Command Economy

Published Jun 25, 2023

Definition of Command Economy

A command economy is defined as an economic system in which the government controls all aspects of production and distribution. In other words, the government makes all the important economic decisions, including what goods and services will be produced, how much they will cost, and who will receive them. This type of economic system is often contrasted with a market economy, in which economic decisions are made by individual consumers and producers rather than a central governing body.

Example

One example of a command economy is the Soviet Union from 1922 to 1991. During this time, the Soviet government controlled all aspects of the economy, including production, distribution, and pricing of goods and services. The central government would produce a plan for the entire economy, specifying quotas for each industry, and would then allocate resources and labor to meet those quotas. This system was highly inefficient and often led to shortages of essential goods.

Another example is North Korea, where the government has complete control over most aspects of the economy. The North Korean government determines what goods are produced, how much they cost, and who can buy and sell them. Citizens are not allowed to own businesses, and the government provides nearly all essential goods and services.

Why Command Economy Matters

Command economy can have advantages, such as providing the government with the ability to direct resources toward important public goods and services, such as education, healthcare, and infrastructure. However, it also has disadvantages, such as the lack of incentives for individual producers to innovate and improve their products. It is generally considered less efficient than market economies, which are based on the principles of supply and demand and individual choice. The command economy is largely rejected by most modern economists, with some exceptions, although it is still in use in some countries.