Throughout history, every society has faced the fundamental economic problem of deciding what to produce, and for whom, in a world of limited resources. In the 20th century, two competing economic systems, broadly speaking, have provided very different answers: command economies directed by a centralized government, and market economies based on private enterprise. Today, in the last decade of the 20th century, it is clear that, for people throughout the world, the central, command economy model has failed to sustain economic growth, to achieve a measure of prosperity, or even to provide economic security for its citizens. Yet for many, the fundamental principles and mechanisms of the alternative, a market economy, remain unfamiliar or misunderstood — despite its demonstrable successes in diverse societies from Western Europe to North America and Asia. In part, this is because the market economy is not an ideology, but a set of time-tested practices and institutions about how individuals and societies can live and prosper economically. Market economies are, by their very nature, decentralized, flexible, practical and changeable. The central fact about market economies is that there is no center. Indeed, one of the founding metaphors for the private marketplace is that of the "invisible hand." Market economies may be practical, but they also rest upon the fundamental principle of individual freedom: freedom as a consumer to choose among competing products and services; freedom as a producer to start or expand a business and share its risks and rewards; freedom as a worker to choose a job or career, join a labor union or change employers. It is this assertion of freedom, of risk and opportunity, which joins together modern market economies and political democracy. Market economies are not without their inequities and abuses — many of them serious — but it is also undeniable that modern private enterprise and entrepreneurial spirit, coupled with political democracy, offers the best prospect for preserving freedom and providing the widest avenues for economic growth and prosperity for all.
COMMAND AND MARKET ECONOMIES
Products such as bread, meat, clothing, refrigerators and houses are produced and sold in virtually every country of the world todav. The production methods and resources used to make these products are often very similar in different countries — bread, for example, is made by bakers using flour and water, often with salt, sugar and yeast added, then baked in ovens. Once the bread has been baked, the loaves are sold to consumers in stores which, at least superficially, can look very much alike, even in countries with very different kinds of economic systems.
Command Decisions about Clothing
Despite those apparent similarities, if we compare such market economies as those of North America, Western Europe and Japan to the command economies found in the former Soviet Union, Eastern Europe and parts of Asia over the past half century, the processes used to determine what products to make, how to make them, what prices to charge for them, and who will consume them are starkly different. To see those differences more clearly, consider how production and sales decisions are made in the two kinds of systems for a specific kind of product, say shirts and blouses. In command economies, government committees of economic planners, production experts and political officials establish production levels for these goods and designate which factories will produce them. The central planning committees also establish the prices for the shirts and blouses as well as the wages for the workers who make them. It is this set of central decisions that determines the quantity, variety and prices of clothing and other products. Predictably, the products from this limited number of choices sell out quickly, disappearing from store shelves....