David Gwyn J. answered • 10/23/20
Highly Experienced Tutor (Oxbridge graduate and former tech CEO)
Command/Planned Economy
(from Wikipedia)
"A planned economy is a type of economic system where investment, production and the allocation of capital goods take place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, participatory or Soviet-type forms of economic planning."
Free Market (or Market) Economy
(from Wikipedia)
"A market economy is an economic system in which the decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand."
Capitalistic Society
(from Investopedia)
"In a capitalistic society, the production and pricing of goods and services are determined by the free market, or supply and demand, however, some government regulation may occur. A free market system is an economic system based solely on demand and supply, and there is little or no government regulation."
Hence the key differences between a command/planned economy and a free market economy are government directive vs. supply and demand, and the very high degree (or total) control by government vs the opposite extreme with little or no government intervention.
Capitalist or Market Economies are based on supply and demand. Undoubtedly, both US and UK have economies based on this model. However, whether they are truly "free markets" with very little government intervention is debatable.
It can perhaps be considered a continuum where the US does seem to support the concept of minimizing government intervention, but nevertheless has many regulations and market adjustments which do exactly that. The US is especially important because it's the largest market economy, and, even if not a true free market economy, is generally considered to be towards this end of the spectrum.
Hong Kong and Singapore might be considered to be more free market than US. While major European economies (Germany, UK, France) are typically considered to have significantly more government regulation.
Much of this can be characterized as a political argument between capitalists/socialists and democrats/republicans, but largely in terms of degree. This form of market economy with government intervention is now the dominant model through much of the world, often characterized as "neoliberal globalization" and discussed in Francis Fukuyama's famous "The End of History and the Last Man" (1992).
Nevertheless, most economists would argue that unfettered capitalism creates damaging "externalities" and "market failures". Addressing these typically requires government intervention or forms of regulation (laws) that mandate or incentivize certain types of behavior.
Examples:
Factories create pollution and damage water and air, and it's cheaper not to mitigate the damage. Government regulates to try to minimize this.
Governments may have strategic objectives (energy independence, broadband for all, widespread home ownership), and encouraging this may require favorable regulation, subsidies, and so on.
Unfettered capitalism leads to companies with monopoly power. Monopolist can charge what they like, provide poor service, and generally act to the disadvantage of consumers. Government regulates to prevent monopoly power, and ensure market competition between multiple suppliers.
Unfettered capitalists can lie, cheat, steal, provide substandard products, refuse to stand behind their products. Governments regulate to protect the consumer.
Employers have significant power over their employees and almost all market economies have a significant body of employment-related regulations providing worker protections.
Public transport systems and schools are "public goods" which require large investment. Typically a free market would not provide these (or at least not for all) as they are not profitable. Governments regulate to provide wide (or universal) access to the good.
