Market socialism is a type of economic system involving the public, cooperative, or social ownership of the means of production in the framework of a market economy. Market socialism differs from non-market socialism in that the market mechanism is utilized for the allocation of capital goods and the means of production. Depending on the specific model of market socialism, profits generated by socially owned firms (i.e., net revenue not reinvested into expanding the firm) may variously be used to directly remunerate employees, accrue to society at large as the source of public finance, or be distributed amongst the population in a social dividend.
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Market socialism is distinguished from the concept of the mixed economy because models of market socialism are complete and self-regulating systems, unlike the mixed economy. Market socialism also contrasts with social democratic policies implemented within capitalist market economies. While social democracy aims to achieve greater economic stability and equality through policy measures such as taxes, subsidies and social welfare programs, market socialism aims to achieve similar goals through changing patterns of enterprise ownership and management.
Early models of market socialism trace their roots to the work of Adam Smith and the theories of classical economics, which consisted of proposals for co-operative enterprises operating in a free-market economy. The aim of such proposals was to eliminate exploitation by allowing individuals to receive the full product of their labor, while removing the market-distorting effects of concentrating ownership and wealth in the hands of a small class of private property owners. Among early advocates of this type of market socialism were the Ricardian socialist economists and mutualist philosophers, but the term "market socialism" only emerged in the 1920s during the socialist calculation debate.
Although sometimes described as "market socialism", the Lange model is a form of market simulated planning where a central planning board allocates investment and capital goods by simulating factor market transactions, while markets allocate labor and consumer goods. The system was devised by socialist economists who believed that a socialist economy could neither function on the basis of calculation in natural units nor through solving a system of simultaneous equations for economic coordination.