Most successful, thriving societies hinge on the presence of a functional economic system. Economics allow these societies to study and manage various social and financial variables, ultimately resulting in a better understanding of their overall productivity and stability.
Here, I take a look at one of the four main economic systems: command economics.
Like traditional economics, command economics holds a mostly self-explanatory name; it is a system that is defined by a dominant centralized power, usually the government, that commands most of a society’s economic activity. This power, in lieu of a free market, “determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale,” making it a much more straightforward system due to a lack of democratized decision making.
What makes it unique?
Command economies distinguish themselves from the other economic systems by placing invisible constraints — based on supply and demand — on goods to determine their overall value. As Investopedia points out, “a central tenet of a free-market economy is that the government does not intervene in the workings of the market by setting prices, limiting production or hampering competition within the private sector.” A command economy, however, does not entail competition at all; the government simply controls everything from the start.
Societies with access to a wide range of resources are especially susceptible to adopting a command economy, as these societies tend to fall back on government regulation to manage these widespread resources in an organized manner. Though, this approach tends to favor those resources that stand as the most important (gold, oil, etc.) and leave smaller focal points such as agriculture to mostly citizen-based management.
What are some examples?
Naturally, command-based economics have been and are prevalent in many communist societies such as Cuba, North Korea, and the former Soviet Union, where singular government control has been or is currently a definitive part of economic and societal functionality. These societies argue command economics’ efficiency, stating that it helps to better allocate resources and ultimately boost social welfare and open new doors for potential employment. Critics of these societies, on the other hand, would counter that command economies are “unable to efficiently allocate goods because of the knowledge problem, or the central planner’s inability to discern how much of a good should be produced” due to periodic shortages and surpluses.