¹ See Selucky, Radoslav, Marxism, Socialism, Freedom (London: MacMillan, 1979)CrossRefGoogle Scholar, Nove, Alec, The Economics of Feasible Socialism (London: Allen and Unwin, 1983)CrossRefGoogle Scholar, and Hodgson, Geoffrey, The Democratic Economy (Harmondsworth: Penguin, 1984).Google Scholar Other notable expositions are those of Miller, David, “Socialism and the Market,” Political Theory, 1977, pp. 473–90Google Scholar and “Marx, Communism and Markets,” Political Theory, 1987, pp. 182–204, and Plant, Raymond, Equality, Markets and the State (London: Fabian Society, 1984)Google Scholar; the view has attained wider influence – see, for example, Hattersley, Roy, Choose Freedom (London: Michael Joseph, 1987).Google Scholar

² For a recent argument that they are incompatible, see Buick, Adam and Crump, John, State Capitalism (London: MacMillan, 1986).Google Scholar

³ See Selucky, , Marxism, Socialism, Freedom (London: MacMillan, 1979), p. 6ff.CrossRefGoogle Scholar, and Nove, , The Economics of Feasible Socialism (London: Allen and Unwin, 1983), p. 39ff.CrossRefGoogle Scholar

⁴ See Nove, , The Economics of Feasible Socialism (London: Allen and Unwin, 1983), p. 40ff.CrossRefGoogle Scholar, and Hodgson, , The Democratic Economy (Harmondsworth: Penguin, 1984), p. 115ff.Google Scholar

⁵ See Nove, , The Economics of Feasible Socialism (London: Allen and Unwin, 1983), p. 40.CrossRefGoogle Scholar Hayek makes this point in a number of places; for example, see Hayek, F. A., The Road to Serfdom (London: Routledge and Sons, 1944), pp. 24–26Google Scholar, and Hayek, F. A., “The Use of Knowledge in Society,” Hayek, F. A., Individualism and Economic Order (London: Routledge and Kegan Paul, 1949), pp. 78–79.Google Scholar

⁶ These elements in Marx's analysis are developed at length in his most systematic discussion of crises in Marx, Karl, Theories of Surplus Value: Part II (London: Lawrence and Wishart, 1969)Google Scholar, chapter XVII, especially sections 8 to 11; see also Marx, Karl, Capital (London: Lawrence and Wishart, 1974)Google Scholar, vol. 1, chapter III, section 1. The thrust of Marx's argument here is as follows: the possibility of crises in the market economy is a consequence of the spatial and temporal gap between the processes of production and sale of commodities; this possibility becomes a reality in the capitalist market in virtue of its additional features of being a competitive social order in which the production and sale of commodities is undertaken with the purpose of increasing the value of capital.

⁷ Hayek, F. A., “Economics and Knowledge,” Hayek, , Individualism and Economic Order (London: Routledge and Kegan Paul, 1949), p. 50Google Scholar.

⁸ Hayek, , The Road to Serfdom (London: Routledge and Sons, 1944), p. 36.Google Scholar

⁹ Hayek, , “The Use of Knowledge in Society,” Hayek, , Individualism and Economic Order (London: Routledge and Kegan Paul, 1949), pp. 85–86.Google Scholar

¹⁰ ibid., p. 85.

¹¹ Hayek's positive discussion of the notion of relevant information is a major weakness in his defense of the market. CF. Hayek, , Individiualism and Economic Order (London: Routledge and Kegan Paul, 1949), p. 50ffGoogle Scholar and p. 84ff for Hayek's analysis. Hayek cites as irrelevant information that is concerned with why a particular item has become more or less scarce, and suggests that all that is relevant is how much more or less scarce it has become. However, the relative scarcity of items and the reasons for that scarcity hardly exhaust the full gamut of information that is distributed throughout society which might be relevant to the coordination of economic activities and plans.

¹² The technical and scientific information relevant to the production and marketing of goods that is actively kept non-public I do not consider here for two reasons. First, there exist within the framework of the market economy solutions to this problem, notably the maintenance of a domain of public knowledge. It is an interesting and important question if and to what extent the market necessarily requires basic technical and scientific information to be kept public, and, vice versa, what the consequences would be if all information were treated as a commodity to be bought and sold like any other. Space will not allow me to pursue the question here. Second, it is not clear to me that this information is relevant to the coordination of the plans and activities of independent economic actors. It might impede the general economic development of different producers by blocking the distribution of significant information, but it does not thereby lead to a coordination problem in Hayek's sense.

¹³ The price of a commodity does not, of course, simply reflect the relation of supply and demand at t₀. It is also modified by the beliefs of consumers at t₀ concerning future states of the relation of supply and demand. However, what the market necessarily fails to distribute is information concerning producer plans in response to demand, and this information is relevant for coordination. The market's failure to distribute this information leads to overproduction for the reasons outlined.

¹⁴ The main points of this element of the Marxian analysis are economically stated by Engels thus:

The law of competition is that demand and supply always strive to complement each other, and therefore never do so. The two sides are torn apart again and transformed into flat opposition. Supply always follows close on demand without ever covering it. It is either too big or too small, never corresponding to demand, because in this unconscious condition of mankind no one knows how big supply and demand is. If demand is greater than supply the price rises and, as a result, supply is to a certain degree stimulated. As soon as it comes onto the market, prices fall; and if it becomes greater than demand, then the fall in prices is so significant that demand is once again stimulated. So it goes on unending – a permanently unhealthy state of affairs – a constant alternation of overstimulation and collapse which precludes all advance – a state of perpetual fluctuation perpetually unresolved. Engels, Friedrich, “A Critique of Political Economy,” Karl, Marx, Economic and Philosophical Manuscripts (London: Lawrence and Wishart, 1970).Google Scholar

This articulation of the theory also has the virtue, in this context, of highlighting the two elements involved in my reformulation – knowledge and competition.

¹⁵ Hayek appears to suggest in places that information about the planned responses of producers in competition is indirectly distributed by changes in interest rates: the planned increase in production by separate producers is reflected in an increased demand for credit, and hence a rise in interest rates; this lowers anticipated profits and dampens the expansion. See Hayek, F. A., Prices and Production (London: Routledge and Sons, 1931)Google Scholar, and Hayek, F. A., Monetary Theory and the Trade Cycle (London: Jonathan Cape, 1933).Google Scholar The credit system, if it is working satisfactorily, will communicate the relevant information. This is one of the reasons why Hayek holds that the explanation of the business cycle must lie in features of the credit system which result in its failure to perform this function. However, this argument is flawed. It is not clear that the relevant information is communicated by changes in interest rates. The problem is this. The information about which a producer needs to be informed if over-expansion in the production of some good is to be avoided is not the general level of demand for credit, but the level of demand amongst competitors. However, interest rates reflect the general aggregate demand for credit in an economy, not the relative demands in different industries. An increase in the planned production of some good by a group of competitors will be reflected in a proportional change in interest rates only if the change in demand for credit by that group is identical with that found in the whole economy, i.e., if rates of change in the demand for credit are even throughout an economy. However, there is no reason to suppose such an assumption is true, given the different production cycles of different industries. Assuming uneven changes in the demand for credit, it is quite possible for overproduction to occur even if the credit system is working ‘satisfactorily’. The credit system does not communicate the relevant information. For this reason, it is not the case that we must look to a departure from an ideal credit system to explain the business cycle.

¹⁶ Indeed, Hayek exploits this feature of his model of the market in his own account of the business cycle, according to which manufacturers over-expand in response to misinformation distributed by the price mechanism where this results in over-investment in capital goods. See Hayek, , Prices and Production (London: Routledge and Sons, 1931)Google Scholar, and Hayek, , Monetary Theory and the Trade Cycle (London: Jonathan Cape, 1933).Google Scholar There is, at this level, much in common between Marx's and Hayek's analyses. The significant difference lies in the explanation of the original source of the misinformation distributed from manufacturers of consumer goods to manufacturers of capital goods. Hayek assumes that, ceteris panbus, the price system does distribute all information that is relevant to the coordination of plans. Misinformation enters through the disturbance of the price system by the expansion of credit or money which artificially alters the relative prices of goods. The Marxian view I present here rejects the assumption that, in the absence of ‘distrubances’, the price system does distribute all information relevant to coordination. The market, in virtue of its competitive nature, fails to distribute all relevant information. This, for the reasons outlined, leads to over-expansion in some part of the economy. This, in turn, imparts false information to the producers of capital goods via the price mechanism. The extent to which local overproduction will lead to a general slump depends on the degree of interconnectivity between that part of the economy in which initial overproduction occurs and other parts of the economy.

¹⁷ The debate on the market tends to be dominated by an assumption that there exist just two alternatives: a centralized economic system in which all information is distributed by the state, or a decentralized economy in which information is distributed by the market. This assumption is one that I do not accept. A predominantly decentralized yet cooperative economy is not an impossibility. As to the mechanism for distributing economic information, the answer I believe lies somewhere in the direction of Neurath's ‘economy in kind’. See Neurath, Otto, Empiricism and Sociology, eds. Marie, Neurath and Robert, Cohen (Dordrecht: Reidel, 1973)CrossRefGoogle Scholar, ch. 5.