The question of socialism is once more in the air. Paradoxical though it may seem, the setbacks suffered by various Socialist, Social Democratic and Communist parties in Western Europe have brought up the question of the feasibility of socialism in advanced capitalist countries. At the same time, the radical rethinking in contemporary socialist (centrally planned) economies—Hungary, China, Soviet Union—has given a boost to debate about the role of markets as against planning in running these economies. The resurgence of market-oriented/libertarian economic philosophy in Western countries and indeed worldwide has put many socialists on their analytical mettle. After lying dormant for nearly fifty years, market socialism has again become the object of analysis. In his famous book The Economics of Feasible Socialism, Alec Nove has tackled this issue in a vigorous way and not surprisingly it has generated controversy.footnote1 Our concern here is with Ernest Mandel’s response to Nove, particularly with his starting point (or maintained hypothesis, as it were) that ‘the laws of motion and inner contradictions of the capitalist mode of production [betoken] a radical reduction in market-allocated labour under late capitalism, as compared with directly allocated labour.’footnote2

The reference to late capitalism notwithstanding, it is easy to show that Mandel is here repeating the assertion—commonplace ever since Engels’s Anti-Dühring—that the supersession of the market is prepared in the very womb of capitalism through the growth of the large production unit. At the limits of capitalist development, the economy resembles the single large factory and thus allocation by (indirect) exchange is suspended in favour of direct allocation within the economy/factory. While primarily held by Marxists, this view has recently also won favour among non-Marxist political economists. Not only can it be shown to have a continuous history in Marxist literature for the last hundred years and more, it can also be seen as a counterpart of another strand of Marxist socialist thinking since the days of the Second International. This is the idea that the economic working of precapitalist societies is transparent while that of capitalist ones is opaque. Political economy/economics is required to penetrate this opacity and to unmask the true nature of capitalist society. By projection, postcapitalist/socialist societies will regain transparency and economics will then become redundant.

In this essay we would like to argue that this perception of the tendencies within the capitalist economy has been harmful as a guide to thought and action by the socialist movement. The reason why it is harmful is that it is false. The view that as capitalist development proceeds, markets are bypassed in favour of direct conscious coordination is a misreading of economic history. It is a mechanical, linear view rather than a complex, dialectical one, and it relies upon the same naive dichotomization of plan and market that was exploited in the debate of the 1920s and 1930s. When seen in their proper relationship, these two concepts are not simply opposed to each other in a static way but interact in a dynamic dialectical fashion. By grasping this dialectical relationship, we improve our understanding both of capitalist development and of the possibility of viable transitions to socialism.

Some definitions and clarifications are in order at the outset if we are to avoid tedious debates. Planning is possible at various levels: within the household, within a private or a public corporation, in armies or bureaucracies, etc. In taking up the issue of planning versus the market, we are not dealing exclusively with macroeconomic planning at the level of the entire economy, and indeed we shall pay some critical attention to the tendency to blur the borders between corporate and macroeconomic planning.

Planning even in a macroeconomic sense is not synonymous with socialism. It may be a necessary feature of a socialist economy, although its extent and nature may change over time and across countries. But non-socialist economies can also use planning. Total centralized control of a private-ownership economy was tried in many of the belligerent countries in the First World War and was of course a major feature of the German economy during the Nazi period.footnote3 Nor are markets, in our definition, confined to the textbook notion of perfect competition. Their essence is decentralized allocation and pervasive use of exchange. This does not rule out any degree of economic concentration nor use of administrative pricing by firms. Private ownership predominates, but some element of public ownership need not be excluded.