Command economy

A command economy or planned economy is where the big decisions are made at the center by the government. Gregory Grossman 1987. Command economy. In The New Palgrave: a dictionary of economics, v. 1, pp. 494–95. In an economic system the main decisions are, for example, allocating resources like labour, capital and minerals. Prices, too, are controlled. In a command economy, these decisions are taken by a central body, usually the government. 

This system contrasts that of a market economy where all the economic actors involved make decisions. The benefit of a planned economy is that the planners (supposedly) know all about what is happening, and can make a better decision than in the market economy. Countries at war sometimes command their people to make things the war needs; the major powers in World War II did this.

Friedrick von Hayek, a 20th-century economist, thought that it is not possible for the planning body to have perfect information.Hayek, Friedrick 1944. The road to serfdom.  For this reason, the decisions taken by this body will be wrong, as it is not possible to foresee all possible events. Once the decision has been taken there is only a small margin to vary the production; this means that a planned economy cannot adapt to a change as rapidly as a market economy. According to Ludwig von Mises, there is no competition, and there are no reasons to innovate or to look for different solutions to a problem, in a planned economy.Mises, Ludwig von 1936. Socialism. (1922; 1936 in English) Jonathan Cape, London; 1951 Yale, New Haven. 

 Related pages 

 Five-year plans for the national economy of the Soviet Union

 References 

Category:Economic systems