Traditional, Command & Market Economies

CraigHardy

Member
Economies are about organization and power. Pretty much every economy on earth follows some sort of organizational pattern and has someone or someone(s) in charge of it. Whether it be highly centralized, a hybrid of both centralization and decentralization, or totally laissez faire, there's always a pattern and always some group pulling the strings. Centralized economies have a small group at the top of the hierarchy dictating what's going to take place and very decentralized economies leave those decisions up to the people.

We've been hearing a lot lately about various types of government. We watch the news and see protestors wearing pro communism t-shirts and politicians promoting socialism. Wouldn't it be nice if someone asked these people if they actually knew what they were advocating for? What they were protesting for? What they were ready to throw away and what they were ready to replace it with? Well, in this post, I'll attempt to add some clarity to the arguments we hear and see most often. I'll touch on the three most common types of economic structures that we have here on earth, the traditional, command, and market economies. I'll list each below and then talk about what makes each tick. I'll also discuss the pros and cons of each. And by the way, when someone talks about their favorite type of government, they're likely referring to their favorite type of economic structure. People oftentimes confuse the two.

Before I begin, let's think for a moment about how complex all of the various economies around the world really are. After all, each economy consists of all production, all consumption, and all employment. Each person's life is touched in some way by their own economy and sometimes by other economies globally. What individuals and groups (firms, businesses, companies) do can have a profound effect on people who are seemingly unrelated. The question must be asked, who's in charge of all this? Who makes sure there are enough jobs for people? Who make sure there are enough people to fill those jobs? Buy those products? Fulfill those services? How does all of this hard work and planning get done? It's no small feat. That's for sure.

Traditional Economy - If you live in a first world country that's popular and in the "in" crowd, you've likely never heard of a traditional economy. This is a very old structure that may seem rather foreign to you, depending on what you're used to. Think about family farms that have been in existence for generations, people who eat what they produce, people who use the barter system to trade away what they have in excess and for what they need. This type of economy is quite stagnant, in that it rarely changes. People who live under this type of structure are doing things "the way they've always been done." Traditionally. You can generally find this type of thing in less developed and poor areas, such as in parts of Asia, Africa, and South America.

Command Economy - In these types of economies, economic activity is highly centralized. The general population has little to say about what happens and freedoms are oftentimes quite limited. In general, an overarching ruler or ruling class makes all the decisions and hands them down to the many departments or various classes that serve them. This type of economy was prevalent in ancient Egypt, modern day North Korea, and Cuba. A few decades ago, the former Soviet Union was communist, which fell under this category. Basically, in these types of economies, the government makes almost all economic decisions. It determines how much will be produced, how much will be consumed, and what the various prices will be for everything. It also determines what the methods of production will be and how much people will be paid. Those who favor command economies argue that they are better equipped to handle fair and equal distribution of goods and services. Those in command economies discourage profit. In modern times, we see usually young college students on the streets fighting for this type of lifestyle based on equitable treatment for all. What they fail to recognize is that the general population isn't involved in economic decisions at all. So what these people are currently fighting for, they won't be a part of. Also, if a certain government distributes, say, health care, for example, for its citizens at no cost, that government also determines the level of care, which may be miserable. There's no competition under this type of system either, so you get what you get. And if that's not good enough, there's nowhere else to turn.

Market Economy - What most modern day protestors are actually fighting for is what they already have. It's called a market based economy. This is an economic structure that's built upon freedom and competition. This type of economy is decentralized and while overseen by a government or governments, it's left to do what's best for the people and the businesses that are included in it. Basically, everyone who operates inside of a market economy operates within a market. This is a framework that encourages activity and brings buyers and sellers together, depending on what they want and need. Most decisions are made by those people and businesses and are intertwined with supply and demand. The means of production and resources for operating a business are owned by private individuals and groups. For example, if a group of individuals wanted to launch a non-profit health care organization that offered free health care to everyone living in a certain city or area, there's nothing to stop them from doing so. The only thing that would matter is that the health care organization would be able to compete to remain a viable going concern. If a group wanted to launch a very competitive software company that existed only for profits, it could. If a group wanted to launch a software company that shared all its profits with its employees and offer each employee free health insurance and lunch at lunchtime, it could. There's nothing stopping any of these things from happening. The people involved and who intricately know and understand very local lifestyles and living situations make the decisions. This is not a top down command style structure that takes the decision making away from the people. This is actually a structure that encourages individuals to make their own decisions.

In reality, there are very few economies globally that exist under one distinct structure. Most are mixed market/command based and lean to either completely free market or a completely command style structure. The United States leans toward the market approach while Russia and China lean towards the command approach, but all are mixed. There are many elements of China's economy that encourage free decision making and trade and there are many elements of the U.S. economy that are highly regulated or state run. Some examples of these areas in the U.S. might be social security and the military. Examples of market based approaches in China might be street vendors and restaurants. In both Russia and China, their respective economies moved somewhat away from the command style approach in recent years and have become more market based.
 
Traditional, Command & Market Economies was posted on 09-17-2020 by CraigHardy in the Economics Forum.
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