A command economy is controlled by a centralized body, usually the government, where every aspect of the economy is controlled, and wealth is redistributed. In contrast, a market economy is based on supply and demand, with no external control. In a command economy, the government decides what is produced, where it is allocated, and sets prices. The individual is subordinate to the collective, but it can efficiently manage resources and keep prices at a level that benefits the majority.
A command economy is one in which all aspects of a specific nation’s economic system are controlled to some extent by a centralized body, usually the government. Every stage of the production process, from the use of resources to the volume produced to the wages earned by labour, is controlled by the government and wealth is redistributed when the ruling power sees fit. Consequently, one of the main features of a command economy, also known as a planned economy, is that the individual pursuit of wealth is replaced by a concerted effort by all economic channels to improve society as a whole.
There are two types of economies prevalent in the world. Most countries prefer a market economy, characterized by a market for goods and services based on the laws of supply and demand and free from any kind of external control. Conversely, in a command economy, every decision involving the economy is made by the centralized government, as in the former Soviet Union.
More often than not, the characteristics of a command economy come to light when shown in contrast to those of a market economy. For example, production levels are decided in a market economy according to the type of demand that exists for a given product. In a command economy, the governing body decides what is produced and in which part of the country it should be allocated.
Price is another part of a command economy that falls under government authority. As profits are funneled back to the government, price levels are ideally set such that there is some benefit to the country at large. This occurs when the government redistributes wealth throughout society, deciding wages for labor and using the money for government products that benefit citizens.
Of all the characteristics of this type of economy, perhaps the most general and definitive is the general subordination of the individual to the collective. When done correctly, a command economy can efficiently manage resources so as to minimize waste and also keep prices at a level that benefits the vast majority of the population. Employment can also be controlled to discourage high unemployment. All these benefits derive from certain individual freedoms related to the accumulation of personal wealth.
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