Command Economy

Definition

A command economy is an economic system where the government has significant control over production, investment, prices, and incomes. This system contrasts with a market economy, where these decisions are made by individuals or businesses through supply and demand. In a command economy, the state typically directs all aspects of economic activity in an attempt to achieve specific social or political goals.

5 Must Know Facts For Your Next Test

1. The Great Leap Forward was an ambitious campaign initiated by the Chinese government to rapidly transform China from an agrarian society into a socialist society through rapid industrialization and collectivization.
2. During the Great Leap Forward, local governments were pressured to meet unrealistic production quotas set by central planners, leading to widespread misreporting of agricultural outputs.
3. The command economy approach resulted in severe misallocation of resources, contributing to widespread famine, with millions of people estimated to have died due to starvation and malnutrition.
4. The emphasis on large-scale communes and collective farming disrupted traditional agricultural practices, reducing incentives for individual farmers and leading to decreased agricultural productivity.
5. The failure of the Great Leap Forward highlighted the limitations of a command economy in efficiently responding to economic needs and managing resources effectively.

Review Questions

• How did the command economy structure during the Great Leap Forward impact agricultural practices in China?
  • The command economy structure during the Great Leap Forward heavily influenced agricultural practices by enforcing collectivization, which merged individual farms into large communes. This change undermined traditional farming methods and reduced individual incentives for productivity. As a result, mismanagement and unrealistic quotas led to a significant decline in agricultural output, contributing to a devastating famine across China.
• Evaluate the effectiveness of the command economy as implemented during the Great Leap Forward in achieving its stated goals.
  • The command economy during the Great Leap Forward was largely ineffective in achieving its stated goals of rapid industrialization and agricultural improvement. The centralized planning failed to accurately assess local conditions, resulting in exaggerated production figures and resource misallocation. This lack of flexibility ultimately led to economic chaos and catastrophic outcomes, particularly in agriculture, highlighting fundamental flaws in the command approach.
• Assess the long-term implications of the command economy model used during the Great Leap Forward on China's subsequent economic reforms.
  • The long-term implications of the command economy model during the Great Leap Forward were profound, leading to a reevaluation of economic policies in China. The devastating consequences of this period prompted leaders to shift towards market-oriented reforms starting in the late 1970s under Deng Xiaoping. These reforms aimed to introduce elements of capitalism into China's economy, moving away from strict command structures toward greater individual incentives and decentralized decision-making, fundamentally transforming China's economic landscape.

Related terms

Central Planning: A method used in command economies where the government makes all decisions about the production and distribution of goods and services.

State Ownership: When the government owns and operates the means of production, such as factories, land, and resources, rather than private individuals or companies.

Collectivization: The policy of consolidating individual landholdings and labor into collective farms, often associated with command economies to increase agricultural output.