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neglecting “all recent writings on the subject.”90 According to Durbin, “democratic socialism” need not imply any “rigid programme of production” but only that “the final responsibility for taking economic decisions is transferred from the private company or group of shareholders to the representatives of the community. . . .”91 Durbin’s “democratic socialism” was a variant of the market socialism (sometimes also referred to by Hayek as “competitive socialism”) that Oskar Lange had articulated in On the Economic Theory of Socialism. As was noted earlier, Hayek had already criticized this doctrine in a review of the Lange volume published in 1940. It was to this review that Hayek referred in his long note on market socialism in The Road to Serfdom.92

Market socialism may sound like an oxymoron, but it is a position that has seldom failed to intrigue economists seeking “the middle way.” Market socialists are critics of capitalism, to be sure, but they accept as a starting premise that perfectly competitive markets have certain desirable efficiency characteristics. Crucially, however, they deny that any real world markets resemble those described under perfect competition. The days of atomistic competition disappeared when cartels and monopolies began emerging in the late nineteenth century. Contemporary capitalism, then, lacks the beneficial aspects of competition, while retaining all of its defects. A planned market socialist economy would restore true competition with all of its benefits while simultaneously correcting the myriad social injustices associated with unfettered capitalism. In Lange’s specific blueprint for a market socialist society, there exist free markets for both consumer goods and labor, but (because of public ownership of the means of production) no market for productive resources. A Central Planning Board would provide prices, adjusting them up or down (using a “trial-and-error” method) depending on revealed shortages or surpluses.

Market socialism is attractive because it seems to combine the best parts of rival systems: the efficiency of a market-based system and egalitarian policies aimed at promoting social justice, all combined within a democratic polity. In his review, Hayek raised a number of pertinent questions about the details of Lange’s plan, most of which suggested that though market socialism sounded good, it would not work. One of his key complaints was that Lange had neglected to say how often prices would need to be adjusted in his proposed system. This was an important issue, for even with relatively quick adjustments (something that Hayek thought would be difficult to sustain) Hayek maintained that an extensive system of price fixing would still always be playing catch-up relative to the adjustments that would take place in a market system, and so would be less efficient. In making his points, Hayek wrote, famously, that “it is difficult to suppress the suspicion that this particular proposal has been born out of an excessive preoccupation with problems of the pure theory of stationary equilibrium.”93 Hayek’s later and much fuller development of how markets work to coordinate social and economic activity in a world in which knowledge is dispersed—a world very different from that described by the theory of stationary equilibrium—would become one of his central contributions to economics.

Hayek, then, had already articulated a set of arguments against market socialism. Why did he relegate them to a note in The Road to Serfdom? One clue is given by a letter that Lange wrote to Hayek on July 31, 1940, in which he responded to Hayek’s review and tried to clear up a misunderstanding:

I do not propose price fixing by a real central planning board, as a practical solution. It was used, in my paper, only as a methodological device to show how equilibrium prices can be determined by trial and error even in the absence of a market in the institutional sense of the word. Practically, I should, of course recommend the determination of the prices by a thorough market process whenever this