Command Economy

Abstract

A command economy is one in which the life-cycle and activity of firms, their adjustment to disturbance, and coordination between them, are typically and in the main governed by administrative means — commands, directives, and regulations — rather than by a market mechanism. Perhaps the most distinctive feature of such an economy is the setting of the firm’s production targets by higher directive, often in fine detail. The administrative means rely on planning, budgets, material balances, quotas, rationing, technical coefficients, price and wage controls, and other techniques. While the command principle is likely to clash with the operation of market forces, a command economy may nonetheless contain and rely on the market mechanism in some of its sectors and areas: for example labour allocation or small-scale private production.