Command vs. Mixed Economy: An Overview

Command and mixed economies are two different economic systems. In a command economy, the system is controlled by the government, while a mixed economy is a system partly run by the government.

Command Economy

A command economy is an economic system where the government has control over the production and pricing of goods and services. It is also called a planned economy.

In a command economy, the government decides which goods and services to produce, the production and distribution method, and the prices of goods and services. Therefore, it is the central planner. Because the government sets and controls all aspects of business in a command economy, there is no competition. Monopolies, which are owned by the government, are common. These may include financial services, utilities, or even companies within the transportation sector.

Command economies often make too much of one product and not enough of another to meet demand because it is hard for one entity (i.e., the government) to realize the needs of everyone in the country. So, that means large surpluses or shortages may be common in command economies.

A shadow or black economy may develop to fulfill those needs. The black economy violates a country's rules and regulations because the economic activities take place illegally and participants avoid taxes. A shadow economy arises when governments make transactions illegal or by making a good or service unaffordable. This economy looks to get around government restrictions.

Examples of command economies today include North Korea, Iran, Libya, and Cuba. China was a command economy before turning to a mixed economy with both communist and capitalist ideals.

The command economy is unlike a free market economy. In a free market economic system, the economy is based on the powers of supply and demand with little or no government intervention.

Mixed Economy

A mixed economic system has features of both a command and a free market system. A mixed economy is partly controlled by the government and partly based on the forces of supply and demand.

Most of the main economies in the world are now mixed economies, which operate under a mix of socialism and capitalism.

Most mixed economies use fiscal or monetary policies to stimulate growth during economic slowdowns. This may come in the form of corporate bailouts or stimulus packages.

Generally, a mixed economic system involves a public and private sector. There is limited government regulation in a mixed economy, while there is heavy government regulation and control in a command economy. In the mixed economy, governments allow corporations to profit, but they will limit this through taxation or by imposing tariffs.

[Important: Governments in a mixed economy may decide to nationalize a company if they go against the interests of the public.]

For example, suppose ABC, a toy manufacturer, is in a mixed economic system. The prices and production levels are subject to the discretion of company ABC and the law of supply and demand. However, company ABC has been using too many of the natural resources in the state where it is located. The government is able to intervene because it goes against the good of the public. On the other hand, in a command economy, there is no company producing toys—the government would control the production and pricing of the toys.

Unlike the case of the command economy, a mixed economy may not have large surpluses or shortages. That's because they rely on supply and demand, so the distribution of goods and services happens where they are needed. Prices as well are dictated by supply and demand rather than by the government, as in the command economy. Profitability of producers and innovation are also key elements of the mixed economic system.

Key Takeaways

  • The government has control over a command or planned economy.
  • In mixed economies, the government has some control, while the rest is up to supply and demand.
  • Command economies are characterized by large surpluses and shortages, monopolies, and prices set by the government.
  • Mixed economies are characterized by corporate profitability, the use of fiscal and monetary policies to stimulate growth, and the existence of a public and private sector.