Planning, organizing the use of the factors of production by central direction, instead of by the Font motive in a market economy. The conclusion of 'classical' economic theory, that in free competition the working of the profit motive will result in the best possible allocation of resources, is challenged by the advocates of economic planning. They claim that in existing capitalist countries many usable factors of production are left unemployed, those employed are used with widely varying efficiency by different entrepreneurs, free competition does not exist, and unplanned economies produce large-scale monopolies and restrictive devices designed to maintain profits by limiting production or maintaining prices.
Economic planning has been advocated as a means of promoting national strength and self-sufficiency, but it is usually understood to mean planning in time of peace rather than war. In this sense, planning is designed to serve a philosophy of social welfare.
Widespread .unemploymentin most capitalist countries between the First and Second World Wars led to the advocacy of planning to achieve full employment and avoid fluctuations. On the other hand, in the Soviet Union the main difficulty in this period was the shortage of goods to meet demands of all kinds, and the emphasis of planning was put on maximum production and the best allocation of factors rather than on full employment. Advocates of planning in capitalist countries like Britain and France emphasized the need to maintain total demand continuously at a level adequate to absorb all current output at economic prices. It was held that capitalism could not maintain full employment unless the state intervened to restore the level of demand whenever a contraction appeared imminent. Economic planning in these circumstances can take several forms: it can influence the amount and character of production through direct public orders for goods and services; it can influence private demands for goods and services by tax remissions or subsidies to investment; it may regulate incomes so as to affect the level and nature of demand; or it may involve the nationalization of privately owned industries which occupy key positions in the economy.
Under fully socialist conditions, as in the Soviet Union. Economic planning covers a wider range and becomes a direct public planning of the distribution of productive resources in relation to the planned distribution of the national income, between public and private uses, between investment and consumption, and between groups of consumers.
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