Chapter 2: The Economic Systems Section 2: Command Economies (pgs

Government Controls In command economies, leaders decide what should be produced and how it should be produced. They also decide for whom it should be produced, in part by setting wages. A system in which the society’s leaders, usually members of the central government, make all economic decisions is called a centrally planned economy.

Government Planning Our government affects us through taxes, Selective Service, speed limits, standards for cleanliness in restaurants, etc. But what if the government went even further? This is what happens in command economies or a centrally planned economy. The government decides what business can operate, what they produce, they set hours and pay scales.

Karl Marx Modern societies that have adopted command economies have done so largely b/c of Marx. He was a German philosopher, historian, and economist. According to Marx’s analysis, all history is a struggle between classes. He saw that factory workers suffered while the owners grew rich. Marx predicted that in time the workers would overthrow this system and transfer ownership of factories to public hands. With the means of production owned by the government, the class struggle would be resolved and all citizens would share in the wealth.

Karl Marx: Economic Revolutionary Millions of lives were affected by the works of Marx. Governments were toppled and political alliances were forged on the strength of his arguments. To Marx, the rising tension between worker and owner was an inevitable development. His major books were The Communist Manifesto (1848) and Das Kapital (3 vols. 1867-1894). B/c of the way that communist economies worked in practice and the eventual collapse of communism in the 1990s Marx’s theories have fallen into disfavor. Even so, few people had more impact on the 20th century economic and political thinking than Marx.

Socialism This is an economic system in which the government owns some or all of the factors of production. Who owns resources? Government owns basic resources; the rest are privately owned. How are resources allocated? Government planners allocate basic resources; market forces allocate privately-owned resources. What role does government play? Government makes decisions in the basic industries. Many of Europe’s nations are democratic socialist countries. This means that they were established through the democratic political process rather than through the violent overthrow of the government.

Communism This is a more extreme form of socialism in which there is no private ownership of property and little or no political freedom. This is called authoritarian system, which is a system that requires absolute obedience to authority. Who owns resources? Government How are resources allocated? Government planners decide how resources are used What role does government play? Government makes all economic decisions The U.S.S.R.-Russia and Eastern Europe were communist until the early 1990s. Now there are few nations holding on to this economic theory.

Command Economies Today There are no examples of pure command economies today, h/w North Korea is close. The government controls every economic decision and it has diverted much of its money to military at the expense of its citizens. T/f, they now have the a-bomb but its people are starving to death. Kim Jong-Un

Impact of Command Economies In theory they are suppose to provide for all citizens even the those who cannot provide for themselves. But in practice, the central planners often don’t understand how economies work. Workers have little motive to improve productivity b/c they know that their wages will stay the same. The planners often set prices well below those that would be established in a market system and this causes shortages.

No Individual Rights The greatest failing is the suffering that people living in them endured. B/c there were no individual rights. The needs of the state always came first. Millions died in China and the Soviet Union b/c of collective farms and if you protested you could be imprisoned. Indeed, millions did die in prison.