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Command Economy

Candlefocus Editor

A command economy, also referred to as a centrally planned economy, is an economic system in which the state controls the production and distribution of goods and services. The central government owns the means of production and sets the goals for production and establishes what goods and services are to be produced, and where and at what prices. This contrasts with a free market economy, which runs according to market forces such as demand, supply, and competition, with governments playing a less active role.

Command economies have been in use since ancient times, and were commonly used in communist states such as China during the 20th century. In a command economy, the government allocates resources, distributes goods and services, and sets prices. There is no private production and no competition; the state has total control over resources and decision-making.

In a command economy, the government sets production targets and organizes enterprise production to reach those targets. This is done through various methods, such as by setting production quotas, by collecting information and coordinating production, or by setting wages. The government also sets prices at which goods and services are sold, with no competition allowed to challenge those prices. For example, the government may set a price for bread that is lower than the market rate, in order to make the bread available to everyone.

The government also controls what goods and services are produced, with an emphasis on goods and services that benefit the state. This results in a very limited range of consumer choice, as only goods and services deemed necessary by the government are produced.

The government also establishes rules and regulations for enterprise production, dictating what equipment and materials must be used and what safety measures must be in place. Inefficient production may be allowed for social reasons, such as protecting employment.

Proponents of command economies argue that the government can ensure the fair distribution of goods and services to those who need them. They also argue that government control prevents market failures, such as the misallocation of resources or monopoly power. On the other hand, command economies can suffer from inefficiency and corruption due to government interference. There can be a lack of innovation due to poor incentives, and distorted prices due to government price-setting. Overall, command economies are unpopular due to the lack of consumer freedom and opportunities for private enterprise.

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