Market Economy vs. Command Economy

Summary

A. Generally, two types of economic societies exist; a market economic society and the command economic society (Samuelson & Nordhaus, 1999).

B. The market economy is usually a decentralized system of economy for the free market. It is an economy where the market has the freedom to operate on a basis of the people’s wants and needs. This kind of economy is free from control by the government and the government is termed as practicing a laissez-faire policy. The market is further ruled by forces of demand, supply and competition. Most world markets practice a half-half kind of economic system where the government controls half of the economy while also allowing a free market economy. In this system, personal ambition and motivation is present since people work for their daily needs and therefore failure to work amounts in poverty. This drives people to work and eventually building the economy.

C. The market economy differs greatly from the command economy in that while it allows a free economy, the command economy is controlled. The Command economy is a socialist kind of economy that is centrally planned by the government (Samuelson & Nordhaus, 1999). The command economy has a virtue of being planned in comparison to the unplanned market economy. However, this view has the error that, the market economy is in itself quite rationally planned using consumer demand through the system of price. The command economy also has several deficiencies in that a central committee of people cannot be efficient enough to plan a whole economy due to the bulkiness of the task. It is impossible for the committee to know the resource availability, needs and the knowledge spread throughout an entire economy of a nation, no matter how small the nation is.

The command economy also fails sine it is based solely on coercion as its main source of motivation. This is because the main element in an economy is the people and therefore controlling the economy shall mean controlling the people and when this happens, motivation of the people diminishes. The economy, being a collectivized system, lacks motivation and personal ambition since everyone works for the benefit of his or her equitable share of the total production. The system lacks individual incentives unlike the market economic system. The only incentive in the command economy is to please the political authorities unlike in a market economy (Samuelson & Nordhaus, 1999). Therefore, the consumer becomes the forgotten being and the production plummets, a scenario that does not take place in the free market economy.

D. Individual needs are needs that every unit in the economy and every person needs. These include the basic needs like food, shelter, clothing, and others like security and education. Societal needs include infrastructure, security and peace. Social needs are quite necessary in the satisfaction of individual ones since they act as facilitators for the acquisition of individual needs. Without the social needs, individual needs cannot be achieved. For instance, without roads, a nation would not function properly since there would be no means for transportation of food or other necessary commodities.

Opinion

The free market economy shall be the most effective in the satisfaction of both the individual and the societal needs. This is because; the individual works hard for the purpose of acquiring their personal needs, at the same time the government, through taxes, creates a channel to distribute the wealth evenly to the people through social amenities. Therefore, the people get to provide the amenities for themselves and the government builds roads, schools, universities, bridges, and airports to facilitate these individual efforts. Other people might not get the opportunities and facilities and the government should create avenues where such less fortunate people can access and enjoy the national cake.

References

Samuelson, P. A. & Nordhaus, W. D. (1999). Economics. Dubuque, IA: McGraw-Hill.