what is prohibited in a command economy select two answers

Daniel Parker

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27-02-2025

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What's Forbidden in a Command Economy? (And Why)

Command economies, where the government controls the means of production and distribution, have strict limitations on economic activity. While the exact prohibitions vary by country and specific implementation, two key restrictions consistently appear: private ownership of the means of production and free market price determination.

1. Private Ownership of the Means of Production:

This is the cornerstone of the command economy's structure. In a free market, individuals and businesses own land, factories, resources, and capital. They decide what to produce, how much to produce, and at what price. In a command economy, however, the state owns and controls these assets. Private individuals are prohibited from owning or controlling significant productive resources. Attempts to establish private ownership of factories, mines, or large farms would be illegal. This isn't to say that individuals own nothing; they may own personal possessions like homes (sometimes) and consumer goods, but not the means of generating wealth on a larger scale.

2. Free Market Price Determination:

Market economies rely on supply and demand to set prices. If demand for a product is high and supply is low, the price rises. Conversely, if supply exceeds demand, prices fall. This dynamic regulates production and allocation of resources. Command economies, however, reject this mechanism. The government sets prices centrally, often disregarding market forces. Businesses can't independently raise or lower prices based on market conditions. This often leads to shortages (if prices are set too low) or surpluses (if prices are set too high), disrupting the economy and hindering efficiency. Attempting to circumvent government-set prices, such as through black markets or price gouging, is strictly prohibited.

Why These Prohibitions Exist:

These restrictions are fundamental to the ideology of command economies. The goal is to achieve centralized control and planning of the economy. By controlling ownership and prices, the government aims to:

• Direct resource allocation: To prioritize production of goods deemed essential by the state, often neglecting consumer preferences.
• Ensure equitable distribution: To (theoretically) prevent wealth concentration and provide basic necessities to all citizens.
• Promote national goals: To support industrialization, military buildup, or other strategic objectives.

Consequences of These Prohibitions:

The lack of private ownership and free pricing often results in inefficiencies, shortages, surpluses, and a lack of innovation. These are some of the reasons why command economies have historically struggled to match the economic growth and productivity of market-based systems. The absence of competition and consumer choice ultimately limits economic prosperity. Black markets often emerge as individuals seek to circumvent the restrictions and obtain goods and services unavailable through official channels.

In conclusion, the prohibition of private ownership and free market price setting are defining characteristics of command economies. While intended to achieve specific economic and social goals, these restrictions often lead to unforeseen and negative consequences.