Are the any main elements of a command economy?
Answer:
A command economy is an economy where the means of production (Land, Labour, Capital...) are controlled by the government.
I guess you could say its elements are:
Government ownership of the economy (factories, labour, land)
5-year economic plans
The government controls trade
The government controls prices and wages
Command economy:
When a GOVERNMENT controls all aspects of economic activity.
The logic of command has a number of necessary consequences characterized in its institutions of the economic system. Planning in a command economy must be largely in physical terms due to the crucial importance of balance.
The bottom line of the planning process must be available physical units of required inputs, in appropriate assortment, quantity and timing, necessitating physical targets for production and input utilization. Thus tens of thousands of materials and
equipment balances must be drawn up and coordinated for each plan period, and then broken down and allocated in directives to specifc implementors. And to be directly usable, these must be in physical, or crypto-physical (constant price) units that directly relate to the production processes being coordinated. Using value units requires flexible and changing, marginal scarcity based prices for valuation, and giving significant autonomy to subordinate units who inevitably then will make the
trade-offs in assortment, quantity and timing within planned constraints on values (i.e. budgets). Such valuations pose a
fundamental challenge to the command economy.
Planning in physical terms, however, leads to enormous waste and inefficiency, to production for waste as much as for use. Among many, fundamental sources of this elemental waste: grossness,aggregation, and unit of measure. The need for these arises in the overwhelming complexity of the task of planning for, and directing the operation of, a complex
social economy and the limited information gathering, processing, and dissemination capabilities of any economic agent or agency. Thus each of these is essential for
the feasibility of directive central planning, of the command mechanism, yet each loses, or destroys, essential information for the proper(in the eyes of the system directors) implementation of plans, and opens space for creative interpretation of instructions/commands, and hence for suboptimization by implementing units with interests not perfectly aligned with those of the center. While the command mechanism logically requires unauthorized initiative to be
forbidden, and strictly punished when exercised, the size of the task it faces inevitably opens the opportunity, indeed often the need, for such unauthorized initiative. All commands inevitably contain some aggregation (over time, product space,
or location), and all commands require a unit of measurement in order to permit accountability, reward and/or punishment. These characteristics imply that all recipients of commands will have some discretion that is outside the ability of higher
authorities to control. Thus the physical quantity planning required by the command economy to maintain minimal functional balance contains its own antithesis, unleashing forces that undermine the consistency of the plan and the coherence and balancedness of its realization. This fundamental contradiction lies behind most of the critical problems of the command economy, and the myriad efforts to resolve
them within the framework of the command mechanism that comprise the endless waves of reform following victory in, and recovery from, in the Soviet Union's case, the Great Fatherland War (1941-5).
Another consequence of the logic of commandis the need to restrict autonomy and the capability of economic units to pursue any other than planned (commanded) purposes. Economic agents must not have the capability to autonomously
acquire and deploy resources for any purposes outside the plan. The emphasis on gross output leads to input intensiveness, waste, and ignoring cost considerations. Aggregation leads to persistent sub-category imbalance in assortment, quality, type, timing, etc., while units of measurement determine sub-optimization objectives, distorting implementation decisions, particularly when they are, for Material Balance reasons, input oriented.
This is characteristic of any centralized, hierarchical structure, and lies at the root of the problems analyzed in the principal-agent framework. It is addressed as the problem of ending the optimal degree of centralization.
Material balance planning and centralized materials and equipment allocation provide a necessary component, but one that is insufficient unless resources, including human, are denied the capability of autonomous movement and application. Severe
restrictions on labour mobility, albeit not as severe as under Stalin, are required, as are comprehensive restrictions on the use of any generalized command over goods and services i.e. money, that might be used to alter their pattern of allocation
and use in the economy.
Thus money must be deprived of moneyness,and prices must be kept passive, mere accounting and measurement units. Monetary prices do not, and indeed should not, reflect to a substantial degree social goals and priorities; they merely
reveal and measure the flow of commanded activity. Money ... as a medium of exchange and store of value becomes necessary only with the introduction of some decision making autonomy. According to the logic of the command economy, the availability of money and the prices at which commodities and products are available should have no essential impact on the allocation of goods and services or on the nature and direction of economic/industrial development; all real activity is preordained in the plan and its subsequent implementing commands. This partial demonetization is functional purpose was to constrict the ... range of choice in the face of the state's demands.
Finally, an absolutely essential, indeed defining, institution of the command economy is the rationing of resources and producers goods. This is where the market is most fully and directly replaced, and where the central authorities have the ability
to most directly influence and control the behavior of subordinate operational units.
It implements the centralized mobilization of resources to priorities, the most direct response to crises and challenges. And it most directly denies subordinates the capability to produce, to develop, in ways outside those authorized in the plan. Thus co-existence between the command principle and the market mechanism would seem to be unstable and ephemeral. Since the two are apt to be continuously in conflict, the command principle, aided by the club of materials rationing, will inevitable push back and eventually eliminate the market mechanism unless a full fledged market economy be deliberately adopted. Thus the nature of the command system makes it fundamentally incompatible with real markets, although apparently market institutions are allowed to function within the non-state sectors, and as an interface with the state and its economic sectors.
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