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| 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. Friedman and other economists also point out that not only does a command economy require central price coordination—an already difficult task, given the inability to utilize price signals—but the impossibility of juggling ''all'' of the prices within an economy, as all products are ultimately interrelated. | |||
| In a similar manner, the idea of a '''command economy''' has been criticized because of the inherently large ] associated with the distribution of goods. A good example is the ] which suffered many shortages and inefficiencies due to bureaucratic oversight and neglect. This idea may be attributed to ] who predicted the downfall of the ] because of insurmountable ]. | |||
| ==See also== | |||
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Revision as of 21:38, 13 January 2006
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.
Free market advocates such as Milton Friedman have criticized the command economy on the grounds that centralized planning ignores the price signal and is therefore ineffective. Friedman and other economists also point out that not only does a command economy require central price coordination—an already difficult task, given the inability to utilize price signals—but the impossibility of juggling all of the prices within an economy, as all products are ultimately interrelated.
In a similar manner, the idea of a command economy has been criticized because of the inherently large transaction costs associated with the distribution of goods. A good example is the Soviet Union which suffered many shortages and inefficiencies due to bureaucratic oversight and neglect. This idea may be attributed to Ronald Coase who predicted the downfall of the Soviet Union because of insurmountable transaction costs.