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| A '''command economy''' is an ] where most economic activity is determined by the state. | |||
| It is an extreme example of a ], where the plan encompasses the whole economy. | |||
| Examples of command economies include ], ] and ]. They are generally instituted by ]. | |||
| == Support for command economies == | == Support for command economies == | ||
| Command economies have no ], no ] and find it easy to contain ]. some socialist theorists believe that a ] implies a command economy. On this socialist view, the political control of a command economy by the workers is vastly preferable to the control of the economy and the workers by ]. | |||
| 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 ]. | |||
| Furthermore, the command economy has the same advantages potential advantages as a ]: capital and labour can be put to best use, investment can be structered and consumption deferred | |||
| 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. | |||
| As a whole, a command economy would attempt to substitute a number of firms with a single firm for an entire economy: the whole economy relates the same way that parts of a ] do within capitalism. | |||
| 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 == | ==Objections to command economies == | ||
| Critics of command economy argue that planners cannot detect demand with sufficient accuracy. In a market economy, ] serve this purpose. Economist ] critiques command economies with this rationale. A common example is the ] where shortages caused long queues for basic consumer products such as shoes or bread. These shortages were due in part to central planners allocating resources to produce goods that they considered a higher priority. This difficulty was first noted by economist ], who called it the "]". Economist ] developed this into a ] theory. | Critics of command economy argue that planners cannot detect demand with sufficient accuracy. In a market economy, ] signals serve this purpose. Economist ] critiques command economies with this rationale. A common example is the ] where shortages caused long queues for basic consumer products such as shoes or bread. These shortages were due in part to central planners allocating resources to produce goods that they considered a higher priority. This difficulty was first noted by economist ], who called it the "]". Economist ] developed this into a ] theory. | ||
| Critics of the command economy also claim that nodern ] shows the way for governments to correct many of the problems with market economies while retaining a market structure. | |||
| 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 |
Critics also point out that 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 14:19, 14 November 2005
A command economy is an economic system where most economic activity is determined by the state.
It is an extreme example of a planned economy, where the plan encompasses the whole economy.
Examples of command economies include communist Russia, Cuba and North Korea. They are generally instituted by socialist states.
Support for command economies
Command economies have no unemployment, no business cycle and find it easy to contain inflation. some socialist theorists believe that a socialist economy implies a command economy. On this socialist view, the political control of a command economy by the workers is vastly preferable to the control of the economy and the workers by capitalists.
Furthermore, the command economy has the same advantages potential advantages as a planned economy: capital and labour can be put to best use, investment can be structered and consumption deferred
As a whole, a command economy would attempt to substitute a number of firms with a single firm for an entire economy: the whole economy relates the same way that parts of a corporation do within capitalism.
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. Economist Milton Friedman critiques command economies with this rationale. A common example is the Soviet Union where shortages caused long queues for basic consumer products such as shoes or bread. These shortages were due in part to central planners allocating resources to produce goods that they considered a higher priority. 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 of the command economy also claim that nodern microeconomics shows the way for governments to correct many of the problems with market economies while retaining a market structure.
Critics also point out that 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: