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What Are the Characteristics of a Command Economy?

A command economy is defined by centralized control, where a government makes all economic decisions. Production, investment, prices, and incomes are determined by the state. This system aims for equitable distribution and efficient resource use. However, it can stifle innovation and individual choice. How might such control shape a nation's future? Explore with us the intricate dynamics of a command economy.
Jim B.
Jim B.

A command economy is one in which all aspects of the economic system of a specific nation are controlled to some degree by a centralized body, usually the government. Every step in the production process, from utilization of resources to volume produced to wages earned by labor, is controlled by the government, and wealth is redistributed as the ruling power sees fit. As a result, one of the chief characteristics of a command economy, also known as a planned economy, is that the individual pursuit of wealth is replaced by a concerted effort from all economic channels to improve society as a whole.

There are two types of economies prevalent in the world. Most countries prefer a market economy, which is characterized by a market for goods and services predicated on the laws of supply and demand and unfettered by any sort of outside control. By contrast, in a command economy, every decision involving the economy is made by the centralized government, as in the former Soviet Union.

The Soviet Union had a command economy.
The Soviet Union had a command economy.

Very often, the characteristics of a command economy come to light when shown in contrast to those of a market economy. For example, production levels are decided upon in a market economy depending on what kind of demand there is for a particular product. In a command economy, the governing body decides what is produced and to what section of the country it should be allocated.

Pricing is another part of a command economy that falls under the authority of the government. Since profits are funneled back to the government, price levels are ideally set up so that there is some benefit to the country at large. This occurs when the government redistributes the wealth throughout society, by deciding upon wages for labor and by using the money for government products to benefit the citizens.

Of all the characteristics of this type of economy, perhaps the most general and definitive is the overall subordination of the individual to the collective. If done properly, a command economy can efficiently manage resources so that there is minimal waste and also keep prices at a level that benefits a vast majority of the populace. Labor can also be controlled to discourage high unemployment. All of these benefits come at the expense of certain individual freedoms related to amassing personal wealth.

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Discussion Comments


Since very few countries in the world have a command economy, does this mean that a market economy is superior?

It's hard to believe that China is still a command economy in some ways. Aren't they a bit too open for a command economy though?

It's involved in trade and imports and exports a lot of goods. I don't think that China fits the traditional model of a command economy very well.

China is also a member of the World Trade Organization (WTO) and they follow all WTO regulations that market economies like the United States follow.

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    • The Soviet Union had a command economy.
      By: axellwolf
      The Soviet Union had a command economy.