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A command economy is a political system in which government decisions are made by central state economic managers who determine what sorts of goods and services to produce and how they are to be priced and allocated, and may include state ownership of the means of production. Since most known planned economies rely on plans implemented by the way of command, they have become widely known as planned economies. Any economic system that is centrally-planned by a government is commonly referred to as economic statism. To stress the centralized character of planned economies and to contrast the term with decentralized planning in a market economy, a more specific term, centrally planned economy, is also used. Although a planned economy may include exchanges of money, these exchanges are less important in allocating resources than the central plan. A political system is a social system of politics and government. ...
Statism is a term that is used in a variety of disciplines (economics, sociology, education policy etc) to describe a system that involves a significant role for the state in economic or social affairs. ...
The term describes an economy where goods and services are traded. ...
Money Money is any marketable good or token used by a society as a store of value, a medium of exchange, and a unit of account. ...
A palace economy may be considered as a subsistence economy augmented with elements of command economy. A palace economy is a system of economic organisation in which wealth flows out from a central source (the palace), eventually reaching the common people, who have no other source of income. ...
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Proponents and adversaries of planned economy put forth a number of arguments. It is not the goal of this article to discuss either the validity or the applicability of these arguments.
Support for centrally planned economies
Supporters of planned 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. A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy...
Some advocates of a centrally planned 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 planned economy can maximize the continuous utilization of all available resources. This means that planned economies do not suffer from a business cycle. Under a planned 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 planned 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 planned economy eliminates the dependence of production on individual profit motives, which may not in themselves provide for all society's needs. This article deals with democracy in general and its various forms. ...
An abstract business cycle The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most part of an economy. ...
Taken as a whole, a centrally planned economy would attempt to substitute a number of firms with a single firm for an entire economy. As such, the stability of a planned economy has implications with the Theory of the firm. After all, most corporations are essentially 'centrally planned economies', 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 centrally planned 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 planned economies would simply argue that there is no need for a sole firm for the entire economy. The theory of the firm consists of a number of economic theories which describe the nature of the firm (company or corporation), including its behaviour and its relationship with the market. ...
Objections to centrally planned 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. Ludwig Heinrich Edler von Mises (September 29, 1881 - October 10, 1973), was a notable economist and social philosopher. ...
The economic calculation problem is a criticism of socialist economics. ...
János Kornai (also Josef Kornai), (1928-), born in Budapest, Hungary, is an economist noted for his criticism of the command economies of Eastern European communist states. ...
Shortage economy is the term coined by the Hungarian economist, Janos Kornai. ...
Critics also argue that the claimed advantages of the latter are in fact achievable by state intervention within the framework of market economy as well. In particular, it is possible to create unprofitable but socially useful goods within the context of a market 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).
Planned economies and socialism For details on Soviet economic planning, see Planning in the Soviet economy. The economy of the Soviet Union was based on a system of state ownership and administrative planning. ...
Most planned economies were implemented by states that called themselves socialist. Nevertheless, a planned economy should not be seen as a necessary element of socialism. Considerable amounts of centralized planning in the economy supervised by government have proven possible within the context of a market economy. Socialist state is the term used in official documents of some countries to describe their political system. ...
The color red and particularly the red flag are traditional symbols of Socialism. ...
Some have used criticism of command economy as a means of objecting to socialism. However, many socialists have pointed out that socialism (of the social democratic type) in Western Europe occurs in a context of a market economy and not a command economy. Indeed the People's Republic of China terms its own economy a socialist market economy. The color red and particularly the red flag are traditional symbols of Socialism. ...
Social democracy is a political ideology emerging in the late 19th and early 20th centuries from supporters of Marxism who believed that the transition to a socialist society could be achieved through democratic evolutionary rather than revolutionary means. ...
Market socialism is an attempt by a Soviet-style economy to introduce market elements into its economic system to improve economic growth. ...
However, the exact definition of "socialism" is hotly disputed by several political groups which identify themselves as "socialist" (including Marxists, social democrats, libertarian socialists, anarchists, and others), and that therefore the relationship between planned economy and socialism depends on the kind of socialism in question (for example, orthodox Marxists argue that state planning is essential to socialism, while anarchists and libertarian socialists are far more skeptical about the legitimacy of central authority). Marxism is the political practice and social theory based on the works of Karl Marx, a 19th century German philosopher, economist, journalist, and revolutionary, along with Friedrich Engels. ...
Social democracy is a political ideology emerging in the late 19th and early 20th centuries from supporters of Marxism who believed that the transition to a socialist society could be achieved through democratic evolutionary rather than revolutionary means. ...
Libertarian socialism is any one of a group of political philosophies dedicated to opposing coercive forms of authority and social hierarchy, in particular the institutions of capitalism and the state. ...
Anarchism can refer to any of a range of political views, characterized by a rejection of authority in various forms. ...
Transition from a planned economy to a market economy The shift from a command economy to a market economy has proven to be difficult; in particular, there were no theoretical guides for doing so before the 1990s. One transition from a command economy to a market economy that is widely considered to be successful is that of the People's Republic of China, in which there was a period of some years lasting roughly until the early 1990s during which both the command economy and the market economy coexisted, so that nobody would be much worse off under a mixed economy than a command economy, while some people would be much better off. Gradually, the parts of the economy under the command economy decreased until the mid-1990s when resource allocation was almost completely determined by market mechanisms.
By contrast, the Soviet Union's transition was much more problematic and its successor republics faced a sharp decline in GDP during the early 1990s. While the situation has since improved, these countries have yet to generate the high rate of sustained economic growth that China has.
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