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| 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 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 |
Critics of the command economy also claim that modern ] 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). | 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). | ||
Revision as of 06:27, 15 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 modern 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: