Definition of a Planned Economic System

A planned economy is one in which all of the decisions about what to produce, where and how are made by a central group of planners. It's the direct opposite of what we call a market economy, in which no such group makes those decisions.

Definition

All economies other than entirely anarchic ones are planned to some extent. The government (or other group) plans tax rates, interest rates and other measures. All economies have some element of market operation in them. So "planned economy" has a variety of meanings.

The Sorites Paradox

If you remove one grain from a pile of sand, it's still a pile. But at some point before you remove the last grain, it isn't a pile any longer. What is that exact point? The same is true of planned economies: How much of it needs to be planned for it to be a "planned economy"?

Examples

The Soviet Union had a planned economy, even though it contained private markets. North Korea has a planned economy. Nazi Germany and fascist Spain and Italy also were planned economies. But Sweden, which has very high tax rates, is a market economy.

Production vs. Distribution

In general, if the government is deciding what gets made by whom and where, it is a planned economy. If that is left to the market, we call it a market economy. It is possible to have a market economy in which the government decides, through taxation and subsidy, who gets to consume the produced goods. The planning of production, not consumption, is the important part. If production is planned, then it is a planned economy.

Private Planning and Government

Within a market economy, there is obviously a lot of planning. Corporations plan things all the time. But we reserve "planned economy" for when there is only one group, a monopoly, doing the planning. In a planned economy, the government is this monopoly.

References

• Characteristics of a command or planned economy