As hunter-gatherer societies grew and eventually exhausted their natural food supplies, some survived by becoming sedentary farmers. With the advent of farming came a need for an organized system of planting, harvesting, and storing crops. This required a greater amount of structure than existed in a traditional economy. In order to ensure the survival of the society, decisions had to be made about what crops to grow and how much of the harvest to store. Over time, decision-making became centralized and the command economic system developed. The key characteristic of the command economy is centralized decision-making. Either one or a group of powerful individuals makes the key economic decisions for the entire society.
Examples of command systems include most, if not all, ancient civilizations, plus the communist countries of today. The pharaohs of Egypt represent the centralized decision-making present in a command economy. The pharaoh and his various officials made the key economic decisions of what to produce, how to produce, and for whom to produce. The decisions might have gone something like this, “I command you to construct a big pyramid of brick and mortar using slaves for labor, and all of it is for me.” The advantage of this type of system is the ability for decision-makers to produce rapid changes in their society. For example, Soviet dictator Josef Stalin's five-year plans quickly transformed the Soviet Union from a peasant-based agrarian society into one of the world's industrial superpowers.
During World War II, the United States practiced command economy when the government took over factories and planned production for the war effort. Every aspect of American life was in some way influenced by government involvement in the economy. Even today you can see the influence. The modern payroll withholding system was instituted during the war to provide the government with a steady stream of tax revenue.
History reveals the tragic downside of command economic systems. As mentioned above, the pharaohs used slave labor, and Stalin's five-year plans were only accomplished through the forced relocation of millions of people and at the cost of millions of lives. Rarely do the decision-makers meet the wants and needs of the common citizen.
The state, acting as a sole producer without competition, has little incentive to provide anything more than basic necessities. As a result, no variety exists in a command economy. In addition, the citizens serve for the purpose of the economy and state, as opposed to the economy and state serving the citizens. North Korea is a perfect example. Property belongs only to the state. Many workers have little personal incentive to produce, and those that do may have little regard for quality. Individuality, innovation, and variety are completely lacking in the command system.
Hollywood illustrates this lack of choice in the 1984 movie Moscow on the Hudson. A Soviet saxophone-playing defector, portrayed by Robin Williams, is shown shopping in a Moscow state store, where there is a lack of food, long lines, and no choices. Later, after defecting from the visiting Moscow Circus in a Manhattan Bloomingdale's, he goes to an American supermarket. The character proceeds to pass out from the overwhelming number of choices he faces when his adopted family sends him to buy coffee.