economic planning

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economic planning,

control and direction of economic activity by a central public authority. In its modern usage, economic planning tends to be pitted against the laissez-fairelaissez-faire
[Fr.,=leave alone], in economics and politics, doctrine that an economic system functions best when there is no interference by government. It is based on the belief that the natural economic order tends, when undisturbed by artificial stimulus or regulation, to
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 philosophy which developed in the 18th cent. Proponents of laissez faire believed that an economy works best when there is little government interference. The contemporary economic model of rational expectations offers perhaps the strongest critique of economic planning in its assertion that economic forecasting, both by individuals and competing businesses, is generally rational. In this model, government control of economic policy can only lead to complication, since any change instituted by central authorities has already been anticipated by the market. The level and type of central planning in any economy is generally connected to the sort of political regime that dominates. In recent years, heavily structured economic programs have been associated in particular with socialismsocialism,
general term for the political and economic theory that advocates a system of collective or government ownership and management of the means of production and distribution of goods.
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, communismcommunism,
fundamentally, a system of social organization in which property (especially real property and the means of production) is held in common. Thus, the ejido system of the indigenous people of Mexico and the property-and-work system of the Inca were both communist,
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, and fascismfascism
, totalitarian philosophy of government that glorifies the state and nation and assigns to the state control over every aspect of national life. The name was first used by the party started by Benito Mussolini, who ruled Italy from 1922 until the Italian defeat in World
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. Economic planning also became an important part of public policy in nations that did not adopt those doctrines, even in Western capitalist societies where the notion of a free market is a fundamental tenet. Central planning under the Western capitalist governments came into particular importance to combat the economic hardships that existed in many nations between World War I and World War II. In most societies, the occurrence of war tends to subordinate all private activity to a unified national effort and thus increases national economic planning. Central planning increases in importance during a recession, or any serious economic decline. Planning can involve the use of direct controls—such as rationing and price, rent, and wage limits—or indirect controls, such as monetary and fiscal policy. Since the 1930s the U.S. government has used a variety of direct and indirect controls. The limited economic success and ultimate collapse of Communism in Eastern Europe has opened up intense debate about the perils of total central planning.


See A. Cairncross, Economics and Economic Policy (1987); R. N. Copper, Economic Policy in an Interdependent World (1987).

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