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What is Command Economy?

Command Economy – In a command economy, also called a centrally planned economy or command economy, the central government controls all major aspects of the country’s economy and production. It is the government that decides what goods and services are produced and how they are distributed; while, in a market economy, supply and demand regulate the economy.


The command economy is the economic system in which all decisions about what goods or services should be produced, in what quantity and at what price, are left in the hands of the central bureaucracy. in practice, it can result in huge inefficiencies, shortages of basic products and the appearance of black markets. central planning is justifiable, on a limited scale, in countries with very low standards of living.
The command economy, also known as a planned economy, is one in which a market for the allocation of resources is dispensed with. there are several planning models which it arises from the consensus between the economic actors, over the socialization of the means of production in the commanded economy.

The soviet Economy

It was based on state ownership of the means of production, within the general Marxist-Leninist theory. the state determined global planning and control of the Soviet economy in a centralized way to gratify the elementary needs of the population.

Main Features of Command Economy

* Nep Call is Applied. Nep is Lenin’s way of naming this new political system, a new economic policy.

* Consumerism of War. The harsh policy adopted by the bolsheviks during the civil war, with the sole idea of ​​keeping the red army well-supplied with weapons, would cause any other political point of view to be eliminated. and power is centralized, using the force of military power to maintain control.

* Socialization of Industries and Commerce. All large factories pass into the hands of the state, which is also responsible for the distribution and use of the goods manufactured by these factories. And private companies would become illegal.

Advantages and Limitations

The advantage of a command economy is that it can change quickly. Being controlled by the government, drastic changes can be made in the economic structure, infrastructure or industrial sites without conflicts associated with political situations or private interests. In a command economy, unemployment is usually minimal or zero, since the allocation of human resources is part of macroeconomic policy. Due to its economic structure controlled by the State, there are no abusive monopolistic or oligopolistic practices by private companies, as is often the case in market economies, in which there are excessive prices and misleading advertising. In a command economy, the basic needs of society are usually met equitably,

The limitations and disadvantages of command economies are associated with the establishment of governments that limit individual economic rights. Due to the lack of competition characteristic of market economies, command economies discourage innovation. This aspect is also reflected in the lack of flexibility of the collective property industries to adapt to demand, which is why there are events of overproduction or insufficient production, which in many situations also translates into inefficiency in the production process. The strict control of production volumes and prices leads to the emergence of informal markets, black markets, where products are produced and sold outside the formal production system.


The command economy is based on the principle of collective ownership of the means of production, a concept defined by Karl Marx in the Communist Manifesto. Although command economies are capable of making drastic changes in the socioeconomic structure of a society, they can engage in negative practices such as overproduction and limitation of innovation, which has led countries that had command economies such as China and Russia to incorporate free market practices to improve their competitiveness in the global marketplace.

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