Mises Wire

Home | Wire | Lange Anticipates Higgs

Lange Anticipates Higgs

  • robert_higgs

Over at Econlog Bryan Caplan explains “Socialism Was Born Bad: The Case of Oskar Lange” Both Don Boudreaux (at Café Hayek on March 25, 2014) I (on a Facebook share of the post) noticed that the “clarity of thought [which] led him [Lange]directly to a totalitarian vision that he gladly embraced” also provided arguments that support regime uncertainty as a potential major culprit in generating economic stagnation and preventing normal recovery from a recession.

My comment:

Lange’s quotes on why gradualism in the transition to socialism would fail in the economic sphere -undermine property rights and cause economic collapse – support Robert Higgs’s concept of regime uncertainty.

Don Boudreaux’s comment:

Bryan Caplan reflects on the origins of “market socialism.” (The excerpts in Bryan’s post from Oskar Lange suggests that, had he lived long enough, Lange perhaps would have – and certainly should have – endorsed at least the thrust of Bob Higgs’s account of regime uncertainty.)

The argument which appears to be a pre-endorsement of regime uncertainty is from Lange’s “On the Economic Theory of Socialism” (Review of Economic Studies, 1937 HT to Bryan Caplan):

Unfortunately, the economist cannot share this theory of economic gradualism. An economic system based on private enterprise and private property of the means of production can work only as long as the security of private property and of income derived from property and from enterprise is maintained. The very existence of a government bent on introducing socialism is a constant threat to this security. Therefore, the capitalist economy cannot function under a socialist government unless the government is socialist in name only.

Robert Higgs provided clarification on what regime uncertainty entails that is highly relevant in today’s lawless policy environment as evidenced most recently in two Wall Street Journal editorials; ObamaCare Delay Number 38 and The Suh-and-Settle Nominee. People and rhetoric matter. Per Higgs:

Regime uncertainty pertains to more than the government’s laws, regulations, and administrative decisions. For one thing, as the saying goes, “personnel is policy.” Two administrations may administer or enforce identical statutes and regulations quite differently. A business-hostile administration such as Franklin D. Roosevelt’s or Barack Obama’s will provoke more apprehension among investors than a business-friendlier administration such as Dwight D. Eisenhower’s or Ronald Reagan’s, even if the underlying “rules of the game” are identical on paper. Similar differences between judiciaries create uncertainties about how the courts will rule on contested laws and government actions.

For another thing, seemingly neutral changes in policies or personnel may have major implications for specific types of investment. Even when government changes the rules in a way that seemingly strengthens private-property rights overall, the action’s specific form may jeopardize particular types of investment, and apprehension about such a threat may paralyze investors in these areas. Moreover, it may also give pause to investors in other areas, who fear that what the government has done to harm others today, it may do to them tomorrow. In sum, heightened uncertainty in general — a perceived increase in the potential variance of all sorts of relevant government action — may deter investment even if the mean value of expectations shifts toward more secure private-property rights.

Given Lange’s prestigious standing in mainstream economics, due at least in part for his erroneous arguments in the calculation debate, it is too bad more economists don’t recognize the negative impact of regime uncertainty on investment, employment, and prosperity during the on going Bush-Obama-Fed Great Stagnation.


John P. Cochran (1949-2015) was emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research. He was also a senior fellow of the Mises Institute and served on the editorial board of the Quarterly Journal of Austrian Economics.

Add Comment

Shield icon wire