Reading: The Communist Economic System

The communist economic system is one where class distinctions are eliminated and the community as a whole owns the means to production.

KEY points

  • Karl Marx and Freidrich Engels wrote the Communist Manifesto in 1848, in response to poor working conditions for workers across Europe. The goal was to establish a system where class distinctions were eliminated and the means of production were owned by the masses.
  • Recent attempts at creating political economic systems have led to state-driven authoritarian economies with unaccountable political elites, further driving power away from the hands of the masses.
  • A Command Economy is characterized by collective ownership of capital: property is owned by the State, production levels are determined by the State via advanced planning mechanisms rather than supply and demand, and prices are regulated and controlled.


Terms

  • Proletariat:  The proletariat (from Latin proletarius, a citizen of the lowest class) is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian. Originally it was identified as those people who had no wealth other than their children.
  • Bourgeoisie:  In sociology and political science, bourgeoisie (Fr.: [buʁ.ʒwa'zi] | Eng.: /bʊrʒwɑziː/) and the adjective bourgeois are terms that describe a historical range of socio-economic classes. Since the late 18th century in the Western world, the bourgeoisie describes a social class that is characterized by their ownership of capital and their related culture. In contemporary academic theories, the term bourgeoisie usually refers to the ruling class in capitalist societies. In Marxist theory, the abiding characteristics of this class are their ownership of the means of production.
  • Command economy:  Most of the economy is planned by a central government authority and organized along a top-down administration where decisions regarding production output requirements and investments are decided by planners from the top, or near the top, of the chain of command.


Examples

  • The former USSR (or Soviet Union) is the typical example of a communistic, command economy. It was formed in 1922 by the Bolshevik party of the former Russian Empire. In 1928, Joseph Stalin achieved party leadership and introduced the first Five Year Plan, ending the limited level of capitalism that still existed. In 1991, under Mikhael Gorbachev, the Soviet Union was dissolved.
  • A modern day example is China, particularly in the 70s, 80s and 90s. Today, China is seen to be more of an authoritarian capitalist rather than communistic command economy.


The Communist Economic System

A communist economic system is an economic system where, in theory, economic decisions are made by the community as a whole. In reality, however, attempts to establish communism have ended up creating state-driven authoritarian economies and regimes which benefit single party political élite who are not accountable to the people or community.

Communist theory was developed by a German philosopher in the 1800s named Karl Marx . He thought that the only way to have a harmonious society was to put workers in control. This idea was established during the Industrial Revolution when many workers were treated unfairly in France, Germany, and England.

Communist Ideology
The Hammer and Sickle represents the communion of the peasant and the worker.
 

Marx did not want there to be a difference in economic classes and he wanted class struggle to be eliminated. His main goal was to abolish capitalism (an economic system ruled by private ownership). Marx abhorred capitalism because the proletariat was exploited and unfairly represented in politics, and because capitalism allows the bourgeoisie to control a disproportionate amount of power. Therefore, he thought that if everything was shared and owned by everyone, a worker's paradise or Utopia could be achieved.

Together with Friedrich Engel, a German economist, Marx wrote a pamphlet called the Communist Manifesto. This was published in 1848 and it expressed Marx's ideas on communism. However, it was later realized that communism did not work. Most interpretations or attempts to establish communism have ended up creating state-driven authoritarian economies and regimes which benefit single party political élite who are not accountable to the people at all.

Command Planned Economy

An economy characterized by Command Planning is notable for several distinguishing features:

  1. Collective or state ownership of capital: capital resources such as money, property and other physical assets are owned by the State. There is no (or very little) private ownership.
  2. Inputs and outputs are determined by the State: the State has an elaborate planning mechanism in place that determines the level and proportions of inputs to be devoted to producing goods and services. Local planning authorities are handed 1 year, 5 year, 10 year or, in the case of China, up to 25-year plans. The local authorities then implement these plans by meeting with State Owned Enterprises, whereby further plans are developed specific to the business. Inputs are allocated according to the plans and output targets are set.
  3. Labor is allocated according to state plans: in a command planning economy, there is no choice of profession; when a child is in school (from a very early age), a streaming system allocates people into designated industries.
  4. Private ownership is not possible: under a command planning system an individual cannot own shares, real estate, or any other form of physical or non-physical asset. People are allocated residences by the State.
  5. Prices and paying for goods and services: prices are regulated entirely by the State with little regard for the actual costs of production. Often a currencydoes not exist in a command planning economy and when it does, its main purpose is for accounting. Instead of paying for goods and services when you need to buy them, you are allocated goods and services. This is often also called rationing.


In western democratic and capitalist societies, the price mechanism is a fundamental operator in allocating resources. The laws of demand and supply interact, the price of goods (and services) send signals to producers and consumers alike to determine what goods and quantities are produced, and helps determine what the future demands and quantities will be.

The law of demand states that the higher the price of a good or service, the less the amount of that good or service will be consumed. In other words, the quantity of a good or service demanded, rises when the price falls and falls when the price increases.

GLOSSARY

Economic System

An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that defines the social community.

Ending

A termination or conclusion.

Enterprise

A company, business, organization, or other purposeful endeavor.

Good

An object produced for market.

Industry

The sector of the economy consisting of large-scale enterprises.

Inputs

Each participant's contributions that are viewed as entitling him/her to rewards or costs. Examples include time, effort, and loyalty.

Leadership

A process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task. The capacity of someone to lead. the capacity of someone to lead.

Price Mechanism
An economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply. A price mechanism or market-based mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing.

Resource

Something that one uses to achieve an objective, e.g. raw materials or personnel.

Services

That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.

Streaming

The transmission of digital audio or video, or the reception or playback of such data without first storing it.

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