Command and Market Economie

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THE MINISTRY OF EDUCATION AND SCIENCE OF THE RUSSIAN FEDERATION

"THE FIRST PROFESSIONAL UNIVERSITY"

THE DEPARTMENT "JURISPRUDENCE"

ESSAY

COMMAND AND MARKET ECONOMIES

Work performed student

Gribanov A. S.

Course 5, the group UB.13-4

Supervisor:

senior lecturer Vishnyakova E. G

Moscow

2015

The content

Introduction

1. Concept and characteristic features of command economy

2. The concept and characteristics of a market economy

3. Comparative characteristics of the centralized and market economies

Conclusion

References

Introduction

Under the economic system understood as a set of processes that define the rules of functioning of the economy. Today there are three main types of economies, each of which has its own advantages and disadvantages.

I in their work to look more closely at two of them: team and market.

The command economy is a system in which government controls all economic processes. The production of the country under this system is completely controlled by the Central government, it takes decisions on the distribution of goods and services throughout the country. The command economy also involves the planning of all sectors of the economy, distribution of resources and final products.

The market economy is the most spread system in the world, it is also called capitalist and free. This type of economy involves minimal government intervention in economic processes. The main engine of the economy are consumers and their demand and offer, its satisfying. The important role played by market expectations, they determine in which direction the economy will develop the country.

1. Concept and characteristic features of command economy.

Command economy (planned economy - economic system in which the state or the Board of governors of the economy. In the system with a command economy the Central government makes all decisions regarding production and consumption of goods and services. In extreme cases, vast areas of the economy and industry are under the control of the state all decisions regarding distribution of resources and production are also accepted by the state. The planners decide what should be produced and direct enterprises of the lower levels on the production of these products. The command economy is the opposite of a market economy in which production, distribution, pricing and investment are taken by the owners of the means of production based on their own interests and not in accordance with the comprehensive plan. To soft varieties of planning in the command economies belongs to indicative planning, the state employs "influence, subsidies, grants and taxes, but does not indicate what to do ..." Such varieties are sometimes called "planned market economy".

Some researchers distinguish between a planned economy from a command, counting command economy planned an extreme case. However, the planning of economic activities is present in the free market.

An important example of the command economies of the past belongs to the economy of the USSR, which, according to CIA Factbook estimates, was for some time the second largest economy in the world, China before 1978 and India before 1991.

Since the 1980's and 1990's, governments of countries with a command economy started to pursue the policy of deregulation (or, as in the Soviet Union, the system collapsed) and moving toward a market or mixed economy. Planned economies exist in such countries as Cuba, Libya, Saudi Arabia, Iran, North Korea and Myanmar.

When a command (planned) economy the main economic issues solves some Central Agency that first determines what and how much to produce, and surely monitors the implementation of his directives. In the same way all issues on how to produce. The Central authority also decides the question "for whom" to produce.

In a command economy there are quite strict limitations to the levels of wages, pensions, the duration of leave for working etc. the Center determines the volume of distribution by districts of the goods produced, and set prices on them.

The main feature of the command system is the lack of manufacturers, it is the freedom of choice. So, Director of the garment factory to choose the fabric supplier for its product, because the plan was "secured" the specific provider. However, the Director of a textile factory was afraid that his products would remain unsold due to low quality: he knows that the garment factory for the plan must purchase it.

It is the lack of freedom of choice causes the lack of manufacturers interest (or incentive) to produce better and cheaper products, increasing their range and developing new models. Through that meeting the needs of customers in the system is low. But it should also be noted that planning as a method of control of an individual enterprise are widely used in economic practice and can help to improve overall production efficiency.

Characteristic features of command economy:

* Excessive centralization of the economy

* Excessive centralization of production (more than 90% of enterprises state ownership)

* The dictatorship of the producer

* Bureaucratization of management personnel

* The direction of a significant portion of scarce resources to the needs of the military-industrial complex

* Criticism

* Prone to dictatorship

Command economy are affected by the dictatorship and career development of people is immoral and unprincipled. So, Friedrich von Hayek believed that dictator or dictators, standing at the helm of the administrative-command system must possess outstanding skills in the sphere of political intrigue and inner struggle. The allocation of resources in the administrative order is not possible without absolute political power. Administrative orders shall be backed up under the threat of punishment or force. The allocation of resources, by definition, means resources taken away from some and give to others. Career growth is only possible for unscrupulous people and not burdened by morals.

Hayek believed that even if the government itself can not be the purpose, nevertheless, planning leads to dictatorship because dictatorship is an effective tool of force effects and forced propagation of ideology, and as such necessary for the implementation of large-scale Central planning. "To achieve their goals collectivist own power - the power of some people over others, and in a hitherto unprecedented scale, and whether they will be able to achieve it, depends the success of all endeavors ..." According to Hayek, it is unscrupulous and dishonest people are more likely to succeed in a totalitarian society. Also this conclusion agrees Frank knight, who argues that the planning authority will have "to operate ruthlessly to support the organized mechanism of production and distribution of resources". "Whether they want it or not, they will have to do; the likelihood that the helm will be people, not the power-crazed, equal to the probability that an extremely kind and gentle man get the job of caretaker at the fortress ..."

Hayek also argues that the behavior of the dictator in the economy can not be constrained by morality or any laws, because the dictator cannot limit itself in advance to any formal rules to prevent tyranny. He always has to solve problems that cannot be solved using only formal rules.

2. The concept and characteristics of a market economy

The market economy is the most common economic system in the world at the turn of XX-XXI centuries and the most efficient from the point of view of long-term economic development. Towards a market economy, developing as countries with economies in transition a new type and transition economies conventional in developing countries. It is no accident that textbooks in Economics focuses on the analysis of peculiarities and regularities of the market economy system.

To understand in detail the functioning of market economy, it is necessary to understand the main feature of this system. The market economy is such economic system in which fundamental economic problems - what, how and for whom to produce are resolved primarily through the market in the center of which is a competitive mechanism of formation of prices for products and factors of production. The prices are formed as a result of interaction of demand for products and proposed products. That is the price the market is told what to produce and what resources to use.

The concept of the market is an original concept in the theory of the market economy. The market is a system of relations between sellers and buyers with which they come in contact about the sale of goods or resources. These contacts between sellers and buyers assume any agreement between them, under which is exchanged at a set price. When exchange is voluntary alienation of his property and stealing property, then there is a reciprocal transfer of property rights.

On the market in the course of exchange is the social evaluation of the goods produced. If the manufacturer sold his commodity, his labour and other costs recognized by the company as meeting the needs of society. It is on the market the producers come in contact with each other, the market unites them, sets links between them. In a broad sense the market is a social mechanism which makes the link between producers, between producers and consumers of goods and resources.

As producers and consumers in the market may come from different economic agents, or subjects, of the market. Economic agents are market participants of economic relations, with ownership of the factors of production and to take economic decisions. The main economic agents are households, enterprises (firms), state. The position of each economic agent depends on his ownership of resources. For example, if the economic agent has only its own workforce, its ability to influence the organization of production and the distribution of income is insignificant. If a market participant owns as their work force, and cash capital, he has significantly more opportunities to organize and manage the business and distribute the proceeds.

Households as economic agents make decisions, mainly on consumption goods required to sustain family members. As the household may be family or individual, if he lives separately and has his own farm. Ultimately, all economic resources are owned by households, but they are distributed very unevenly between them. The absolute majority of households own and manage the workforce. In a market economy, labor is the main commodity produced in the household and offer on the market of production factors. Revenues from the sale of their resources, households make decisions about the allocation of scarce income to purchase various consumer goods. The main economic interest of households is to maximize the utility of purchased goods. Select consumer goods by households creates demand in a market economy.

Enterprise or firm is an economic agent making decisions on production of goods for sale using resources acquired on the market. Manufactured goods are the material goods and services, so when it comes to the enterprise, mean and clean production enterprise, and trade, and financial, and service. In a long historical process of occurrence and development of market economy production of goods was separated from households, and started businesses. The main economic interest of the enterprise is to maximize profits. Other economic motives of activity of enterprises can be maximizing sales, increasing market share, retention of monopoly position in the market, stable economic growth, the increase in the market value of the company. Decision of companies about the volume and structure of production form the supply in the market.

The state as an economic agent, but rather the government decides on the redistribution of wealth produced in the private sector, and the production of so-called public goods. The latter include goods that are consumed together such as mail, social security, education, public health. The redistribution of the produced goods the government can implement, for example, to the disabled and the unemployed. The economic interests of the state reflect the interests of society as a whole. The most important of these are maintaining economic growth to meet the growing needs of society, improving the efficiency of the national economy and its competitiveness on the world market.

Economic agents operate in different conditions, in different markets, which differ in their location and scope the object of sale, by the way there are set prices, etc. Accordingly, it is possible to allocate following basic forms of markets: the breadth of coverage is local, national and international markets; depending on the object of sale in the markets of goods and services and the resource markets (labor market, capital, land, entrepreneurial talent); the method of pricing the markets with predetermined prices and markets, where prices are established in the process of purchase and sale; the form of organization of the markets that require personal contact or low contact.

As already noted, information about what to produce and how, in a market economy prices provide. With their help, identified public needs, and society's limited resources are directed to where these resources can be used in a better way. If you try in General terms to imagine the market economic mechanism, i.e. how a market economy solves the basic economic problems of society, it would look like the following.

What to produce? The talk is about what products will best meet the numerous needs of the society and how much they need to produce. Societal needs are expressed in the demand for a particular product, and the scale of demand is determined by how much people can pay for different products. Will buy those products, the price and quality which meet the demands of consumers. On the other hand, the volume of produced goods, and their range expressed in the offer of goods. Manufacturers will produce those products, the price at which they reimburse the production costs and makes a profit. In the interaction of supply and demand is the pricing of the goods. Consumer demand plays a crucial role in determining what and how much to produce. Consumers vote with their money. If in favor of this product, given enough votes to ensure profit enterprises, they will produce. With increasing consumer demand, the profit increases that is the signal to expand production. Conversely, if consumer demand decreases, income decreases, and production begins to decline.

How to produce? In other words, what resources, and what technology should be used in the production of any products? In a market economy production is carried out by the enterprises that apply the most effective, i.e. most profitable, technology. Effective technology involves the selection of such resources for which prices are relatively low. If there is a lack of capital to buy expensive equipment, but there is cheap labor, then select time-consuming technology. Thus, resource prices, in this case the cost of equipment and wages, give reason to solve how to produce.

For whom to produce? That is, how production should be distributed among members of society? In principle, production is distributed among consumers in accordance with the possibilities of consumers to pay for it market price. These opportunities, in turn, are determined by the income of consumers. Incomes depend on the quantity and quality of resources (from quantity and quality of labor, capital, land, entrepreneurial talent) that households put on the market resources. In exchange of supplied resources households receive income. The amount of revenue directly depends on the prices of resources. This means that the prices of resources ultimately determine both income and the number of products that a consumer gets when the distribution of the made public product. That will buy the consumer depends on the prices of goods and services, in other words, the product price plays a key role in determining the range of products and services that will be received by the consumer.

Thus, the role of prices in a market economic mechanism are very significant, pictures identify public needs, indicate what to produce and in what quantities, provide the information of which technology is most effective, determine the mechanism of distribution of the social product, affecting the scale and pattern of consumption of people.

To better understand how the market economy, we will represent it in the form of a simple model, the economic model of the circuit. The main simplification consists in the fact that we consider only the interaction of two main economic agents in a market economy, households and businesses (firms), temporarily exclude the state as an economic agent (exclude government costs and revenues). Suppose also that the economy is closed, i.e. no foreign trade. All markets, we group in two blocks: the market of goods and services and the market of factors of production. Highlight the circuit in the two main economic flow: the flow of production factors and the goods produced in material, physical form or in the form of services (external circuit), the flow of income and expenditures in monetary form, that is, financial flow (internal circuit).

In the economy there is an exchange between households and businesses (firms). Households own resources and provide them to firms through resource markets. Firms use resources to produce products and deliver them to the markets of goods and services. As a result of interaction between households and enterprises is formed by total production in the economy. Households and firms in the economy a great many.

Households derive income by supplying labor to the labor market, capital market, capital, land and raw materials to earth markets and raw materials. They sell the firms services of factors of production, receive income (wages, interest, profit, rent) and buy manufactured goods and services. Income households turn into their expenses when they buy consumer goods and services in goods markets.

Firms buy resources in the factor markets, use them for production and then deliver these products to the markets of goods and services. Costs firms buy factors of production are transformed into household income. Selling finished products in the markets of goods and services, firms obtain income and thereby recover the costs of purchasing resources.

Flow control of production factors and goods is via the markets for factors of production and markets of goods and services. The outer circuit in the diagram shows the physical flow of goods and factors of production between households and firms. Internal financial circuit in the diagram shows the payment flows, the flows of expenditure and income. Income flows of households moving in the direction from firms to households in the lower part of the internal circuit. Emerging from the household sector flow is the sum of payments for purchased goods.

From the model of the economic circular flow in the economy as a whole:

* sum of sales of firms is equal to the sum of household income;

* the value of total production equal total household income;

* revenues equal to the costs of the acquisition of goods and services.

We most generally find out how Mature market economy. However, we must bear in mind that the process of occurrence and development of market economic system is a long process. In the history of economically developed countries it took more than a century. In this historical process evolving conditions, or preconditions for the emergence and development of a market economy. The most important are the social division of labor and specialization, the development of private ownership of the means of production, the personal interest of producers and owners, freedom of choice and freedom of movement of factors of production, government intervention in the economy, morality, rules which humanity has.

A fundamental condition for the emergence and development of market economy is the social division of labor and specialization. They increase productivity, leading to surplus production and thereby lead to the development of commodity production and market exchange.

For the normal functioning of market economy requires the development of private ownership of the means of production. Social division of labor and specialization, causing the separation of the producers, stimulating the development of private property. Private ownership is the dominant form of ownership in a market economy. It acts in the form of individual private property and enterprise (share) private property. However, in countries with developed market economies a greater role played by public, mixed and cooperative property and property of social organizations.

Private property creates new incentives to increase productivity, to improving technology and organization of production. You receive the personal interest of producers and entrepreneurs in more efficient allocation and utilization of resources owned by them. It manifests itself in various ways, in particular, the owners of the labour force tend to earn higher wages, the owners of money capital to obtain a higher percentage of entrepreneurs - more profits, consumers acquire more for less.

In order for market economy to function effectively, so that resources are used with the greatest benefit, necessary freedom of choice and freedom of movement of factors of production. These freedoms are closely linked with private property. Freedom of choice means that owners of resources can use resources at their discretion. Consumers are free to buy products as they see fit to meet their needs. If one chooses the best option, then society as a whole also benefits. Historically that is why the spread of the market economy became possible only when the abolition of feudal restrictions, the development of political democracy and personal freedom.

For the effective functioning of the market economy is also state intervention in the economy and its state regulation. About this we will speak in detail in subsequent sections of the tutorial. Now you must keep in mind that the market economy has its drawbacks, and these drawbacks can be neutralized somehow to adjust state regulation of market economy.

For the effective functioning of a market economy required morality, the rules which humanity has. This universal values such as respect for human life, justice, honesty, rejection of exploitation, despotism and authoritarianism, freedom of moral choice, the desire not to harm any life forms. History shows that a market economy, guided by prices and profits, appeals to the most selfish instincts of man, generates excessive desire for wasteful consumption of material goods, creates conditions for the development of egoism, exploitation and injustice at the expense of justice and humanity. This is especially true for short-term business objectives. In the long term it turns out that honest and fair business behavior is more effective. Many economists, philosophers, sociologists believe that morality and social responsibility of business in the long term compatible with business efficiency. It is no accident that in the era of market economy development in countries that have achieved high standards of living, has spread the Protestant ethic, which is largely responsive to the challenges of effective use of limited resources of society.

The infrastructure of the economy in General, in the broadest sense, are institutions, organizations, industries, and economic systems that ensure the normal functioning of the whole economy or its separate parts and sectors. For example, the transport network is the infrastructure that provides the technological unity of all sectors of the economy, continuity and complementarity of all production systems. Conventionally in the economy can be allocated to production, social and market infrastructure. They are all closely related.

Production infrastructure is a complex of sectors providing external conditions for the development of production. It includes freight transport, roads, electricity, gas and water supply, warehousing, communications, and information services. Social infrastructure - a complex of industries related to the reproduction of labor power. The complex is composed of health, education, housing and communal services, passenger transport, the field of recreation, public catering, services for the household. command economy centralized market

Market infrastructure is a set of organizational and legal forms, different institutions, organizations serving different markets and market economies in General and ensuring their functioning. All the complex and interrelated set of market infrastructure it is possible to allocate infrastructure of labour market, capital market, land market, market of goods and services, and macroeconomic infrastructure.

Thus, the market economic system is a system where resources are distributed and used, mainly through the mechanism of market competition, the center of which is the price of good. Market economic framework is supplemented by government regulation of the economy. From the point of view of socio-economic relations, this system is dominated by private ownership of the means of production, but nevertheless important role played by state, cooperative and mixed property. Estimating this system by the level of logistical development, it is possible to establish the market economic system as the industrial and postindustrial economy. Most countries with a market economy represents the industrial society with the structure of industries, dominated by manufacturing industry and mining. In most developed countries formed the post-industrial information economy with a predominance of service sector in the structure of the national economy.

3. Comparative characteristics of the centralized and market economies

Comparing centralized (socialism) and market (capitalism) system, the Austro-Anglo-American economist Friedrich von Hayek (1899-1992) stressed that they operate on different principles. Namely. The basis of the "command economy" are "conscious rules" - organizations and institutions type of factory, army, hard statutes, created with a predetermined purpose and operating according to the plan, in a defined "on top" mode.

The basis of the same market, on the other hand, "spontaneous orders" which are nobody's idea in a live, spontaneous interaction of thousands of people, in the collision of their different interests, goals, tastes, ideas (as occurs, for example, with supply and demand, free prices, language, moral standards, creating families and so on).

The command economy have failed precisely because the "conscious order" is unnatural for the living, developing highly complex systems. No good the government is not able to collect and process a huge array of constantly changing information, which must also promptly and competently respond to "guidelines", distorting at the same time overcoming all the bureaucracy.

Hence the claim of socialism to "unprecedented rise systematically organized economy" is only a "detrimental reliance" and "the road to serfdom". The planned public administration to all and Sundry inevitably harms economic efficiency and is not able to match the production needs. It infringes upon interests of citizens, creating injustice, coercion, totalitarianism.

That is why the experience of more than one dozen countries in the XX century showed that people can't create the desired social order, "like a mosaic, from any favourite pieces". I tried to build socialism, he "was completely different from what it wanted to do intellectual leaders". And if so, it means by socialism is "something is wrong".

In contrast, the market is not invented and did not build. He has evolved over the centuries, evolutionary learning and developing only those social institutions that were strong filter of natural selection, the test of experience and time. It originated and entrenched in the society of private property and free enterprise, vzaimosochetaemost business and fair competition, respect for individual rights and the laws of the state. These and many other "spontaneous order" is better than any public administration provide a flexible balance and high efficiency in the national economy.

A very important one. Private competitive system, according to Hayek, is "the only one where the man depends only on himself, not on the mercy of the powerful". In terms of fragmentation of ownership between a number of competing private owners nobody can absolutely rule over others.

Hayek compares the limited authority of the capitalist with the immense power of the official. Even the employer (even a multimillionaire), he writes, less power over their rank and file employees than the "least official", in possession of the state apparatus of violence and in which system the command is allowed to dictate to the citizens how they work and live. That is why, concludes Friedrich Hayek, "a society in which power in the hands of the rich, you still better society in which the rich can only be those in whose hands power."

Conclusion

Vigorous debate about which system of economy the most efficient and progressive have been underway for many years, but a clear answer has not received. This is due to the fact that the command and market economy have both positive and negative features and, depending on the specific situation and individual characteristics of the state can be almost equally effective.

Despite this, it is considered that the market model is more progressive and has more positive features, but many of them depend on specific conditions and in some cases a market economy can do much worse than the command-administrative.

Command and market economy are in fact complete opposites. And in our time in a pure form such economic system practically does not exist, a large part of modern economies can be characterized as mixed, because they contain features of both types of economies, both positive and negative.

Most likely this situation is that a mixed economy allows you to get the positive aspects of both systems, while significantly reducing the drawbacks inherent in them. In addition, depending on evolving conditions, mixed economy can rather easily move in one direction or another. This gives this type of systems the advantages, in comparison with a pure market or pure command. The costs and transit time will be minimal and the newly-changed conditions the economy may again return to the mixed condition, again with minimal cost.

References

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2. Korchagin M. N. The modern economy of Russia. Rostov-on-don: Phoenix, 2007.

3. Kochergina T. E. the World economy. - Rostov-on-don: Phoenix, 2009.

4. Nikolaev I. P. Economic theory. - M.: Dashkov and Ko, 2012.

5. Salatenko V. Alternative systems of capitalism.//World economy and international relations. 2003.

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