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Definition of Communism:

Communism refers to common ownership, but government control, of the nation’s producing enterprises and resources. 

Detailed Explanation:

"From each according to his ability, to each according to his need." wrote Karl Marx when describing a Utopian communist society. Communism is a social, political, and economic ideology, where all property is publicly owned. Social classes do not exist. Instead, everyone is paid the same and receives what is needed. Marx hypothesized that clashes between the working and capitalist classes would lead to communism. A truly communist society has never existed. The main economic problem is efficiently providing the goods and services society needs. All economic systems must determine what is produced, who produces a good or service, and how the goods and services are distributed. In a capitalist system, private owners of businesses reach these decisions based on the profit motive. Consumers and producers reach an agreement communicated in the marketplace via the laws of supply and demand. When consumers bid up prices, producers have a greater opportunity for profit and respond by increasing production. These capitalists may be rewarded for their risks with large profits.

How are decisions of what to produce, who is to produce a good or service, and who receives the benefit of the good or service reached if there is no private ownership and everything is owned in common? Common ownership means that all members of a society have an equal ownership interest, so in theory, the government acts in the people's best interest. Common ownership results in government control of the nation's resources on behalf of its citizens, the common owners. The absence of a profit motive means the government must administer the enterprise as representatives of the community and decide what is produced, how much is produced, and how goods and services are distributed. This is why communist countries like the former Soviet Union, China, North Korea, and Cuba have command economies and why a central authority is appointed to make the decisions related to the production and distribution of goods and services.

Individuals and companies are not motivated to provide the goods and services society needs without the potential to earn a profit. Instead, suppliers wait for orders from the government. There is little incentive to risk upsetting the authorities, even when doing so would result in a more efficient use of resources. Command economies have lacked the growth and prosperity of market systems and have failed because of enormous inefficiencies. Production is slow because manufacturers find themselves short of resources. Items are produced but not sold. Other items may be in short supply resulting in long lines to purchase them. Beginning in the late 1970s, communist China began to embrace capitalism by permitting the private ownership of businesses. In other words, China has recognized the inefficiencies of a command economy and shifted to more of a market-driven economy.

Dig Deeper With These Free Lessons:

Economic Systems
Economics – Managing Our Scarce Resources
Fundamental Economic Assumptions 
Supply and Demand – Producers and Consumers Reach Agreement

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