Answer the following question: What is prohibited in a command economy?
A. The control of prices and income levels
B. The rationing of manufacture goods
C. The influence of consumer demand
D. The personal ownership of property
E. The intervention of the government
The correct answer to the question is D. the personal ownership of property. I am going to explain the answer a little bit and we’re also going to learn more about the command economy.
What is a command economy?
Command economy is a system where the government alone is the one that dictates what goods should be produced, how much should be produced, and the price of all produced goods. Furthermore, the government also determines the total incomes and investments in the system. So, the free market doesn’t dictate or play any roles at all in a command economy system.
The government plays a central role in a command economy system. From producing or manufacturing to distributing and selling, the government decides everything. This is why a command economy system doesn’t allow any personal ownership of property.
The biggest reason or driving ideology behind this kind of system is that the proponents believe that because a command economy system is better for achieving fair distribution and social welfare and staying away from private profit. But there are problems that they must be able to solve, such as rationally determining the quantities, proportions, methods, locations, and timing of any economic activities without private property.
Understanding more about command economy
Command economy is popularized by communist countries such as the former Soviet Union, Cuba, and North Korea. China, on the other hand, has managed to transition to a mixed economy that utilizes both capitalistic and communistic elements.
The government central planners control the means of production in the country. Private ownership of labor, land, and capital are either prohibited or very limited. The government also decides the prices and limit or entirely prohibit competition within the private sector. If the government has complete control of the means of production, then there is no competition at all.
Monopoly is the best thing that the government can achieve in a command economy system, where there is no domestic competition across all industries. The main priority of a command economy system is promoting growth for the national economy. Their main priority is to achieve this by creating multi-year plans that span the entire economy.
The government also dictates all laws and regulations according to the central plan. All businesses must follow these laws and regulations and will not bow down to any external influences such as the free markets.
There are two drawbacks to a command economy system: incentive problems and economic calculation problems.
The internal struggles in the government central planners create these incentive problems. Without any competitions or external influences, the political interest groups will fight over resources and cause many changes in the system. Often a command economy system becomes a mixed or even mostly capitalist due to this problem.
The economic calculation problems are also big factors in a command economy system because the government wants to calculate everything. The practical questions of the who, where, what, when, and how of economic organization is a big task, and sometimes too big for the government.
A command economy system prohibits any personal ownership of property. The central government won’t allow anyone to own any properties, let alone make any decisions in the economic activities. The government has complete control over the means of production and any external forces won’t influence them.