What’s a command economy?

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A command economy is controlled by a centralized government, often owning and operating production facilities and regulating prices. It aims to maintain balance, secure jobs, and efficiently use resources. The government does not control the entire consumer market.

The command economy is an economic system controlled by a centralized federal government. In most examples of this type of economy, the focus of control is on the industrial goods that are manufactured within the country. Sometimes called a centrally planned economy, it is not unusual for the government to own and operate the production facilities that produce the goods, or to maintain a high level of control over the companies that are allowed to operate within the country.

In theory, the concept of a controlled economy is to ensure that the country’s population has a sufficient supply of industrial products available at prices that are reasonable for the manufacturer and good for the overall economy. Often the price of the good produced is also regulated by the government. This action is understood to maintain balance in the economy, secure jobs in the industrial production sector of the labor market, and also help maintain the quality standards set by the government.

Another benefit that supporters of a command economy often cite is the efficient use of resources. By carefully controlling the rate of production, it is possible for the central government to eliminate a supply that exceeds the current demand within the country. As a result, finished goods inventories are smaller. This in turn reduces the number of products that remain on the shelf and eventually become obsolete and have to be destroyed or sold at a loss.

A command economy does not put control of the entire consumer market in the hands of the government. In general, a country that employs this type of economic concept will not be more involved with markets such as agriculture than a country that operates with a free enterprise system. This means that not all types of consumer products produced within the country will be owned or heavily regulated by the central government.

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