Command Economy: The Characteristics Of A Market Economy

‘The theoretical basis for market economies was developed by classical economists such as Adam Smith, David Ricardo and Jean-Baptiste Say in the late 19th and early 20th centuries.’ A market economy is established by constructing law and order, creating a labour force, distributing public goods and promoting competition. Countries described as having market economies allow market forces to drive most of their economic activities. In a market economy, distribution and exchange is controlled by individuals and corporations with little input from the government. Market economies are often referred to as free economies because of this. One of the most appealing traits of adapting a market economy is interacting with external or foreign markets …show more content…
‘Viennese economist Otto Neurath developed the concept of a command economy to control the hyperinflation after World War I.’ At first look, a command economy appears to be the less developed system and indeed does not function as productively as a market economy does. ‘Command economies are unable to efficiently allocate goods because of the knowledge problem, or the planner’s inability to discern how much of a good should be produced. Shortages and surpluses are common consequences of command economies. The government is disconnected from the body of consumers, whose needs are fluid rather than static. As a result, the entity that controls the means of production faces constant difficulty responding to ever-changing demand across various sectors in a timely manner. Moreover, the central planner in a command economy sets prices strictly based on revenue needs, resulting in pricing that is almost always inefficient with regard to output and …show more content…
There are no outside bodies involved in this and in a market economy, how a good is produced is determined by competition. While resource allocation may be more efficient in a command economy, this does not always guarantee success if they are allocated to the incorrect areas. While a command economy can rapidly allocate resources, ‘this rapid mobilization often means command economies mow down other societal needs.’ This is made evident in North Korea’s investing in improving the appearance of the country and creating heavy weaponry to defend themselves against unlikely threats instead of combating the horrific third world like ongoing food crisis: ’Famine in North Korea started in the 1990s along with a deep and stark economic crisis. The famine lasted nearly a whole decade and since then the country has been suffering regular food shortages. To be precise, in recent years the economy has been picking up a little bit… but in most rural areas people continue to suffer from chronic hunger and malnutrition.’ This clearly highlights how a misjudgement from the leader of a command economy can have a lasting effect on both the economy of the country and its population. While a command economy certainly has its potential positive points, a market economy is certainly a better alternative in efficiently allocating resources in an