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January 17, 2018 

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PERSONAL INCOME TAX: A tax on individual income. This is the primary source of revenue for the federal government, a big source for many state and local governments, and the reason most people dread April 15th. In principle, personal income taxes are progressive, based on a graduated tax scale. However, it's much more proportional today than it was several decades ago.

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COMMUNISM:

In theory, an economy, or economic system, based on--(1) a classless society, where everyone does their best to contribute to the common good, (2) common, rather than individual, ownership of all resources, (3) the complete disappearance of government, and (4) income allocated based entirely on need rather than on resource ownership or contribution to production. In practice, communism is a type of command economy based on--(1) government ownership and control of most resources, goods, and other assets and (2) excruciatingly detailed central planning by government.
Communism began its existence as a theoretical model for a utopian economic system, one that righted the wrongs of capitalism. However, in the 20th century, it provided the rhetoric for political systems that often bore little resemblance to the theory. Communism, as a political system, is best exemplified by the former Soviet Union from 1917 to 1989.

The Theory

Theoretical communism was considered by Karl Marx as the final, ultimate stage of human progress, following a sequence of feudalism, capitalism, and socialism. Communism resulted in utopia as it corrected the flaws of these other economic systems. Does capitalism create income inequality and a concentration of wealth? Worry not. Under communism, wealth is shared equally by all. Do the wealthy exert excessive political influence over government? Worry not. Under communism, there is no government. Are markets flawed by externalities and inefficiencies? Worry not. Under communism, markets are not needed.

The theoretical utopia of communism is summarized with a quote by Karl Marx "From each according to their abilities, to each according to their needs." In theory, everyone does what they do, what they are best at doing, without the driving force of wages, incomes, or the prospects of reward. Dr. Dowrimple T. Bedside, for example, would perform surgery and administer health care, because that is what he does. Becky Carpenter, in contrast, would make outdoor furniture, because that is what she does. Everyone does what they do to contribute to the common good.

However, because Dr. Bedside is unmarried, with no children, and needs very little income to maintain his existence, he would receive very little of society's production. But Becky Carpenter has five children and thus needs more income and a larger share of society's production.

And The Practice

In practice, communism is an economic and political system in which government decision making is the primary method of allocating resources. Compared to capitalism--in which goods, services, and resources are directed to alternative uses based on market prices--real world communism makes use of excruciatingly detailed central planning by government.
  • Government Ownership: In the practice of real world communism, government assumes ownership and control of most resources. Rather than ownership by society as a whole, what is termed dictatorship of the proletariat, government leaders control the resources, or what is essentially a government dictatorship of the economy. While government economic dictatorship does not necessarily mean a government political dictatorship, they often go together.

  • Central Planning: Without markets, resource allocation decisions are undertaken through central planning by government. While central planning exists to some degree even in market-oriented capitalist economies, the level of detail needed under communism is extensive. Every input, every output, every intermediate good, every worker, every resource is allocated based on a predetermined plan. Such planning is inherently less flexible and less efficient that markets.

A Mixed Economy

On the spectrum of economic systems, bounded by a pure market economy on one end and a pure command economy on the other, real world communism resides closer to the command end. A majority of resource allocation decisions are made by government, but some are also made through markets. In contrast, a majority of resource allocation decisions in capitalism are made through markets, with a smaller proportion made by governments.

Real world communism, like all other real world economic systems, is thus a mixed economy. Allocation decisions are undertaken by both governments and markets. In theory, markets cease to exist with communism. In practice, however, market exchanges do take place even though such exchanges are often informal and might even be illegal.

(In)Efficiency

Like other utopian ideals, theoretical communism does have a few appealing notions. In theory, it corrects many deficiencies of real-world capitalism, such as income inequality and the concentration of wealth. However, in both theory and practice, communism has one major flaw--inefficiency.

Theoretically, communism has no mechanism for achieving an efficient allocation of resources. With markets, goods and resources are allocated based on the satisfaction of wants and needs reflected by prices. Prices provide the incentives to achieve efficiency. In theory, efficiency can be achieved with markets. With communism goods and resources are allocated from each according to ability to each according to need. However, there is no mechanism to reflect either ability or need. There is no way to ensure that goods and resources will be produced by those with the best ability nor distributed to those with the greatest need.

Real world communism compounds this theoretical lack of efficiency with the inefficiency of central planning.

  • First and foremost, the resources used for the central planning process cannot be used to undertake actual production. In other words, a person (the planner) who spends eight hours calculating how much flour is needed to produce bread, is not actually producing any bread.

  • Second, the central planning process, being developed and implemented by mere humans, is inherently flawed. Mistakes will happen. Inputs are sent to the wrong factories. A decimal point is misplaced. Too much of one good is produced and too little of another. All of these mistakes mean less output is produced with available resources.

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Recommended Citation:

COMMUNISM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 17, 2018].


Check Out These Related Terms...

     | capitalism | socialism | ownership and control | command economy | pure command economy | central planning | needs standard |


Or For A Little Background...

     | economic system | economy | first estate | resource allocation |


And For Further Study...

     | four estates | distribution standards | three questions of allocation | mixed economy | government functions | laissez faire | seventh rule of complexity | production possibilities |


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