Planned or Command Economies
A planned or command economy occurs when the government controls all major aspects of
the economy and economic production. In a planned economy, it is the government that
decides what to produce, how to produce goods and how to distribute goods and services
within the economy. Command economies were often associated with the political system
of Communism. It was Karl Marx, in the Communist manifesto who argued for ‘common
ownership of the means of production.’ However, a planned economy could be associated
with other political systems. Indeed, during wartime the UK economy has operated largely
as a planned economy.
How a planned economy works
Unlike a free market economy where private ownership of resources is a crucial feature, the
government owns all of the means of production in planned economies. This means that
the government owns all of the capital (factories and machinery) and all of the natural
resources (coal deposits, oil, gas) are the property of the state. Labour will be directed by
the state, meaning that workers are allocated jobs according to where labour is needed.
The enterprise function in a planned economy is carried out by government planning.
Entrepreneurship does not really exist.
The government must decide what goods and services it wants to produce for its
population. Once this is decided, they must work backwards and plan what resources need
to be used to produce those goods and services. Factories were often given production
targets to meet by the planners. In the Soviet Union, five year plans were put in place.
These set out what was to be produced over a five year period and how the output was to
be produced.
In a pure planned economy, there is no real need for money as the state owns and
allocates all resources and it could allocate goods and services to people through rationing.
In reality, planned economies did use money. People were paid wages and spent that
money on goods and services. The government controlled prices and generally kept the
prices of essential items low so that all could afford them. This did lead to shortages and
queues.
.
Advantages of planned economies
Supporters of planned economies argue that it enables the government to overcome the
problems associated with a market economy. Inequality is a major feature of market
economies and growing inequality in many market economies is concerning economists at
present. Planned economies are able to achieve greater equality because the government
allocates resources and finished goods and services. They can choose to allocate goods
and services according to consumers’ needs. Even today, over two decades after moving
away from being planned economies, many Eastern European countries have much less
income inequality than seen in the UK or USA.
Planned economies can prevent mass unemployment, often a feature of market
economies. Market economies go through recessions and in those recessions falling
demand for goods and services causes demand for workers to fall leading to
unemployment. Unemployment has many economic and social problems associated with
A planned or command economy occurs when the government controls all major aspects of
the economy and economic production. In a planned economy, it is the government that
decides what to produce, how to produce goods and how to distribute goods and services
within the economy. Command economies were often associated with the political system
of Communism. It was Karl Marx, in the Communist manifesto who argued for ‘common
ownership of the means of production.’ However, a planned economy could be associated
with other political systems. Indeed, during wartime the UK economy has operated largely
as a planned economy.
How a planned economy works
Unlike a free market economy where private ownership of resources is a crucial feature, the
government owns all of the means of production in planned economies. This means that
the government owns all of the capital (factories and machinery) and all of the natural
resources (coal deposits, oil, gas) are the property of the state. Labour will be directed by
the state, meaning that workers are allocated jobs according to where labour is needed.
The enterprise function in a planned economy is carried out by government planning.
Entrepreneurship does not really exist.
The government must decide what goods and services it wants to produce for its
population. Once this is decided, they must work backwards and plan what resources need
to be used to produce those goods and services. Factories were often given production
targets to meet by the planners. In the Soviet Union, five year plans were put in place.
These set out what was to be produced over a five year period and how the output was to
be produced.
In a pure planned economy, there is no real need for money as the state owns and
allocates all resources and it could allocate goods and services to people through rationing.
In reality, planned economies did use money. People were paid wages and spent that
money on goods and services. The government controlled prices and generally kept the
prices of essential items low so that all could afford them. This did lead to shortages and
queues.
.
Advantages of planned economies
Supporters of planned economies argue that it enables the government to overcome the
problems associated with a market economy. Inequality is a major feature of market
economies and growing inequality in many market economies is concerning economists at
present. Planned economies are able to achieve greater equality because the government
allocates resources and finished goods and services. They can choose to allocate goods
and services according to consumers’ needs. Even today, over two decades after moving
away from being planned economies, many Eastern European countries have much less
income inequality than seen in the UK or USA.
Planned economies can prevent mass unemployment, often a feature of market
economies. Market economies go through recessions and in those recessions falling
demand for goods and services causes demand for workers to fall leading to
unemployment. Unemployment has many economic and social problems associated with
