What Is a Command Economy?

Command economy is an essential aspect of a political system where a central government authority decides on the amount of production that can be allowed as well as the prices that could be paid for services and goods. Many industries are privately owned.

The primary alternative to a system of command is a market-based system, where demand controls the production process and price.


Command economy can be one of the components of the communist system of government and a free market system is a reality in capitalist societies.


  • In a system of command the central government determines the amount of production of goods and regulates the distribution of goods and their prices.
  • Command economies are a popular argument for that government control over private enterprise is the best way to ensure equitable distribution of services and goods.
  • In a market-based system of free trade private companies determine the level of production and prices in accordance with the demand.

Understanding Command Economy

Cuba, North Korea, and the former Soviet Union all have command economies. North Korea, Cuba, and the former Soviet Union all have command. China was the command economy up to 1978, when it began its shift to a hybrid economy which incorporates both capitalist and communist elements. The current system is described as a market-based socialist system. 1

Command economy also referred to as a planned economy demands that a nation’s central government control and own the production methods.

Private ownership of capital and land is not existent or very restricted. Central planners determine prices, regulate production levels and limit or even ban competition in that private market. In a true command economy it is impossible to have a private market since the central government controls or controls all businesses.

Advantages of a Command Economy

If it is done correctly and with the right resources If done correctly and with adequate resources, a command economy can provide these benefits:

  • Society is in favor of social welfare and equity over the pursuit of profit
  • Stops private companies from monopolizing in crucial sectors such as health care and energy
  • The low levels of unemployment or even the elimination of unemployment
  • Access to basic requirements

Consider the above in conjunction with the market-based economy.

Disadvantages of a Command Economy

However it is true that even when implemented “properly”, a pure command economy comes with its own set of disadvantages.

  • In the case of gluts and shortages of goods, these are typical results because of fixed prices and the quantity of production. Natural equilibrium is harder to attain when quantity and price aren’t floating.
  • Pricing of products that is inefficient and services in relation to demand and supply
  • Inattention or no response to preferences of consumers
  • Limits personal liberties and rights to secure financial stability in the interest of social equity
  • Highly bureaucratic, every plan and execution is executed by the government

What is a Command Economy Differentiate from a free-market economy?

In a market economy that is free private companies decide their production levels according to the laws of demand and supply.

In a system of command, the decisions are made by the government.

The majority of free-market economies today are based on the principle of laxity. The government can employ public policies and regulations to boost the production of products, like energy-efficient vehicles.

Certain command economies have loosen their grip. The Chinese economic boom didn’t start until the country developed its own mixture of capitalist ideology and socialist business. 2