Command Economy

Definition

A command economy is an economic system where the government has control over the production, allocation, and pricing of goods and services. This system is characterized by centralized decision-making, where the state directs all major economic activities, often with the goal of achieving specific social or economic outcomes. In regions like Eastern Europe and Russia, command economies have played a significant role in shaping political structures and influencing social dynamics.

5 Must Know Facts For Your Next Test

1. The Soviet Union had a strict command economy that was established after the Bolshevik Revolution in 1917, influencing many Eastern European countries during the Cold War.
2. In a command economy, prices are often set by the government instead of being determined by supply and demand, leading to potential shortages or surpluses of goods.
3. Central planning in command economies can lead to inefficiencies, as planners may lack accurate information about consumer needs and preferences.
4. After the collapse of communism in Eastern Europe in the late 20th century, many countries transitioned from command economies to more market-oriented economies.
5. Command economies typically emphasize collective goals over individual entrepreneurship, which can stifle innovation and economic growth.

Review Questions

• How does a command economy differ from a market economy in terms of resource allocation and decision-making?
  • In a command economy, resource allocation and decision-making are centralized and controlled by the government, which decides what goods are produced and at what prices they will be sold. In contrast, a market economy relies on individual consumers and producers to make these decisions based on supply and demand. This fundamental difference affects how resources are distributed, with command economies often struggling with inefficiencies and mismatches between production and consumer needs.
• Evaluate the impact of transitioning from a command economy to a market-based economy in Eastern Europe after the Cold War.
  • Transitioning from a command economy to a market-based economy in Eastern Europe led to significant changes in economic structure, governance, and individual freedoms. Many countries faced challenges such as inflation, unemployment, and social unrest during this shift. However, over time, the move toward market mechanisms encouraged private entrepreneurship, foreign investment, and overall economic growth. The transition also necessitated political reforms that shifted power away from state control towards democratic governance.
• Analyze the long-term effects of a command economy on social structures within Eastern Europe and Russia.
  • The long-term effects of a command economy on social structures in Eastern Europe and Russia include entrenched social hierarchies and limited social mobility due to government control over economic opportunities. State ownership of resources often led to dependency on the government for employment and basic needs, which can stifle individual initiative. Additionally, the legacy of these systems continues to influence current political attitudes and economic policies as countries grapple with the balance between state intervention and market freedoms in their evolving societies.

Related terms

Central Planning: A method used in command economies where government planners make decisions about what to produce, how to produce it, and who gets the products.

State Ownership: A principle in command economies where the government owns the means of production and distribution of goods.

Planned Economy: An economic system where the government determines production and pricing, similar to a command economy, but may allow for some market mechanisms.