Microeconomics,, 16th Canadian Edition

(Sean Pound) #1

The Great Debate

As we saw earlier, in 1776 Adam Smith was one of the first people to
analyze the operation of markets, and he stressed the relative efficiency of
free-market economies. A century later, another great economist and
political philosopher, Karl Marx (1818–1883), argued that although free-
market economies would indeed be successful in producing high levels of
output, they could not be relied on to ensure that this output would be
fairly distributed among citizens. He argued the benefits of a centrally
planned system in which the government could ensure a more equitable
distribution of output.

Beginning with the Soviet Union in the early 1920s, many nations
adopted systems in which conscious government central planning
replaced the operation of the free market. For almost a century, a great
debate then raged on the relative merits of command economies versus
market economies. Along with the Soviet Union, the countries of Eastern
Europe and China were command economies for much of the twentieth
century. Canada, the United States, and most of the countries of Western
Europe were, and still are, primarily market economies. The apparent
successes of the Soviet Union and China in the 1950s and 1960s,
including the ability to mobilize considerable resources into heavy
industries, suggested to many observers that the command principle was
at least as good for organizing economic behaviour as the market
principle. Over the long run, however, planned economies proved to be a

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