I will try to speak a little bit about centrally planned economy and will go into some more details about centrally planned economy in Soviet Union. Now for those who do not know what Soviet Union actually is/was, this is actually more or less ex-Russia. Soviet Union economy was the economy that stood against USA’s capitalism in the times of cold war. Now as I will continue, you will find out that centrally planned economy does not equal communisms as many people might think. So saying that the east block in times of cold war was just communisms is not really true.
Centrally planned economy is actually very similar to capitalism, but it is not run by supply and demand mechanism or by invisible hand as Adam Smith would say. Centrally planned economy in Soviet Union and in any other country with centrally planned economy integrated, is economy that is planed in advance from one place. Usually it is in the capital city of a country and is then planned for few years in advance. In Soviet Union, they planned it for 5 years in advance.
Everything went more or less nicely, because all was planned, they knew exactly how much of everything the will have, but the problem was, that none knew for sure how much of everything they will need. This is the main problem of centrally planned economy. In capitalism, supply and demand a.k.a. the invisible hand controls the amount of stuff on the market. It controls the prices and by that it controls the supply on the market. While in centrally planned economy, there was always a lack of something on the market and excess of something else.
This is why centrally planned economy in Soviet Union fall apart and Russia is now “forced” to use currently the best known market system, the capitalism.
