Oskar Ryszard Lange (1904-1965)

Lange was born in Poland in July 1904 into the family of a German-born, assimilated textile manufacturer, and died in London in 1965. After studying law and economics in Poznan and Cracow, he did a PhD on business cycles in the Polish economy based on new statistical tools.

In 1934, he moved to Harvard to work with Joseph Schumpeter, returning to Europe two years later to spend seven months at Cambridge.

During his academic career, he lectured in statistics in Cracow (1927-37), Chicago (1938-45) and Warsaw (1948-65). Politically involved since his youth, he was active at the Independent Socialist Youth Union in the interwar period. During the Second World War he pushed the cause of Soviet-American rapprochement and socialist-communist cooperation. He served as the first ambassador of the Polish People’s Republic in Washington (1945-46) and as the Polish delegate to the United Nations (UN) Security Council (1946-47). Later, he was a member of parliament and a member of the State Council in Poland (Kowalik 2008).

His economic works mainly addressed two topics: the evolution of capitalism and the functioning of the market mechanism in a socialist system. In two major studies, “The rate of interest and the optimum propensity to consume” (Lange 1938) and “Say’s law: a criticism and restatement” (Lange 1942), Lange prepared the ground for an ambitious analysis of capitalist dynamics that he finally achieved in his 1944 Price Flexibility and Full Employment. In the post-war period, still focusing on capitalist dynamics, he tried to establish a connection between the Marxian schemes of reproduction and Harrod’s and Kalecki’s growth-cycle theory. The second direction of research found its major expression in Lange’s (in collaboration with Taylor) 1938 essay On the Economic Theory of Socialism. The main argument of this work was that welfare economics was better suited to studying the functioning of socialist rather than capitalist economies.

In addition to the papers he published on the subject, in the late 1950s Lange played a leading part in the work of the Polish Economic Council, which aimed at increasing the role of incentives for socialist firms within the framework of central planning. Here, Lange outlined some of the main ingredients of the post-war research programme on socialist economies.

Finally, apart from economic theory, Lange received serious critical success for his work on sociology and mathematics.

Dynamics of Capitalist Economies

Lange manifested his interest in dynamics very early in his career. In his seminal article “Marxian economics and modern economic theory” (Lange 1935), he set out the methodological foundations of reasoning using dynamics. He asserted that the methodologically correct dynamic approach is to explain in detail the evolution of the economy as resulting from “within” the economic process in a capitalist society (Assous and Lampa 2014).

The marginalist approach, and the traditional theory of economic equilibrium developed mainly by Walras, Lange believed to give a good enough description of the system as it is. As it prescinds from any institutional data, it has the merit of being abstract and therefore universal, its basic notions holding true in any kind of economic system including a socialist system. Consequently, it provides “a scientific basis” for the current administration of many aspects of the economy, such as prices, market-structure or allocation of resources. Its fault, however, is that it investigates the economic process “under a system of constant data”, thus completely ignoring both the characteristics of the data themselves (which become the object of economic statistics) and the change in the data (which is the object of economic history); therefore, static analysis relegates any laws or tendencies discoverable in the evolution of the economic facts to outside the boundaries of economics.

In opposition to the traditional static theory, Lange thought that Marxian economics, but also Schumpeter’s Theory of Economic Development (1911) as well as Kalecki’s (1939) and Kaldor’s (1940) cycle theories, offered an adequate framework in so far as it allows us to deduce the existence and the direction of certain changes in economic variables from the intrinsic instability of the economic process.

The merit of these approaches would pertain especially to their institutional dimension, particularly in the light of the existence of different classes of people: “The institutional datum, which is the corner-stone of the Marxian analysis of Capitalism, is the division of the population into two parts, one of which owns the means of production, while the other owns only labour power” (Lange 1935: 197).

Lange was well aware that the distinction between two social classes was inseparable from the existence of imperfection in the financial markets. If workers who supply labour and capitalists who own the capital stock could indeed borrow through a complete and fully competitive set of financial markets, both could invest effectively and nothing would hence differentiate them. Incidentally, it is the message of Lange’s 1944 book that under uncertainty and incomplete financial markets, price flexibility - and in particular flexible prices of production factors, mainly of labour - do not result necessarily in the automatic restoration of equilibrium.

Socialism

In collaboration with Marek Breit, in 1934 Lange wrote the first outline of a corporate market economy under socialism (Breit and Lange, English trans. 2003). The chief purpose of that study was to design a system for Poland which would be different from the command-planning system existing at this time in the Soviet Union. It rested on the rule that political authority should be separated from economic organization. Property rights should be transferred to a public bank and industrial branches should be organized in trusts. Trusts, organized into “an appropriate system of workers councils”, would hence be the basic units of the economy whose autonomy would be limited by the public bank’s supervision and coordination functions. Basic planning instruments would then include accumulation fund management and trust financing. Perceiving the danger of inflation resulting from the market power of trusts, Lange and Breit proposed to resort to a mechanism that might insure labour mobility and, finally, low wages and inflation rates.

Lange presented a second model in a book from 1938 (Lange and Taylor 1938), the chief purpose of which was now to define the outlines of a socialist organization to show theoretically and practically the feasibility of economic calculus in the absence of a genuine capital market. The model shared several features with the 1934 model, especially as regards the separation of political power from economic units. The 1934 model was, however, more “market oriented,” in so far as all prices of goods and services were to be determined by trusts under the assumption that the public bank would react to changes in employment. On the contrary, in the 1938 model, the role of the Central Planning Board (CPB) was basically to imitate the market. Acting as an auctioneer, the CPB was hence assumed to perform the role of the market by reacting to changes in inventories.

Aware of the danger of the bureaucratization of economic life, in later works Lange suggested several ideas for devising institutional guarantees for democratic control.

Michael Assous

Oskar Ryszard Lange (1904-1965)

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