The command economy definition of economics as the state of full employment and surplus production was first introduced by the British philosopher and economist John Locke. In his essay “Affections of the Body, the Brain, and the Insights of the Soul,” Locke defines the term as meaning that human beings are satisfied with what they have, and desire to improve their conditions. For Locke, this is the definition of economics because it is the only way that they will be able to enjoy leisure, wealth, and happiness. This also goes hand-in-hand with the maxim, “A life spent in ease is a short one.”
The command economy definition of economics has been critiqued by several other economists including the Canadian commodity market adviser, chief economic adviser of the Federal Reserve Bank of Canada, and the Chicago Booth School of Business professor, Robert McKenzie. However, the most criticism falls under the class of Natural Utility theory, which is the idea that people have an inherent need to work and hence there is a natural economic process that goes on. According to this theory, demand and supply forces are at work in the market, leading to the ability of a market to maintain its high level of activity. Furthermore, the ability of a market to sustain its high level of activity is also dependent on the trust that consumers have in the market, something that is not possible in a purely cash-based economy.
Critics of the command economy definition of economics argue that since people are primarily seeking gainful employment this leaves them with little to spend on non-monetary goods. By effectively creating a glut of goods on the market, it results in increased prices, forcing consumers to spend, thus leaving them frustrated. The end result is that the overall economy suffers because consumers cannot buy enough of the goods that have created the glut, and this ultimately leads to lower overall spending and higher unemployment.
This form of analysis is quite popular amongst both left and right wing thinkers. In addition to being popular with politicians and policy makers, it has also been used extensively by business people to predict the behaviour of the market, especially the direction it may take. In a command economy, consumers are believed to be selfless, entrepreneurial and efficient. Businesses are therefore less strict and place great emphasis on productivity, efficiency and profit margins. In theory, consumers will work to their own advantage and the government will provide benefits to ensure that they do so. These concepts are used in nearly every aspect of human interaction, especially in business.
The basic argument for the command economy is that people will always act in accordance with their value and interest. A key component of this value and interest concept is what economists call the demand-supply theory. According to this theory, people will work to obtain the maximum value out of what they have, as long as they do not have to spend any money to get it. The theory goes on to state that there will be a rivalry among companies, but it is not the company that should decide how much value it adds to its products or services but the consumers. So, if consumers find that a company is charging too much for a product or service and the consumer can improve upon the item to achieve the same value . . . . . . for less cost, then the company is forced to lower its prices to capture the market.
Critics of this view, such as welfare advocates and some in the media, point out that most businesses operate like a command economy and, to a large extent, receive little benefit from their pricing policies. They argue that a free market encourages competition among businesses and that the real value of goods and services increases over time because the consumer is now offering more for less. However, those in the business argue that consumers do have a role to play in this process and that pricing is ultimately determined by supply and demand. Ultimately, it is the consumers who set the prices that define the true market value of a commodity.