Friday, June 5, 2009

Today's lesson from Practical Economics

Market vs. command price systems

The merits of a price system functioning within the free market are overwhelming in moving scarce resources to their most efficient use in a fair and equitable manner. Market economic systems embrace the components of a price system to effortlessly move resources. Command economic systems ignore the components of a price system causing resource inefficiency. This is not to say that a command economy does not have prices, but that price is determined by decree and not supply and demand. Because of this, a command economy has the problem of allocating the time, money, labor and capital necessary to meet the millions of diverse wants and needs of a population. In trying to do so, the command approach is faced with the staggering proposition of trying to digest literally millions if not billions of pieces of information that changes every second to determine prices.

History has shown the disastrous results of fallible men trying to indeed figure out the dynamic needs of the people through a command approach to prices. The miracle of the market framework is that the same complex situation is quickly and easily solved by a free exchange price system without fanfare or warfare.


  1. So true. In conutries where goverment did have absolutist control over its citizens, the failure was all the more stunning and spectacular (read USSR). The natural force of the free market won out despite the deaths of 100 million Russians to make it work. Centrally planned economies do not recognize that a spontaneous, natural division of labor is necessary for economic progress; it is anathema to the central planner's motive.

    Who is John Galt?

  2. It is not surprising that in the most corrupt and tyrannical governments, there is a distinct feeling of anticapitalism.

  3. The world will change when you are ready to pronounce this oath:

    I swear by my Life and my love of it that I will never live for the sake of another man,
    nor ask another man to live for the sake of mine.

    John Galt