Market socialism: Eduard Heimann
Building on Rathenau’s model of Neue Wirtschaft, and taking up of Ludwig Mises’s fundamental critique of the Gemeinwirtschaft as an economic system, Eduard Heimann (1889-1967) developed a model of market socialism (Heimann 1922) for which the author has been given credit as “the first economist who proposed a model of a socialist market economy, ten years before Taylor, Dickinson and Lange” (Lowe 1967).
Heimann envisaged a socialist order with a rational system of “free and independent formation of prices”. At the same time, he emphasized that even more important was to change the rules of the system in such a way that “the field should not be left to the conflict of interests, but to ensure that the mutuality of labour as a service to the community is raised to general awareness” (Heimann 1922: 180). For Heimann, socialization was not primarily an economic matter, but an element of his philosophical idea of ethical socialism which in the last instance rested on religious belief (Rieter 1999: 245 f.).
Freedom of consumers’ choice provides the basis for a rational mechanism of price formation. On the supply side, all production units are organized in monopolistic associations, which, however, refrain from any profit maximizing price fixing, but strictly adhere to the principle of cost pricing. Thus, in the case of a change in the demand for their product, the producer (the association) passively follows the price signal by offering the desired quantity at the new price which covers its costs until a new equilibrium is reached in the particular product market. To establish overall equilibrium, changes in the demand for a certain product entail the need for compensating changes somewhere else. To accomplish these changes, similar to the market mechanism in a private economy, the central planning body applies a procedure of trial and error. Heimann thought that the search for a new equilibrium could be more effective if there is a central authority with a complete oversight of all markets, compared to private producers who do not make information on their moves available to competitors (Heimann 1922: 186 f.).
If Heimann’s model of a market anticipates important elements of Oscar Lange’s (1936-37) “On the economic theory of socialism”, especially the use of the trial and error-method for determination of prices and quantities, it lacks the theoretical rigour of Lange’s neoclassical construction.