How does a planned economy work

Planned economy


Planned economy. Industrial planning and management of the national economy in the former GDR
Term for an economic system in which the entire economic process is planned, directed and managed from a central point according to political and economic objectives. The state or state planning authorities at all planning levels determine the total production (i.e. who produces which goods with what), distribution (i.e. who receives which goods where) and the prices of all goods and services.

The German economist Walter Eucken (* 1891, † 1950) coined the term central administration economy for the planned economy (see there) in order to better illustrate the difference to a market economy in which all companies and all households also plan. The term central administration economy therefore more precisely describes the nature of this economy, which is centrally managed and administered by the state. However, terms such as command or command economy are also used for this economic system, since in such an economy the instructions and planning specifications of the state planning authorities are binding and there is little or no scope for decision-making. Until 1990, the planned economy was the economic order of most of the socialist states in the area of ​​influence of the former Soviet Union and the People's Republic of China.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.