Command Economy vs Free Market Economy

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  • Topic: Planned economy, Capitalism, Economics
  • Pages : 9 (2524 words )
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  • Published : October 8, 1999
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Intorduction:

Within the overall umbrella of the word "economy", one speaks today of the market economy, the formal economy, the informal economy, the underground economy, the productive economy and perhaps even the reproductive economy, the post-industrial or post-modern economy and the global economy.

Thus while the concept of an economy is not fixed but arbitrary, and may have strayed rather far from the management of household resources, it is nonetheless spoken of in official circles as if there were genuine agreement (sometimes almost as if it were tangible, as "we must get the economy back on track"). The official economic paradigm operative in Canada is that of the market economy -- or the formal economy. This is what is being measured, analysed and reported on.

An economy is said to work within a framework reflecting the values of the society in which it is embedded. Traditionally, three models of an economy have been used: the traditional or feudal, the command economy (where the state determines resource decisions) and the market economy which is the model in use in USA and in most industrialized Western countries. Indeed, even within the market economy, there are different models; for example, the Scandinavian model of social democracy, the Asian corporatist mode, and the capitalist model of North America. Each model has been seen and judged both from inside and outside its parameters.

Individual freedom is one of the hallmarks of the market economy -- each person is free to choose how they wish to put their income to use. Adam Smith, hailed as the founder of classical economics, suggested that the sum of individual's self-interest would produce results that corresponded to the overall good of society.

The Economic systems:

There are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial).

Traditional Economy

In a traditional economy, goods and services are produced by a family for their personal consumption. There is little surplus and little exchange of goods. There is only a limited need for markets (places to buy and sell goods and services). This is the type of economy found in less developed nations of the world, usually in rural areas. Most less developed nations today are a mix of traditional and either market or command economies.

Command Economy

There are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial). In a command economy, decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are made by a single, central government agency or authority. These economic decisions are often made to further social goals. Communism is one example of a command economy; socialism is another. In a command economy, the government, not market forces, controls the price of goods including agricultural products. Production costs are not reflected in prices. For example, it may cost $1.00 to produce a loaf of bread, but the price may be set at $.25 to ensure consumers are able to afford adequate supplies.

Market Economy

There are three types of economies: traditional (also known as subsistence), command (also known as planned) and market (commercial). In a market economy (elements of which may be considered a free enterprise economic system), decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services are determined by laws of supply and demand and "the market." Profit drives decisions in a market economy.

USSR, The command economy:

From 1928 onwards the Soviet economy course was charted at the centre and directives issued outwards from the centre passing downwards and outwards through a massive hierarchical bureaucracy. Stalin's emphasis on centralization, state...
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