialism

Academic journal article The European Journal of Comparative Economics

Growth Propensities under Capitalism and Profit-Oriented Market Socialism

Article excerpt

Abstract

This research mathematically investigates the hypothesis of slow economic growth under capitalism, relative to potential economic growth under a profit-oriented market socialist alternative. The hypothesis is examined within two different economic models: (1) a current-period model that looks at the optimal level of investment in any period from the respective standpoints of the capitalist minority and the general population, and (2) a steady-state equilibrium model that looks at the optimal capitallabor ratio from the respective standpoints of the capitalist minority and the general population. In both cases, two inequalities are derived for the determination of parameter combinations under which growth retardation will hold, the first under the assumption that the aggregate CES production function is linear homogeneous, and the second under the assumption that this function is homogeneous to any degree. The fact that parameter combinations exist under which growth retardation would hold, and also under which growth retardation would not hold, suggests that this issue is essentially an empirical issue rather than a theoretical issue.

JEL Classifications: E22, O40, P51

Keywords: economic growth; investment; economic systems comparison; market socialism

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Prior to the seminal conceptual work of Oskar Lange enunciated in his essay "On the Economic Theory of Socialism" (1938), both orthodox economists and orthodox socialists would have summarily dismissed the notion of "market socialism" as a veritably ludicrous oxymoron. Lange's credentials as an accomplished neoclassical theoretician, however, lent considerable weight to his argument that a market socialist economic system, characterized by public ownership of the preponderance of capital utilized within large-scale corporate business enterprise, could successfully mimic the economic performance of a hypothetical perfectly competitive capitalist economy. In Lange's view, this gave the edge to market socialism since the real-world capitalist economy, as opposed to the hypothetical textbook capitalist economy, was (and remains) actually dominated by imperfectly competitive mega-corporations.

Although Lange's central complaint against the contemporary capitalist economy is its microeconomic inefficiency owing to the breakdown of perfect competition (a static problem), writing as he did against the background of the Great Depression, he took it for granted that capitalism was also subject to the dynamic problem of long-term sub-optimal economic growth. The apparent success of Keynesian stabilization policy in preventing disastrous business downturns since the end of World War II, however, has restored most of the pre-Great Depression confidence in the overall economic performance of capitalism, static and dynamic-at least among the majority of contemporary mainstream economists.

The level of enthusiasm among this majority for the economic performance of contemporary capitalism fluctuates with the condition of the economy, and has naturally been significantly reduced recently owing to worldwide economic vicissitudes throughout much of the 2000s. But as serious as they may be, these vicissitudes have apparently not seriously undermined overall mainstream support for the fundamental institutional status quo. Nevertheless, the possibility remains of a market socialist alternative to the capitalist status quo that would exhibit better performance, not only in terms of economic equality but also in terms of static efficiency and dynamic growth. With respect to dynamic performance, the suppression of serious depressions does not necessarily rule out the possibility that the economy is growing at less than the optimal rate, and the possibility exists that the optimal rate could indeed be achieved via some sort of social intervention-as, for example, through the establishment of a market socialist economy. …

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