Lange, Oskar

WORKS BY LANGE

Oskar Lange’s intellectual pursuits followed three lines: economic analysis, the propagation of Marxian socialist ideas, and didactic work. This diversity in his interests reflects the diversity of Lange’s career, divided as it was between Poland and the United States and between academic and political activities.

Lange was born in Tomaszow, Poland, in 1904 and died in Warsaw in 1965. He attended the University of Poznan and later was connected with the University of Krakow, first as a student (obtaining an LL.M. in 1927 and an LL.D. in 1928) and then as a lecturer from 1931 to 1935. He also studied at the London School of Economics in 1929 and toured several American universities as a Rockefeller fellow in 1932.

In 1936 Lange went to the University of Michigan as a lecturer. He settled in the United States a year later, rose rapidly through the academic ranks, and was appointed to a professorship at the University of Chicago in 1943.

Lange’s political career began during the closing years of World War II. His early interest in socialism–he had been a member of a socialist students’ organization at Krakow and later worked with the educational committee of the Polish Socialist party —was evident in several of his prewar Polish and English publications. However, Lange’s active participation in politics was triggered by the conflicts that arose between the Polish government-in-exile and the Soviet-backed Union of Polish Patriots. Lange gave the latter his (initially very cautious) endorsement. Between 1943 and 1945 he intensified his political activities; in the latter year he resumed his Polish citizenship (he had become a United States citizen in 1943) and was appointed ambassador to the United States by the newly created left-wing Polish government. Lange was Poland’s delegate to the United Nations from 1946 to 1949. In 1949 the Polish government’s policy took a sharp turn toward Stalinist orthodoxy; Lange was recalled to Poland and relegated to insignifi-cant jobs. By 1955/1956 his undogmatic socialism once again became acceptable, and he was appointed a member, and, for a period, deputy chairman of the Council of the Polish People’s Republic –a position of high prestige, though of little real influence. He was also appointed deputy chairman and later chairman of the State Economic Council –a body designed to provide expert advice on ways and means of improving the Polish economy.

Upon his return to Poland in 1949, Lange resumed his academic work, interrupted by his four years of diplomatic service. Between 1952 and 1955 he was rector of the Central School of Planning and Statistics and from 1955 until his death in 1965 was a professor at the University of Warsaw.

Economic analysis . Lange’s analytic work seems very remote from his political activities. During his most creative period (the late 1930s and early 1940s) he worked very much in the mainstream of economic thought. He was concerned with the logic of welfare economics (1942 a), with interest theory (1936; 1937; 1938), and with the theoretical derivation of supply and demand elasticities (1942 b). Above all, he dealt (very much in the Keynesian vein) with the imperfections of the free-enterprise system and with the shortcomings of neoclassical economics.

The distinguishing marks of Lange’s approach are the ease with which he operated within a general equilibrium framework, his judicious use of mathematics, and–sometimes–his tendency to confuse theoretical models with empirical reality. Two of his major analytical works illustrate both his virtues and weaknesses.

In “Say’s Law: A Restatement and Critique” (1942c) Lange showed that Say’s law implies zero degree homogeneity of supply and demand functions for all commodities and first degree homogeneity of expectation functions. These relations hold in a barter economy, but in a money economy they leave money prices indeterminate. The division of price theory into two subsystems that determine, respectively, relative prices and the price level is logically inconsistent. Relative prices and the price level must be determined simultaneously: any theory applying to a monetary economy must start by rejecting Say’s law.

In Price Flexibility and Employment (1944), Lange set out to examine systematically the effect of flexible factors of production on employment and economic stability. He showed that within a general equilibrium context a fall in the price of an underemployed factor leads to an increase in its employment if the monetary effect is positive, that is, if a proportional fall in all prices leads to a reduction in excess demand for cash balances sufficient to cause a substitution of goods for money. He examined the conditions under which the monetary effect is positive, in terms of the responsiveness of the monetary system to price changes and in terms of price expectations:

If price expectations are prevailingly of unit elasticity. . . [for the positive monetary effect to occur] the real quantity of money in the economy [must] increase as prices fall and decrease as prices rise. If price expectations are prevailingly inelastic, the real quantity of money must diminish less than the real demand for cash balances when prices fall and increase less than the latter when prices rise. The reverse must take place if price expectations are elastic. ([1944] 1952, p. 23)

Even when the right combination of elasticity of expectation and responsiveness of the money system exists, the stabilizing effects of price flexibility are likely to be dulled by such factors as uncertainty, oligopoly, and destabilizing international repercussions.

Lange treated all the possible cases as if they were equally likely to occur. Since only relatively few of the cases result in stability, he concluded that “only under very special conditions does price flexibility result in the automatic maintenance or restoration of equilibrium of demand for factors of production” (ibid., p. 83). Although he did qualify this conclusion by adding that these conditions were approximately realized from the 1840s until 1914, it is not clear how such an assertion can be made on the basis of pure analysis unchecked by empirical inquiries.

Concern with Marxian socialism . Late in the 1920s and early in the 1930s Lange began to write articles devoted to the propagation of Marxian socialist ideas (1929; 1931; 1934). The volume of such publications increased after he started to play an important role in the political life of postwar Poland. At times his Marxist beliefs came into conflict with his economic analysis. In a 1956 article Lange ascribed the increasing well-being of workers in some capitalist countries to the influence of strong labor unions. “Where capitalism encounters a weak, disorganized mass of workers devoid of political rights, it becomes fully evident how it de-grades and impoverishes the workers. Such is the case in Spain and in Latin America.” A year later Lange stated that there is a “fundamental law” which determines the purpose of the use of means of production: “under capitalism it determines that production is done for private profit; under socialism . . .that production is done for the satisfaction of human wants” (1958 a, pp. 26–27). These statements do not appear compatible with the thought of an analytical economist.

Yet Lange saw no irreconcilable conflict between socialist economies and analytical principles of efficiency or between Marxism and modern economics. On the contrary, he held that a socialist system can operate more rationally than a market economy. To convince free-enterprise critics of this he wrote an extended essay in 1936 entitled “On the Economic Theory of Socialism,” in which he built a model of an economy with fully nationalized means of production. Earlier writers, notably Barone, had formulated efficiency conditions for a socialist system without indicating how the efficient position is to be reached.[See the biography of Barone.] Lange formulated operational rules to be followed by managers of nationalized industry and by planners. The application of these rules results in a process of Walrasian tâtonnement, which leads to efficient allocation yet avoids the reliance on capitalist processes with their concomitant evils of monopoly distortions, unemployment, and social inequities.

Lange never looked upon his model of market socialism as a blueprint for a socialist state. His commitment to the Marxian doctrine of historical materialism precluded any a priori prescriptions for socioeconomic organizations. Historical materialism does not require, however, the acceptance of Marxian economics, which ignores “the whole development of economic theory since the time of Ricardo,” and which relies on long discredited concepts, such as the labor theory of value (1935).

After many trial formulations, Lange undertook a synthesis of Marxism with modern economics in hisPolitical Economy (1959; only the first volume of a planned three-volume work was published in its entirety in Lange’s lifetime). The work was ambitiously conceived to provide a systematic treatment of the entire field of political economy in a manner consistent with Marxian premises. Starting with the definition of the scope of political economy (“political economy is concerned with the social laws of production and distribution”) the reader is led through the materialistic interpretation of history as it applies to modes of production and social formation, to the problem of economic laws, the general methodology of political economy, the principles of economic rationality, and, finally, to technical aspects of economics.

Significance of Lange’s work in socialist countries . To a non-Marxian reader, and especially to one brought up in the Anglo-Saxon unphilosophical tradition of economics, Lange’s Political Economy is bewildering. Subtle distinctions between laws of political economy and economic laws, lengthy classifications of such laws, discussions of the place of praxiology in economics, not to mention the critique of “subjectivist” and “historical” schools of economics, seem pointless. Quotations from Marx do not bolster the plausibility or improve the clarity of the principle of diminishing marginal rate of substitution (1964). Claims that modern national income accounting and input-output techniques derive directly from Soviet material balancing seem dubious. To label welfare economics as a “petty and middle bourgeois critique of capitalist monopolies” seems silly.

For Marxian socialists, however, the appearance of Lange’sPolitical Economy was an event of cardinal importance. Here is a work that accepts the basic Marxian premises and the Marxian approach and that also accepts modern economic tools. The “subjectivist” school is damned, as before, but the marginalist approach, once rejected as a worthless figment of subjectivist imagination, is accepted into the canon. The historical relativity of economic laws is reasserted, but it is also stated that “the technical and balance laws of production, the laws of human behavior, and the laws of interplay of human actions continue to operate objectively, independently of human will and consciousness. This cannot be changed by socialist, or any other mode of production” (1958 a, p. 82). To be an economist (in the Western sense) no longer means, then, being a traitor to Marxism.

The purely technical works in which Lange tries to show the relevance of modern economic tools to socialist reality are not as problematic asPolitical Economy, It was Lange’s belief that when there is no market mechanism in socialist countries, it is all the more important to strive consciously toward economic rationality. Rational planning requires consistency and optimization. The plans must result in an efficient growth pattern; their success is contingent upon a reverse flow of information, that is, on a feedback mechanism that informs the planners of the changes which result from the execution of the plans. Lange expressed these ideas in courses on growth and accumulation, econo-metrics, mathematical programming, and cybernetics; he also wrote a series of books based on these courses (1958 b 1961). As inPolitical Economy, there are numerous references to Marx: there is a short step from Marx’s two-sector scheme of simple reproduction to the optimum path of accumulation. Yet such references in no way sub-tract from the treatment, which is clear, logical, and often extremely elegant.

Lange’s own contributions to econometrics, programming, cybernetics, and growth theory are minor. Yet his works on these subjects may prove to be his most lasting monument: they introduced modern economics to the socialist world and helped educate a new generation of Polish econo-mists and econometricians in the tradition of Western scientific inquiry.

Stanislaw Wellisz

[See alsoEconomic equilibrium; Economic thought, article onsocialist thought.]

WORKS BY LANGE

1929 Wrastanie w socjalizm czy nowa faza kapitalizmu (Growth Into Socialism or a New Phase of Capitalism)?Robotniczy przeglqd gospodarczy 3:69–74.

(1931) 1961 Rola państwa w kapitalizmie monopolistycznym (The Role of the State in Monopoly Capitalism). Pages 11–29 in Oscar Lange, Pisma ekonomiczne i spoleczne: 1930–1960. Warsaw: Pańistwowe Wydawnictwo Naukowe. → First published in Volume I of the Kwartalnik socjalistyczny.

(1934) 1961 Z pracy: Droga do socjalistycznej gospodarki planowej (The Road to a Socialist Planned Economy). Pages 29–42 in Oscar Lange, Pisma ekonomiczne i spoieczne: 1930–1960. Warsaw: Panstwowe Wydawnictwo Naukowe. → First published in Gospodarka-polytika-taktyka-organizacja socjalizmupublished by Plomienie.

1935 Marxian Economics and Modern Economic Theory. Review of Economic Studies 2:189–201.

1936 The Place of Interest in the Theory of Production. Review of Economic Studies 3:159–192. → See also Volume 4, page 82, “Correction.” 1936–1937 On the Economic Theory of Socialism. Parts 1–2.Review of Economic Studies 4, no. 1:53–71; 4, no. 2:123–144. → A correction of Part 1 appeared in the February 1937 issue of the same journal, as “Mr. Lerner’s Note on Socialist Economics.” Subsequently the essay was reprinted with minor changes in Benjamin E. Lippincott (editor), On the Economic Theory of Socialism, published by the University of Minnesota Press.

1937 Professor Knight’s Note on Interest Theory. Review of Economic Studies 4:231–235.

1938 The Rate of Interest and the Optimum Propensity to Consume.Economica New Series 5:12–32.

1942 a The Foundations of Welfare Economics.Econo-metric a 10:215–228. 1942k Theoretical Derivation of Elasticities of Demand and Supply: The Direct Method.Econometrica 10: 193–214.

1942c Say’s Law: A Restatement and Critique. Pages 49–68 in Chicago, University of, Department of Economics, Studies in Mathematical Economics and Econometrics in Memory of Henry Schultz. Edited by Oskar Lange, Francis Mclntyre, and Theodore O. Yntema. Univ. of Chicago Press.

(1944) 1952 Price Flexibility and Employment. Cowles Commission Monographs, No. 8. Bloomington, Ind.: Principia.

(1956) 1961 John Strachey o wspólczesnym kapitalizmie (John Strachey on Contemporary Capitalism). Pages 25–29 in Oscar Lange, Pisma ekonomiczne i spoleczne: 1930–1960. Warsaw: Panstwowe Wydawnictwo Naukowe. → First published in No. 270 of Zycie Warszawy. The translation of the extract in the text was provided by Stanislaw Wellisz.

1958 a The Political Economy of Socialism: Two Lectures. The Hague: Van Keulen. → Lectures delivered at the Institute for International Politics and Economics, Belgrade, November 18 and 19, 1957, and Institute of Social Studies, The Hague, June 6 and 9, 1958.

(1958b) 1963 Introduction to Econometrics. 2d ed., rev. & enl. New York: Macmillan. → First published as Wstep do ekonometrii.

(1959) 1963 Political Economy. Vol. 1. New York: Macmillan. → First published as Ekonomia polityczna.

(1961) 1965 Teoria reprodukcji. 2d ed. Warsaw: Panstwowe Wydawnictwo Naukowe. → Contains summaries in English and Russian.

1964 Relacje ilściowe w produkcji (Quantitative Relations in Production).Ekonomista [1964], no. 4. → To be reprinted in the projected second volume of Political Economy.

Economic Development, Planning, and International Cooperation. New York: Monthly Review Press, 1963.

Essays on Economic Planning. Bombay: Asia Publishing House, 1963.

Pisma ekonomiczne i spoteczne: 1930–1960 (Economic and Social Essays: 1930–1960). Warsaw: Panstwowe Wydawnictwo Naukowe, 1961. → Contains several of Lange’s early articles and a comprehensive bibHography of his writings from 1925 to 1961.