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| In a '''command economy''', the government determines production levels and sets prices. | |||
| In a '''command economy''', the government determines production levels and sets prices. This is said to be advantageous because it prevents unscrupulous investors from taking advantage of consumers. ] advocates such as ] have criticized the '''command economy''' on the grounds that centralized planning ignores the ] and is therefore ineffective. Cited from the diploma of Erzsébet Fegyver, and Peter Nagy. In a similar manner, the idea of a '''command economy''' has been criticized because of inherently large ] associated with costs of distribution. A good example is the ] which suffered many shortages and inefficiencies due to beaurocratic oversight and neglect. This idea may be attributed to ] who predicted the downfall of the ] because of insurmountable ]. | |||
| == Support for command economies == | |||
| Supporters of command economies cast them as a practical measure to ensure the production of necessary goods—one which does not rely on the vagaries of ]. | |||
| Some advocates of a command economy claim the following advantages. The government can harness land, labor, and capital to serve the economic objectives of the state (which, in turn, may be decided by the people through a ] process). Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. For example, many modern societies fail to develop certain medicines and vaccines which are seen by medical companies as being unprofitable, but by social activists as being necessary for public health. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. Second, a command economy can maximize the continuous utilization of all available resources. This means that command economies do not suffer from a ]. Under a command economy, neither unemployment nor idle production facilities should exist beyond minimal levels, and the economy should develop in a stable manner, unimpeded by inflation or recession. A command economy can serve social rather than individual ends: under such a system, rewards, whether wages or perquisites, are to be distributed according to the social value of the service performed. A command economy eliminates the dependence of production on individual profit motives, which may not in themselves provide for all society's needs. | |||
| Taken as a whole, a command economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a command economy has implications with the ]. After all, most corporations are essentially 'command', aside from some token intra-corporate pricing (not to mention that the politics in some corporations resemble that of the Soviet Politburo). That is, corporations are essentially miniature command economies and seem to do just fine in a free market. As pointed out by Kenneth Arrow and others, the existence of firms in free markets shows that there is a need for firms in free markets; opponents of command economies would simply argue that there is no need for a sole firm for the entire economy. | |||
| ==Objections to command economies == | |||
| Critics of command economy argue that planners cannot detect demand with sufficient accuracy (in a market economy, price signals serve this purpose). For example, during certain periods in the history of the ], shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread. These shortages were due in part to the central planners deciding, for example, that making tractors was more important than making shoes at that time, or because the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes of the required quality. This difficulty was first noted by economist ], who called it the "]". Economist ] developed this into a ] theory. | |||
| Critics also argue that the claimed advantages of the latter are in fact achievable by state intervention within the framework of free market economy as well. In particular, it is possible to create unprofitable but socially useful goods within the context of a ]. For example, one could produce a new drug by having the government collect taxes and then spend the money for the social good. It is also claimed that market economies do allow societies to evaluate the cost of social goods and choose rationally between different alternatives. | |||
| Critics also point out that certain types of command economies may require a state which intervenes highly in people's personal lives. For example, if the state directs all employment then one's career options may be more limited. If goods are allocated by the state rather than by a market economy, citizens cannot, for example, move to another location without state permission because they would not be able to acquire food or housing in the new location, since those were not preplanned for (however, advocates of planned economy may point out that a market economy does not guarantee the existence of food and housing at the new location either). | |||
| See: | See: | ||
Revision as of 22:21, 9 November 2005
In a command economy, the government determines production levels and sets prices.
Support for command economies
Supporters of command economies cast them as a practical measure to ensure the production of necessary goods—one which does not rely on the vagaries of free markets.
Some advocates of a command economy claim the following advantages. The government can harness land, labor, and capital to serve the economic objectives of the state (which, in turn, may be decided by the people through a democratic process). Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. For example, many modern societies fail to develop certain medicines and vaccines which are seen by medical companies as being unprofitable, but by social activists as being necessary for public health. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. Second, a command economy can maximize the continuous utilization of all available resources. This means that command economies do not suffer from a business cycle. Under a command economy, neither unemployment nor idle production facilities should exist beyond minimal levels, and the economy should develop in a stable manner, unimpeded by inflation or recession. A command economy can serve social rather than individual ends: under such a system, rewards, whether wages or perquisites, are to be distributed according to the social value of the service performed. A command economy eliminates the dependence of production on individual profit motives, which may not in themselves provide for all society's needs.
Taken as a whole, a command economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a command economy has implications with the Theory of the firm. After all, most corporations are essentially 'command', aside from some token intra-corporate pricing (not to mention that the politics in some corporations resemble that of the Soviet Politburo). That is, corporations are essentially miniature command economies and seem to do just fine in a free market. As pointed out by Kenneth Arrow and others, the existence of firms in free markets shows that there is a need for firms in free markets; opponents of command economies would simply argue that there is no need for a sole firm for the entire economy.
Objections to command economies
Critics of command economy argue that planners cannot detect demand with sufficient accuracy (in a market economy, price signals serve this purpose). For example, during certain periods in the history of the Soviet Union, shortages were so common that one could wait hours in a queue to buy basic consumer products such as shoes or bread. These shortages were due in part to the central planners deciding, for example, that making tractors was more important than making shoes at that time, or because the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes of the required quality. This difficulty was first noted by economist Ludwig von Mises, who called it the "economic calculation problem". Economist János Kornai developed this into a shortage economy theory.
Critics also argue that the claimed advantages of the latter are in fact achievable by state intervention within the framework of free market economy as well. In particular, it is possible to create unprofitable but socially useful goods within the context of a mixed economy. For example, one could produce a new drug by having the government collect taxes and then spend the money for the social good. It is also claimed that market economies do allow societies to evaluate the cost of social goods and choose rationally between different alternatives.
Critics also point out that certain types of command economies may require a state which intervenes highly in people's personal lives. For example, if the state directs all employment then one's career options may be more limited. If goods are allocated by the state rather than by a market economy, citizens cannot, for example, move to another location without state permission because they would not be able to acquire food or housing in the new location, since those were not preplanned for (however, advocates of planned economy may point out that a market economy does not guarantee the existence of food and housing at the new location either).
See: