Socialism vs. Capitalism: What Is the Difference?

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Socialism and capitalism are the two main economic systems used in developed countries today. The main difference between capitalism and socialism is the extent to which the government controls the economy.

Key Takeaways: Socialism vs. Capitalism

  • Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
  • Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
  • Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
  • Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

The United States is generally considered to be a capitalist country, while many Scandinavian and Western European countries are considered socialist democracies. In reality, however, most developed countries—including the U.S.—employ a mixture of socialist and capitalist programs.

Capitalism Definition

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of “ supply and demand ,” which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.

In the purest form of capitalism— free market or laissez-faire capitalism—individuals are unrestrained in participating in the economy. They decide where to invest their money, as well as what to produce and sell at what prices. True laissez-faire capitalism operates without government controls. In reality, however, most capitalist countries employ some degree of government regulation of business and private investment.

Capitalist systems make little or no effort to prevent income inequality . Theoretically, financial inequality encourages competition and innovation, which drive economic growth. Under capitalism, the government does not employ the general workforce. As a result, unemployment can increase during economic downturns . Under capitalism, individuals contribute to the economy based on the needs of the market and are rewarded by the economy based on their personal wealth.

Socialism Definition 

Socialism describes a variety of economic systems under which the means of production are owned equally by everyone in society. In some socialist economies, the democratically elected government owns and controls major businesses and industries. In other socialist economies, production is controlled by worker cooperatives. In a few others, individual ownership of enterprise and property is allowed, but with high taxes and government control. 

The mantra of socialism is, “From each according to his ability, to each according to his contribution.” This means that each person in society gets a share of the economy’s collective production—goods and wealth—based on how much they have contributed to generating it. Workers are paid their share of production after a percentage has been deducted to help pay for social programs that serve “the common good.” 

In contrast to capitalism, the main concern of socialism is the elimination of “rich” and “poor” socio-economic classes by ensuring an equal distribution of wealth among the people. To accomplish this, the socialist government controls the labor market, sometimes to the extent of being the primary employer. This allows the government to ensure full employment even during economic downturns. 

The Socialism vs. Capitalism Debate  

The key arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Ownership and Income Equality 

Capitalists argue that private ownership of property (land, businesses, goods, and wealth) is essential to ensuring the natural right of people to control their own affairs. Capitalists believe that because private-sector enterprise uses resources more efficiently than government, society is better off when the free market decides who profits and who does not. In addition, private ownership of property makes it possible for people to borrow and invest money, thus growing the economy. 

Socialists, on the other hand, believe that property should be owned by everyone. They argue that capitalism’s private ownership allows a relatively few wealthy people to acquire most of the property. The resulting income inequality leaves those less well off at the mercy of the rich. Socialists believe that since income inequality hurts the entire society, the government should reduce it through programs that benefit the poor such as free education and healthcare and higher taxes on the wealthy. 

Consumer Prices

Under capitalism, consumer prices are determined by free market forces. Socialists argue that this can enable businesses that have become monopolies to exploit their power by charging excessively higher prices than warranted by their production costs. 

In socialist economies, consumer prices are usually controlled by the government. Capitalists say this can lead to shortages and surpluses of essential products. Venezuela is often cited as an example. According to Human Rights Watch, “most Venezuelans go to bed hungry.” Hyperinflation and deteriorating health conditions under the socialist economic policies of President Nicolás Maduro have driven an estimated 3 million people to leave the country as food became a political weapon. 

Efficiency and Innovation 

The profit incentive of capitalism’s private ownership encourages businesses to be more efficient and innovative, enabling them to manufacture better products at lower costs. While businesses often fail under capitalism, these failures give rise to new, more efficient businesses through a process known as “creative destruction.” 

Socialists say that state ownership prevents business failures, prevents monopolies, and allows the government to control production to best meet the needs of the people. However, say capitalists, state ownership breeds inefficiency and indifference as labor and management have no personal profit incentive. 

Healthcare and Taxation 

Socialists argue that governments have a moral responsibility to provide essential social services. They believe that universally needed services like healthcare, as a natural right, should be provided free to everyone by the government. To this end, hospitals and clinics in socialist countries are often owned and controlled by the government. 

Capitalists contend that state, rather than private control, leads to inefficiency and lengthy delays in providing healthcare services. In addition, the costs of providing healthcare and other social services force socialist governments to impose high progressive taxes while increasing government spending, both of which have a chilling effect on the economy. 

Capitalist and Socialist Countries Today 

Today, there are few if any developed countries that are 100% capitalist or socialist. Indeed, the economies of most countries combine elements of socialism and capitalism.

In Norway, Sweden, and Denmark—generally considered socialist—the government provides healthcare, education, and pensions. However, private ownership of property creates a degree of income inequality. An average of 65% of each nation’s wealth is held by only 10% of the people—a characteristic of capitalism.

The economies of Cuba, China, Vietnam, Russia, and North Korea incorporate characteristics of both socialism and communism .

While countries such as Great Britain, France, and Ireland have strong socialist parties, and their governments provide many social support programs, most businesses are privately owned, making them essentially capitalist.

The United States, long considered the prototype of capitalism, isn’t even ranked in the top 10 most capitalist countries, according to the conservative think tank Heritage Foundation. The U.S. drops in the Foundation’s Index of Economic Freedom due to its level of government regulation of business and private investment.

Indeed, the Preamble of the U.S. Constitution sets one the nation’s goals to be “promote the general welfare.” In order to accomplish this, the United States employs certain socialist-like social safety net programs , such as Social Security, Medicare, food stamps , and housing assistance.

Contrary to popular belief, socialism did not evolve from Marxism . Societies that were to varying degrees “socialist” have existed or have been imagined since ancient times. Examples of actual socialist societies that predated or were uninfluenced by German philosopher and economic critic Karl Marx were Christian monastic enclaves during and after the Roman Empire and the 19th-century utopian social experiments proposed by Welsh philanthropist Robert Owen. Premodern or non-Marxist literature that envisioned ideal socialist societies include The Republic by Plato , Utopia by Sir Thomas More, and Social Destiny of Man by Charles Fourier. 

Socialism vs. Communism

Unlike socialism, communism is both an ideology and a form of government. As an ideology, it predicts the establishment of a dictatorship controlled by the working-class proletariat established through violent revolution and the eventual disappearance of social and economic class and state. As a form of government, communism is equivalent in principle to the dictatorship of the proletariat and in practice to a dictatorship of communists. In contrast, socialism is not tied to any specific ideology. It presupposes the existence of the state and is compatible with democracy and allows for peaceful political change.

Capitalism 

While no single person can be said to have invented capitalism, capitalist-like systems existed as far back as ancient times. The ideology of modern capitalism is usually attributed to Scottish political economist Adam Smith in his classic 1776 economic treatise The Wealth of Nations. The origins of capitalism as a functional economic system can be traced to 16th to 18th century England, where the early Industrial Revolution gave rise to mass enterprises, such as the textile industry, iron, and steam power . These industrial advancements led to a system in which accumulated profit was invested to increase productivity—the essence of capitalism.

Despite its modern status as the world’s predominant economic system, capitalism has been criticized for several reasons throughout history. These include the unpredictable and unstable nature of capitalist growth, social harms, such as pollution and abusive treatment of workers, and forms of economic disparity, such as income inequality . Some historians connect profit-driven economic models such as capitalism to the rise of oppressive institutions such as human enslavement , colonialism , and imperialism .

Sources and Further Reference

  • “Back to Basics: What is Capitalism?” International Monetary Fund , June 2015, https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
  • Fulcher, James. “Capitalism A Very Short Introduction.” Oxford, 2004, ISBN 978-0-19-280218-7.
  • de Soto, Hernando. The Mystery of Capital.” International Monetary Fund , March, 2001, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
  • Busky, Donald F. “Democratic Socialism: A Global Survey.” Praeger, 2000, ISBN 978-0-275-96886-1.
  • Nove, Alec. “The Economics of Feasible Socialism Revisited.” Routledge, 1992, ISBN-10: 0044460155.
  • Newport, Frank. “The Meaning of ‘Socialism’ to Americans Today.” Gallup , October 2018), https://news.gallup.com/opinion/polling-matters/243362/meaning-socialism-americans-today.aspx.
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Capitalism vs socialism is often framed as the major political face-off of our time. People often think of capitalism vs socialism as two totally opposite political ideologies. But are they really completely different systems? And should we compare capitalism and socialism at all? 

Here’s the facts: it does make sense to compare capitalism and socialism because they’re the main economic systems used in developed countries today. But to truly understand the differences between capitalism and socialism, we have to look to unbiased sources . These terms refer to complex philosophies that can’t be summed up by a meme, stereotype, or hot take! 

Capitalism vs socialism can be a complex topic, which is why we’re here to help you gain an objective understanding of capitalism vs socialism. In this article, we’ll provide a full guide to capitalism vs socialism that includes the following: 

  • A deep dive into socialism, and a deep dive into capitalism
  • A guide to the differences between democratic socialism vs capitalism
  • A socialism vs capitalism chart with side-by-side comparisons
  • A brief comparison of these concepts and other political theories, particularly capitalism vs socialism vs communism

Let’s get started!

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Capitalism vs Socialism: What’s the Difference?

Capitalism is an economic system in which the means of production are under private ownership, rather than government control. The means of production generally refers to entrepreneurship, capital goods, natural resources, and labor. Capitalism depends on a free market economy driven by supply and demand. 

In simplest terms, socialism is an umbrella term for types of economic systems that aim to eradicate inequality through shared ownership. To socialists, wealth should belong to the  workers who make the products, rather than groups of private owners. In practice, this means that the means of production are run and controlled by the government, which represents the will of the people.

As such, socialism is ultimately designed to increase social justice and equality regardless of class, race, or other socioeconomic factors . 

As models for economic systems, the primary difference between capitalism and socialism is the extent to which the government controls the economy. Capitalists believe that private enterprise, or privately owned business, is better at using economic resources. Asa result, capitalism argues that private business is what facilitates equitable distribution of wealth through a free market. In contrast, socialists believe that income inequality is most effectively managed through tight control of businesses and redistribution of wealth through social programs that are run by the government, such as free healthcare, education, and housing.

At first glance, capitalism and socialism might seem entirely incompatible. The truth is, most developed countries today implement some combination of capitalist and socialist practices in their economic structure and domestic policy. To help you understand how capitalism and socialism can be integrated in practice, we’ll do a deep dive into both socialism and capitalism, starting with socialism, next. 

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What Is Socialism?

We’ve covered the core differences between capitalism vs socialism, so let’s take a closer look at socialism next. Below, we’ll give you a more comprehensive definition of socialism, go over the history of the term, explain democratic socialism vs capitalism, and provide some examples of socialist governments today . 

Because socialism and communism are often easily confused, we’ll also touch on capitalism vs socialism vs communism.

Socialism: Overview and Definition

Socialism is a social, economic, and political doctrine that calls for collective ownership of a society’s means of production. The main goal of socialism is to eliminate socioeconomic classes by ensuring equal distribution of wealth among the people. To accomplish this, a socialist government--which is elected by the people--has control over the country’s economy, including major businesses and industries and the labor market. At its core, socialism is designed to eliminate inequality through government regulation.

The word “socialism” comes from the Latin sociare, which means to combine or to share. But the modern term “socialism” didn’t appear until the 19th century. French philosopher and revolutionary Henri de Saint-Simon coined the term in his writings about the  abuses of the capitalist system and the  Industrial Revolution. 

The thing to keep in mind about socialism is that it’s a blanket term that covers a wide variety of socialist ideas, practices, and theories. In his 1924 encyclopedia of socialism, historian Angelo Rappoport identified forty different definitions of socialism. This is why it’s tough to pin down a universal definition of socialism today. 

As an economic system and political theory, socialism has been applied in many different countries in many different ways . For example, communism is at its heart a form of socialism because it argues that everything in a society should be collectively owned and distributed to each according to their needs. But democratic socialism--which can combine capitalist and socialist ideologies--is also a type of socialism! 

Having said that, socialism is almost always employed as a critique of some aspect of capitalism . In some cases, socialism is also employed to replace capitalism. In most cases, though, socialism and capitalism are used together so that each ideology can make up for the other’s shortcomings. 

History of Socialism

Socialism was first used to criticize capitalist systems at the height of the Industrial Revolution in the 19th century. Henri de Saint-Simon and other prominent French philosophers were the first to critique the poverty and inequality of industrialized capitalism, and socialist thinkers advocated the transformation of society into small communities without private property. 

Socialism gained international recognition at the end of the 19th century. It was during this time that the movement became more oriented toward revolutionary thinking . This strain of socialist thought is largely attributed to the work of German philosophers Karl Marx and Friedrich Engels . In 1848, Marx and Engels wrote and dispersed a pamphlet called The Communist Manifesto detailing their ideas about socialism . 

According to the Communist Manifesto, socialism must eventually evolve into a more advanced system: communism . In the communist form of socialism as described by Marx and Engels (called Marxism), there would be no state, no money, and no social classes. Essentially, communism argues that private enterprise shouldn’t exist, and that the public (through the government) should own all the means of production in a society. 

This means that when socialism evolves into communism, it is fundamentally incompatible with capitalism . That’s because communism argues everything should be owned by the people and managed by government, whereas capitalism believes that economies should be run on private enterprise, which is controlled by individuals and not the government.This is why capitalism vs socialism vs communism can often be confusing. Just remember: the key difference between socialism and communism is that communism seeks to eliminate capitalism. But communism is just one type of socialism, and many other forms of socialism can be integrated into a capitalist economy. 

Marx and Engels helped popularize socialism, and in the 20th century, the first socialist governments appeared . The first mass party in Latin America, the Socialist Party of Argentina, was established in the 1890s, and in 1902, the British Labour Party won its first seats in Parliament. These elections of socialist politicians ushered in a new era of political legitimacy for the socialist movement. 

More radical forms of socialism emerged following World War I . In 1917, the Bolshevik Revolution occurred in Russia, led by philosopher Vladimir Lenin . Lenin and the Bolshevik faction of socialists overthrew the Russian monarchy and installed the first ever constitutionally socialist state, known as the Russian Socialist Federative Soviet Republic. Socialists who embrace Lenin’s methods today are most often referred to as communists.

By the 1920s, socialism in various forms had become the dominant secular movement on a global scale. That’s not to say that most governments were “socialist,” but they had definitely begun incorporating socialist ideas into their political policies. As socialism became more accepted, new forms of socialism continued to emerge, including the most common forms of socialism today: social democracy and democratic socialism. 

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Bernie Sanders is the most well-known proponent of democratic socialism in the United States. (Secret-Name101/WikiMedia) 

Democratic Socialism vs Capitalism

Democratic socialism brings three core concepts together: democracy , socialism, and capitalism. Generally speaking, democratic socialism co mbines the safety net of a socialist economy with the wealth creation of capitalism within a democratic system of government. 

Here’s what that means. First things first: the organizational structure of the government is a democracy. Every citizen of a country can vote in a free and fair election to elect officials to represent them in government. These officials then represent the will of the people that elected them. You can learn more about democracies (vs republics and other types of government) in this article. 

Democratic socialism also combines aspects of socialism and capitalism in terms of its political ideologies and economic systems. Under democratic socialism , the elements of society that provide for basic human needs--like healthcare, labor protections, and childcare--are owned collectively and run by the government. 

However, democratic socialism also embraces aspects of capitalism--usually in terms of economic structure. Democratic socialism recognizes the importance of private enterprise, especially in terms of building national wealth. When the two are combined, though, capitalism is more tightly regulated by the government. 

Examples of Socialist Governments Today

There are many different ways that a country can implement socialism today . Socialism is a broad category that encompasses multiple types of economic systems. It’s also compatible with various government systems. 

While there aren’t any purely socialist countries in the world today, there are nations that are categorized as communist by virtue of how much power the government has over social and economic systems. Those countries are: 

  • China, or the People’s Republic of China
  • Cuba, or Republic of Cuba
  • Laos, or Lao People’s Democratic Republic
  • Vietnam, or Socialist Republic of Vietnam
  • North Korea, or Democratic People’s Republic of Korea

Most countries implement aspects of socialism that are compatible with their form of government and economy in order to create equality for all people. These countries tend to have prominent socialist or democratic socialist political parties. Having a socialist political party does not necessarily mean that a country “is socialist.” Most of the time, it just means that some aspects of a country’s domestic agenda are influenced by socialism. 

Some of the countries with very influential socialist parties include the following: 

  • Denmark 
  • Poland 
  • South Korea
  • United Kingdom
  • Venezuela 

Because democratic socialism is such a popular topic today, let’s look more closely at one country that implements democratic socialism: Sweden.

Sweden adheres to the Nordic Model , which refers to the economic and social policies common to the Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden. The Nordic Model in Sweden fits the description of democratic socialism for two main reasons: it supports a universalist welfare state to promote social mobility, but it remains committed  to a market-based economy that’s partially fueled by private enterprise.

Sweden’s democratic government provides free health care, education, and lifetime retirement income. As a result, their Swedish citizens pay some of the highest taxes in the world. A high percentage of Sweden’s workers belong to a labor union, and the country is ranked high for protection of workers’ rights because of its strong social partnership between employers, trade unions, and the government.

At the same time, Sweden has a mixed-market capitalist economic system and high degrees of private ownership. To regulate its capitalist economy, Sweden allows free trade combined with collective risk sharing. These measures provide a form of protection against the risks associated with economic openness.

In other words: the country combines socialism and capitalism! in order to ’s political ideology is socialist, but its economy is capitalist. 

Because the government meets most of their needs, the Swedish people aren’t very concerned with accumulating wealth. As of 2020, Sweden also ranks high on the Global Peace Index and is ranked in the top 10 on the World Happiness Report.

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Many people associate capitalism with making money. That's because capitalism believes that privately owned businesses should be the bedrock of a national economy.

What Is Capitalism?

Now that we’ve covered socialism, let’s tackle capitalism next . Below, we’ll give you a comprehensive definition and history of capitalism, and we’ll provide some examples of capitalist governments today . 

Capitalism: Overview and Definition

Capitalism is an economic system in which the private sector owns most of the means of production . In a capitalist economy, the government plays a lesser role. The main goal of capitalism is to employ the means of production to make a profit and generate capital. To accomplish this, capitalism usually has a free market economy , which is based on supply and demand and limited government control. At its core, capitalism is designed to enable private entities, which are often corporations, to make a profit . 

The term capitalism is derived from the word “capital,” which evolved from the late Latin word capitale . Capitale is based on the Latin word caput , which means "head" and connotes something of value, such as money, property, or livestock. Capitale emerged in the 12th to 13th centuries to refer to funds, stocks of merchandise, sum of money, or money carrying interest. By 1283, it was used to describe the capital assets of a trading firm . By this time, capital was often used interchangeably with other words, including wealth, money, funds, goods, assets, and property.

In English language usage, the term “capitalism” first appears in author William Makepeace Thackeray’s 1854 novel, The Newcomes. In Thackeray’s novel, “capitalism” refers to “having ownership of capital.” Other initial usage of capitalism in the modern period employs the term to describe a new type of economy. In this economy, capital, or the source of income, doesn’t belong to the workers who generate it through labor. Instead, it belongs to the people who own the businesses and companies that pay for the labor. 

Also keep in mind that just like socialism, capitalism exists on a spectrum . But whereas types of socialism are often categorized by how much power a centralized government has, types of capitalism are usually defined by how free and unregulated the economy is. 

History of Capitalism

Capitalism developed out of systems of feudalism and mercantilism in Europe during the Renaissance. In these systems, capital existed in the form of simple commodity exchange and production. 

At the end of the 16th century, the economic foundations of the agricultural feudal system began to break down in England. Land and resources became concentrated in the hands of a few private owners, and the labor market became more competitive. The expanding system put pressure on owners and workers to increase productivity to make greater profits. By the early 17th century, feudalism was effectively replaced by a new centralized state and economic market in England.

Between the 16th and 18th centuries in England, an economic doctrine of mercantilism prevailed. Merchant traders explored foreign lands and engaged in trade for profit. Under the rule of Queen Elizabeth I, merchants were granted state support. Through subsidies and other economic incentives, merchants expanded commerce and trade and made profits by buying and selling goods. 

The continued growth of capitalism required specific technologies for mass production, which early feudalist societies and individual merchants didn’t have. These technologies became widely available during the Industrial Revolution, and those who owned them were called industrialists. Industrialists facilitated the development of factory systems and manufacturing . These systems required a complex division of labor and established the modern concept of the capitalist mode of production. 

The Industrial Revolution established the dominance of capitalism as an economic system in the western world. By the 19th century, capitalism had spread globally . And by the end of the 19th century, goods and information were able to circulate around the world at a whole new pace. This was due to technologies such as the telegraph, the steamship, and railway. But this growth also hinged on a large--and cheap--labor force. 

When the Great Depression had a global impact in the 1930s, socialist practices first entered into the capitalist economies of the world. By the end of World War II, governments began  regulating these open, capitalist markets. Welfare states emerged in capitalist countries during this time as well. Since then, there hasn’t been a purely capitalist system in the world. Today, most capitalist economies incorporate some form of socialist practice. 

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Many countries embrace capitalism...even if they also implement socialist policies. One good example of this is the United Kingdom, which has strong social programs but still allows for a robust private sector.

Examples of Capitalism Governments Today

There are many types of capitalism in existence today. Different countries’ implementation of capitalism may feature different economic policies and institutional structures. However, at their core, all capitalist countries share a common element: they are primarily based on private ownership of the means of production, generating profit through production, market-based control of resources, and accumulation of capital. 

Today, there are over 100 countries that have a capitalist economy . Here are a few examples of countries have some form of a capitalist economy:

  • Austria 
  • Chile 
  • Ireland 
  • Japan 
  • Mauritius 
  • Netherlands 
  • United States of America

It’s important to recognize that none of these countries implement pure capitalism . Instead, they implement a form of capitalism that may be combined with other types of economic markets or political ideologies, including socialism. Let’s look at an example of a capitalist economy to understand what capitalism looks like in practice next.

The United States has a democratic capitalist political-economic system . The U.S. economy is also referred to as a mixed market economy. This means that it has characteristics of both capitalism and socialism that are combined with a democratic system of government. 

In the form of capitalism implemented by the U.S., the means of production are based on private ownership and for-profit business. In other words: most businesses and services are privately owned, and those companies’ primary goal is to make money. But because the economy has regulations, taxation, and some subsidization, the U.S. can’t be considered a purely capitalist economy. 

Prior to World War II, the U.S. more closely resembled a truly free market . However, the government has always had some role in controlling the U.S. economy. Today, the U.S. government has partial control over education, physical infrastructure, healthcare, and postal deliveries. The government also provides subsidies to oil and financial companies and agricultural producers. While private businesses have a high degree of autonomy in the U.S., they are required to register with government agencies.

Some critics argue that the U.S. capitalist system serves the interests of a small percentage of the population, known as the one percent. Because of income inequality and intensifying class divisions in the U.S., many critics of capitalism advocate for the adoption of more socialist policies as a means to bridge that class divide . Two well-known advocates of increasing socialist policy in the U.S. are senator Bernie Sanders of Vermont and Alexandria Ocasio-Cortez of New York. 

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Socialism vs Capitalism: Chart Comparison

We’ve covered a lot of info concerning capitalism vs socialism, so let’s condense things down to the core differences between capitalism and socialism next. 

Keep reading for a side by side comparison of capitalism and socialism in our chart below.

Fascism, Communism, and Marxism: A Quick Comparison 

Now that we’ve covered the differences between capitalism and socialism, let’s explain how they compare to other systems that they’re sometimes confused with. We’ll briefly clarify the differences between the socialist and capitalist systems and communism and fascism. 

Fascism vs Capitalism and Socialism

Fascism is a political ideology that supports authoritarianism and ultra-nationalism. Fascist states are ruled under dictatorships. They also suppress opposition by force and tightly control society and the economy. 

But how does fascism compare to socialism and capitalism? Socialism is generally considered incompatible with fascism. Socialism is liberally-minded and progressive, and it’s a relatively flexible ideology, whereas fascism is none of these things. In fact, because it is a far-right ideology, fascism opposes socialism. 

The relationship between capitalism and fascism is a little more complicated. Historically, fascism has sought to do away with capitalism because of its emphasis on autonomy and limited state control. However, fascism supports private ownership, wealth accumulation among private individuals, and a market economy. This means that fascism can support a very specific kind of capitalism, but capitalist economies are rarely fascist.

Communism vs Capitalism and Socialism

Let’s talk now about capitalism and socialism in relation to communism. Communism proposes a socioeconomic structure and political system that completely replaces a capitalist system with public ownership and communal control of the means of production. In communism, everything is collectively owned and private enterprise is eliminated. Because it seeks to eliminate money and social classes, communism is ultimately incompatible with capitalism.

However, socialism and communism are more closely related. In simplest terms, communism is a more revolutionary form of socialism , based on the ideology of Karl Marx. Socialism and communism share a core goal of placing power over the means of production in the hands of workers. Unlike communism, though, socialism is widely compatible with other forms of government. Forms of socialism can also be integrated into other economic systems, such as capitalism. 

Marxism vs Capitalism And Socialism 

You may also be wondering how Marxism relates to socialism and capitalism . Marxism is the political and economic theory proposed by Karl Marx and Friedrich Engels. Marxist theory was adapted by followers of Marx and Engels to articulate a specific approach to communism. This means that Marxism is a type of communism that incorporates socialist principles. Ultimately, socialism is a much broader concept than Marxism.

Marxism also addresses capitalism, though. In his book, Das Kapital, Karl Marx describes a capitalist mode of production. He is often credited as defining the modern concept of capitalism through his harsh critiques of it . He ultimately believed that capitalism would eventually stagnate, and socialism would take its place. 

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What’s Next? 

If you want to learn more about how different governments work , check out our article on democracies versus republics.

The U.S. government is set up in three parts where no one section of the government has more power than the other . We’ll teach you everything you need to know about this checks and balances system.

If all of these topics are fascinating to you, then you might be interested in majoring in political science. Our experts will teach you everything you need to know about a political science degree , including what types of careers are available for poli-sci grads.

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Ashley Sufflé Robinson has a Ph.D. in 19th Century English Literature. As a content writer for PrepScholar, Ashley is passionate about giving college-bound students the in-depth information they need to get into the school of their dreams.

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Compare and Contrast Essay: Socialism vs. Capitalism

Governments are what run our country. The concept of the best type of government has been debated for many years. There are many types of governments but two of the most often compared and used are Socialism and Capitalism. The two ideologies have had clashing beliefs on how to run a country and what role the government should play and how it should play it. 

Many think that Socialism is the right choice as it distributes wealth among individuals so certain groups don't have an abundance of power. The other side believes that Capitalism is better as it lets the economy grow at a much faster rate therefore seen as a better economic choice. Due to the fact that capitalist countries generally perform better and individuals can make  their own business decisions without control of the government. This is a big reason majority think that capitalism is simply a better form of government. And due to the fact that socialism has more “fair” ways of running an economy many people think socialism is the better option. All that said, capitalism is the superior way to run an economy due to the freedom it gives citizens and the success it has seen financially. 

Briefly, Capitalism is a form of government where everything, whether that be a country's trade or industry, is run by private firms. These companies are usually owned by a single person (Founder/CEO) and compete for business with other private companies. 

Alternatively, Socialism sometimes referred to as leftism is heavily based on the community and the government. In socialism, all trade, production and distribution are done publicly by the state government. Citizens are still allowed to run small businesses but anything that has demand, is essential to living or generally important is owned by the state. Socialism can be considered a less strict version of communism. In order to analyze both socialism and capitalism, we need to know their differences. 

To begin with, in capitalism all assets like food are owned by private firms and businesses which don't need any correlation to the government unlike in socialism assets like these are owned by governments/cooperatives and not made for profit which is obviously a big difference. These state-owned businesses spread out the resources equally to citizens.  Because of this driving difference socialism promotes more of an equality mindset whilst capitalism focuses solely on economic growth. Furthermore, socialism tries to spread all money among people in the country by making everyone work for wealth and in turn distribute wealth among them. This means that usually there aren't poor people and there aren't rich people. Capitalism gives citizens the freedom to do whatever they want to make money, the government isn't expected to make sure everyone has a job in capitalism. In a capitalist society, any citizen has the right to start or own a business and enter into a contract. Opposingly in socialist societies basic and essential industries are owned by the state this ranges from their food to their trade.

As you can see in capitalism governments don't care much about the wellbeing of citizens compared to socialism leaving each person on their own to compete for the most income. In Socialism it doesn't matter how hard you work, money is distributed based on necessity, this is a good idea at face value but it does have many cons to it. For example, citizens will most likely be demotivated to do a lot of work due to lesser rewards compared to capitalism. When it comes to healthcare, socialism and capitalism have opposite ideals. But they do both believe healthcare is very important and should be accessible to every citizen. In capitalism, healthcare is provided by a private sector meaning people must pay for healthcare and in socialism, healthcare is provided free or subsidized by the government. 

On the other hand, socialism and capitalism have many similarities in their rules and ideologies. Firstly, both socialism and capitalist governments are funded by taxes; this means that the government's main source of income is from the people in the country. Secondly, socialism and capitalism both recognize wealth (GDP) as the way the economy should be measured even though their ideas on the best way to produce maximum capital are different.

One of the biggest similarities between capitalism and socialism is they are both democracies meaning governments are voted in. Both capitalism and socialism consider labor and capital to be primary economic forces. Furthermore, both systems believe that natural resources are valued based on the human labor surrounding them. This also means that capitalism and socialism are both labor centric. In socialism, the government will have much more control over the economy than capitalism but they do not have 100% control as people are still able to make economic decisions of their own like buying property and small-scale private enterprises can still be made. Therefore, there are still market forces in socialism which means another similarity between capitalism and socialism is the fact that they both have market forces. Finally, Socialism and capitalism both have proven to be functional and have the potential to be successful, however, socialism has recently had the record of failing. 

From my point of view, capitalism is the superior government system. This is because it gives power to individuals allowing them to make decisions that affect the country and limits the power given to the government. The best proof is history and the consequences of how these two actually fared out in the real world rather than just the theory. Countries like Canada, Australia, New Zealand, Denmark and Switzerland have all seen great success from capitalism. In fact, most of the countries with the highest GDP’s are capitalist countries.

There aren't as many countries that are socialist as there once were (possibly because of its failure) but socialism's failure rate is alarmingly higher than capitalism, over the last 100 years there have been many attempts to start a socialist government. Out of these more than 25 of them met some form of failure which is only a number for notable tries. Socialism hasn't seen much success other than in countries like Portugal and India (India is considered socialist). Though capitalism may be more successful publicly it is very important to note that no country has ever been 100% capitalist and some say it's not even possible to do so. If we look back at the past and analyze it we can say many socialist economies failed due to how they neglected new technology progress and had insufficient funding,

In Conclusion, capitalism and socialism are both functional but vastly different forms of government and each has its pros and cons. Socialism's main cons are slow economic growth and risk of financial failure, the main pros being a more equal society with reduction of poverty compared to other governments. capitalism's main pro is a faster-growing, more stable economy and the main cons are a much higher wealth gap, workers getting exploited, social division and monopoly power.

Generally, we can see that in socialism citizens are much more trapped under the government's grasp which in essence is what socialism is. It's like this to “prevent poverty and imbalance in-power.”  In other words, it's giving all the power that people have in capitalism to the government. Some may see that as a good thing but many scholars think that the more that power is split between groups and people the safer everyone is. Capitalism provides everyone with the Looking at the past socialism, though the idea to spread money around to everyone is a good idea on face value, socialism just isn't built to work in our large and expanding society today.

Capitalism brings in higher income, gives individuals the chance to be successful in society, gives a bigger opportunity for innovation, freedom of choice, has competition which encourages growth, provides a bigger incentive(money) to work and is better than any alternative. All evidence leads to the fact that capitalism is simply the better option.

Ideally, the best government would be a mix of many different forms and wouldn't be specifically one group but if you need a definitive answer on which is better, capitalism or socialism the answer would be capitalism.

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Capitalism vs. Socialism

Capitalism

Capitalism and socialism are somewhat opposing schools of thought in economics. The central arguments in the socialism vs. capitalism debate are about economic equality and the role of government. Socialists believe economic inequality is bad for society, and the government is responsible for reducing it via programs that benefit the poor (e.g., free public education, free or subsidized healthcare , social security for the elderly, higher taxes on the rich). On the other hand, capitalists believe that the government does not use economic resources as efficiently as private enterprises do, and therefore society is better off with the free market determining economic winners and losers.

The U.S. is widely considered the bastion of capitalism, and large parts of Scandinavia and Western Europe are considered socialist democracies. However, the truth is every developed country has some programs that are socialist.

An extreme form of socialism is communism .

See also Communism vs. Socialism .

Comparison chart

One of the central arguments in economics , especially in the socialism vs. capitalism debate, is the role of the government. A capitalist system is based on private ownership of the means of production and the creation of goods or services for profit. A socialist system is characterized by social ownership of the means of production, e.g., cooperative enterprises, common ownership, direct public ownership, or autonomous state enterprises.

Proponents of capitalism espouse competitive and free markets and voluntary exchanges (instead of the forced exchange of labor or goods). Socialists advocate greater government involvement, but the opinions of supporters differ in terms of types of social ownership they advocate, the degree to which they rely on markets versus planning, how management is to be organized within economic enterprises, and the role of the state in regulating businesses to ensure fairness.

Criticisms of Socialism and Capitalism

Criticisms of capitalism.

Capitalism is criticized for encouraging exploitative practices and inequality between social classes. In particular, critics argue that capitalism inevitably leads to monopolies and oligarchies, and that the system's use of resources is unsustainable.

In Das Kapital , one of the most famous critiques of capitalism, Karl Marx and Friedrich Engels claim that capitalism centers profits and wealth in the hands of the few who use the labor of others to gain wealth.

The concentration of money (capital and profits) in capitalism can lead to the creation of monopolies or oligopolies . As postulated by British economist John Maynard Keynes , oligopolies and monopolies can then lead to oligarchies (government by a few) or fascism (the merging of government and corporations with monopolistic power). Laissez faire capitalism, as espoused in 19th century U.S. business growth, did reach the point where monopolies and oligopolies were formed (e.g., Standard Oil ), which gave rise to antitrust laws, trade union movements, and legislation to protect workers.

Critics such as Richard D. Wolff and environmental groups also state that capitalism is destructive of resources both natural and human, as well as disruptive to economic stability, though this is actually considered a plus in the "creative destruction" facet of Joseph Schumpeter's economic theories. The unplanned, almost chaotic, factors of a capitalist economy, with its recessions, unemployment, and competition, are often seen as negative forces. As defined by historian Greg Grandin and economist Immanuel Wallerstein, the destructive nature of capitalism moves beyond workers and communities to natural resources, where the pursuit of growth and profits tends to ignore or overwhelm environmental concerns. When linked to imperialism, as in the works of Vladimir Lenin , capitalism is also seen as a destroyer of cultural differences, spreading a message of "sameness" across the globe that undermines or drowns out local traditions and mores.

Criticisms of Socialism

Critics of socialism tend to focus on three factors: the loss of individual freedom and rights, the inefficiency of planned or controlled economies, and the inability to establish the constructs socialism theorizes are ideal.

Based on long-term growth and prosperity, planned or controlled economies typical of socialist states have fared poorly. Austrian economist Friedrich Hayek noted that prices and production quotas would never be adequately supported by market information, since the market in the socialist system is basically non-reactive to prices or surpluses, only to shortages. This would lead to irrational and ultimately destructive economic decisions and policies. Ludwig von Mises , another Austrian economist, argued that rational pricing is not possible when an economy has only one owner of goods (the state), as this leads to imbalances in production and distribution.

Because socialism favors the community over the individual, the loss of freedoms and rights is deemed undemocratic at best and totalitarian at worst. Objectivist philosopher Ayn Rand stated that the right to private property is the fundamental right, for if one cannot own the fruits of one's labors, then the person is always subject to the state. A similar argument raised by supporters of capitalism, and therefore often by critics of socialism, is that competition (considered a basic human trait) cannot be legislated away without undermining the will to achieve more, and that without proper compensation for one's efforts, the incentive to do well and be productive (or more productive) is taken away.

Socialism is often criticized for tenets that are not socialist, but rather communist or a hybrid of the two economic systems. Critics point out that the "most socialist" regimes have failed to deliver adequate results in terms of economic prosperity and growth. Examples cited range from the former U.S.S.R. to current regimes in China, North Korea, and Cuba, most of which were or are more on the communist end of the spectrum.

Based on historical evidence from communist governments, to date, extensive famine, severe poverty, and collapse are the end results of trying to control an economy based on "5-year plans" and assigning people to jobs and tasks as if the country were a machine rather than a society. A common observation about particularly restrictive socialist or communist economies is that they eventually develop "classes" with government officials as "the rich," a fringe-like "middle class," and a large "lower class" composed of workers, which supporters of capitalism are often quick to point out are the same structures socialism eschews as "exploitative."

Capitalism vs. Socialism Timeline

1776 - Adam Smith publishes The Wealth of Nations , establishing an economic point of view on history, sustainability, and progress.

1789 - The French Revolution espouses a philosophy of equality for all , building upon the tenets also included in the U.S. Declaration of Independence and the Constitution.

1848 - Karl Marx and Frederich Engels publish The Communist Manifesto , defining the social struggle between the moneyed classes and workers, the former exploiting the latter.

1864 - International Workingman's Association (IWA) is founded in London.

1866 - The U.S. National Labor Union is founded.

1869 - The Social Democratic Worker's Party forms in Germany. Socialism becomes increasingly linked to trade unions in the 1870s, particularly in France, Austria, and other countries in Europe.

1886 - The American Federation of Labor (AFL) is created. (It will later merge with the Congress of Industrial Organizations (CIO) in 1955.)

1890 - The Sherman Antitrust Act passes, with the aim of encouraging competition against large and powerful corporations.

1899 - The Australian Labor Party becomes the first elected socialist party.

1902 - The British Labour Party wins its first seats in the House of Commons.

1911 - John D. Rockefeller's Standard Oil is broken up under antitrust laws. After the breakup of Standard Oil, Rockefeller's wealth rises until he becomes the world's first billionaire.

1917 - The Russian Revolution overthrows the Tsarist regime and imposes a Communist government, led by Vladimir Lenin. Europe and the U.S. react to the takeover with concerns that Communism will sweep away democracy.

1918 - The German Revolution establishes the Weimar Republic with the Social Democratic Party nominally in charge, facing challenges by communist supporters and National Socialists.

1922 - Benito Mussolini assumes control of Italy, calling his blend of corporations and government power "fascism."

1924 - The British Labour Party forms its first government under Prime Minister Ramsay MacDonald .

1926-1928 - Joseph Stalin consolidates power in Russia, emerging as the leading force for communism around the world.

1929 - The Great Depression begins, plunging the world into an unprecedented economic slowdown. Capitalism is blamed for its excesses, and socialist parties of varying ideological stances emerge, primarily in Europe.

1944 - The Canadian province of Saskatchewan forms the first socialist government in North America.

1945 - The British Labour Party returns to power, ousting Prime Minister Winston Churchill .

1947 - China is taken over by a communist regime led by Mao Zedong .

1959 - Fidel Castro overthrows the Fulgencio Batista regime in Cuba, then surprisingly announces an alliance with the Communist Party of the U.S.S.R.

1960s - 1970s - Nordic countries, such as Norway, Denmark, Sweden, and Finland, increasingly blend socialism and capitalism to develop higher standards of living, with particular progress in education, health care, and employment.

1991 - The Soviet Union (U.S.S.R.,) collapses, and former Soviet republics attempt to throw off their communist past to explore democratic and capitalist systems, with limited success.

1995 - China begins capitalist practices under the Communist Party's auspices, launching the fastest-growing economy in history.

1998 - Hugo Chávez is elected President of Venezuela and embarks on a nationalization program, leading a social democratic movement in Latin America led by Bolivia, Brazil, Argentina, and others.

2000s - Corporate profits set record highs nearly every year, while real wages stagnate or decline from 1980 levels (in real dollars). French economist Thomas Piketty's Capital in the Twenty-First Century , which analyzes economic inequality under capitalism, becomes an international bestseller.

  • Capitalism - Wikipedia
  • Socialism - Wikipedia

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Comments: Capitalism vs Socialism

Anonymous comments (5).

November 8, 2013, 11:37am The United States problem for the past 100 years has been out of control government spending and free money provided by the Federal Reserve. The more they spend, the more inflation is created and the poorer the people get because of that. Capitalism in the US should not be condemned because we haven't had true Capitalism. Its been more of a Facist/Socialist economy where the government has bailed the big boys and screwed the middle class and poor by making the cost of living higher with their inflation. Now with the Affordable Health Care act (aka Obamacare), the government is forcing millions to drop their affordable health insurance for more expensive health insurance that they don't want or need. All it does is make the insurance companies richer and the people poorer. (Nancy Pelosi: "We have to pass it to see whats in it") The redistribution of wealth seems to be going in the wrong direction Mr. President. The POTUS is also embroiled in several scandals that's affecting the nation and nobody does anything about it. This is probably the worse President we've ever had and the only reason he was elected was because the majority of the electoral votes come from poor regions of the states. There are more poor people in US now than there ever has been in the history of the US. He message of hope and change for the people has turned into hope and change for the big boys who have everything to lose. This is truly a recipe for revolution.. The land of EQUAL opportunity has turned into a place where special interest groups create the legislation that runs this country and special rights are handed out like candy. Our elected officials are nothing but salesman and the face on the package. Every one of them get rich from special interest group money. All of them. See http://maplight.org to see how much your representative is raking in. We all know that its morally wrong and that it has broken the system, and NOBODY does anything about it. — 72.✗.✗.4
April 25, 2013, 7:34am So all you people who think socialism is good and capitalism is bad and people who are CEO's are bad and the inly good people in the world are those with average jobs and payed less than a CEO. One i think your all jealous of the people are are doing well and working hard to do it. You people act like you know every business owner in the country and they somehow wronged you and they were just born with that job. Most of those guys started the company or business or whatever. So a guy who starts with nothing pay his way through college and dental school and is then is $400,000 in debt after 8 years of grueling school doesnt deserve to get payed more than a factory worker? How would he ever pay off his debt? And lets say he works 12 hrs a day 6 days a week, with peoples lives in bus hands! And he saves some money to build his own practice and then after 20 years doesnt have to work anymore but still gets a ton of money from the business that he started but still pays all his employees extremely well while living a very comfortable life with bus family is a bad person because now after years if hard work that guy doesnt deserve to reap the fruits of his labor!!?? If you want to live like that guy, then work as hard as he did to do it! — 174.✗.✗.193
September 16, 2013, 5:58am Unfortunately both system are routinely exploited by psychopaths and turned into autocracies to fulfil the urges and lusts of those psychopaths. Reality is capitalism will atomically drift into stable socialism by the actions of the people involved once the insane influences of psychopaths have been removed. — 118.✗.✗.175
October 13, 2012, 4:17pm What I've never understood (and the comments on this board don't do much to make me understand any better) is how Americans have classified what Obama has done as "socialism". In fact, they were claiming this before he even took office. Obama is as much a "socialist" as China is "capitalist", simply because they now allow some businesses to sell products for profit. China couldn't survive without some sort of business and innovation, nor can America survive without some sort of social programs supporting the population. That doesn't make you "socialist". I have no problem arguing Obama's positives and negatives, but the false equivalency of pointing fingers and claiming he's a socialist (thus, shouldn't be supported) reduces such conversation to ignorant levels. And no, just because I called such conversation ignorant doesn't mean I have classified you as an Ignorantist in all facets of life. See how that works? — 66.✗.✗.3
April 9, 2011, 2:37pm ^^ All problems you contribute to socialism exist in a capitalist society as well. In capitalism people are content with their jobs earning megabucks but not contributing to society, only contributing to the load in the higher up's bank account. Also High tax + low cost = high cost + low tax. Money is worshiped over feats because of capitalism. Capitalism also limits the spread of knowledge because of the overhyped cost of education and media. People who could do so much more good are pushed to the side because of their poverty. Money replaces intellect and willpower. When you speak of Sweden you seem to also be forgetting that they have one of the best healthcare systems and have one of the best crime rates in the world. — 141.✗.✗.238
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Events, news & press, capitalism vs. socialism.

Over the last century countries have experimented with variations on both capitalism and socialsm. So how do socialism, capitalism, and their many variants compare?

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From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The  Hoover Institution’s Human Prosperity Project  critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

Part 2: How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind.

In his Human Prosperity Project essay  Socialism, Capitalism, and Income  economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

Part 3: What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it? Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review , Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

Part 4: What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist , Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay  The Costs of Regulation and Centralization in Health Care  Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

Part 5: Conclusion

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay  Leaving Socialism Behind: A Lesson from German History ,  Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

  • Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay  Capitalism, Socialism, and Freedom .
  • In his essay  Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
  • Explore the other Human Prosperity Project essays  here .

View the discussion thread.

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What Is Capitalism

What is socialism, historical perspectives, how capitalism works, how socialism works, hybrid economies, socialism vs. capitalism debate in the u.s., examples of socialism in the u.s., main differences between capitalism and socialism, both systems exist on a spectrum, types of capitalism and socialism, what is the difference between communism and socialism, which countries have socialist economies today, what are the main benefits and drawbacks of capitalism, what are the main benefits and drawbacks of socialism.

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Capitalism vs. Socialism: What's the Difference?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

capitalism vs socialism compare and contrast essay

While capitalism and socialism are often presented as opposing economic systems, in reality, the economies of most countries exist on a spectrum incorporating elements of both. No economy is purely capitalist or socialist. Rather, most feature markets and social welfare systems tailored to meet the unique needs, cultural values, and historical contexts of their societies.

This article will provide an overview of both systems, including their definitions, history, key principles, and real-world examples.

Key Takeaways

  • The capitalist economic model relies on free market conditions for the creation of wealth; the production of goods and services is based on supply and demand in the general market.
  • In a socialist economic model, the production of goods and services is either partially or fully regulated by the government; this is referred to as central planning, and the economic structure that is created is known as a planned economy or a command economy.
  • Most countries are mixed economies, falling somewhere on the spectrum between pure capitalism and pure socialism.

Capitalism is an economic system based on the private ownership of the means of production (i.e., factories, offices, tools & equipment, etc.) and their operation for profit. Central characteristics of capitalism include private property , capital accumulation, wage labor, voluntary exchange, and a price system derived from competitive markets.

In a capitalist economy, decision-making and investments are determined by the owners of capital (i.e., wealth, property, and production capacity), whereas prices and the distribution of goods and services are mainly determined by competition in markets for goods and services.

Some of the fundamental principles of capitalism include:

  • Business owners who control the means of production and hire labor, who are paid wages
  • Private property rights
  • Competitive markets
  • Minimal government intervention in the economy

Under capitalism, the prices and production of goods and services are determined by the voluntary interactions of individuals and companies in the marketplace. Capitalists argue this free market mechanism leads to the most efficient allocation of resources.

Socialism is an economic system where the means of production are owned by the society as a whole, meaning the value made by workers belongs to everyone in that society, rather than a group of private owners and investors. It is an economic philosophy based on the principles of shared ownership and cooperation.

Production under socialism is meant to directly satisfy economic demands and human needs, rather than indirect satisfaction of needs through making profits and capital accumulation. The essential goal of socialism is to increase equality among members of society.

Some of the key tenets of socialism include:

  • Collective or public ownership of major industries and resources
  • Central planning and regulations to ensure equal distribution of wealth and fair provision of goods
  • Production for social need rather than profit
  • Cooperative management of the economy

With socialism, the means of production are commonly owned by the community or state on behalf of its citizens. Resource allocation and production are determined through central planning, with the goal of ensuring an equitable distribution of wealth and benefits to all members of society.

In addition to capitalism and socialism, the other major school of contemporary economic thought is communism . While there are certain core similarities between socialism and communism, there are also important distinctions between them .

The concepts of capitalism and socialism originated in Europe in the early 19th century. Prior to their advent, the economic landscape of Europe was shaped largely by feudalism and mercantilism.

Feudalism, a hierarchical system prevalent in medieval Europe, relied on a fixed class structure wherein nobles granted lands to vassals (serfs) in exchange for loyalty and military service. With the decline of feudalism, many individuals, no longer tied to the land, sought work in cities, marking the beginnings of wage labor.

Another system known as mercantilism emerged around the late 16th century as cities began to attract large populations and become centers of society. Under mercantilism, governments began to regulate their economies with an aim to augment state power, promoting exports over imports to accumulate wealth and encouraging colonization for resource access. These systems established the foundation for the emergence of a labor market and facilitated the accumulation and concentration of wealth, thereby setting the stage for capitalism. The advent of capitalism and socialism also coincided with a period of rapid industrialization and urbanization in the 19th century. As agricultural production became more efficient, populations shifted from rural areas to cities in search of better-paying jobs. Urban centers swelled as people moved to find work in the new factories and mills. This rupture of traditional agrarian lifestyles produced immense social displacements. Traditional bonds of family and community often broke down, replaced by impersonal labor relations. The sheer scale and speed of urbanization under early industrial capitalism led to major problems like overcrowded, unsanitary slums, child labor, grueling working conditions, and stark inequalities of wealth. This climate of rapid social change and worker exploitation catalyzed calls for reform and regulation.

The Rise of Capitalism

The restrictive trade practices of mercantilism were increasingly seen as inhibiting the potential of the burgeoning market economy. Mercantilist policies often involved protectionist measures like tariffs, quotas, and subsidies to boost local industries. Colonies were exploited as sources of cheap raw materials and captive export markets. The prevalent thought was that trade was a zero-sum game - one nation could only enrich itself at the expense of others.

The rise of capitalism challenged these mercantilist assumptions. Adam Smith's The Wealth of Nations , published in 1776, made a case against government interference in trade based on the efficiency of free markets guided by the “ invisible hand .” Over time, capitalist ideas shifted economic ideology toward free trade and open competition.

By the end of the 19th century, capitalism had become the dominant economic model in the Western world. The rise of industrialization during this period led to unprecedented economic growth and wealth in capitalist societies.

However, it also exacerbated socio-economic disparities, leading to the emergence of a working class that was often subject to unsafe working conditions and low wages. These inequalities sparked social and political unrest, leading to the rise of trade unionism and political movements advocating for social justice and labor rights.

It is important to also understand the rise of capitalism in the context of European colonialism and the transatlantic slave trade, which paved the way for capital accumulation and consumption in today's capitalist societies. The slave trade enabled European businesses to profit enormously from the forced labor of millions of enslaved Africans on colonial plantations producing sugar, tobacco, cotton, and other commodities sold for world consumption.

The Rise of Socialism

The origins of socialism can be traced back to the late 18th century, particularly the works of philosophers like Robert Owen and Charles Fourier. But socialism did not become a prominent political and economic movement until the mid-19th century as a reaction to the social problems created by industrial capitalism at the time and the growing inequality between the small group of wealthy business owners and the masses of poor workers. Socialist parties began forming by the end of the 19th century in Europe and the United States, advocating public ownership of industry.

In 1848, Karl Marx and his collaborator Friedrich Engels published The Communist Manifesto , which outlined a critique of capitalism based on the concept of class struggle. Marx believed capitalism was inherently exploitative and alienating. He argued that workers were denied the full value of their labor while owners reaped profits, creating unequal social relations between the bourgeoisie owners and the proletariat workers.

Marx predicted that the internal tensions and contradictions of capitalism would heighten class conflict and ultimately lead to revolution by the oppressed workers. The Manifesto concludes by declaring, "The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries unite!" This rallying cry bolstered the burgeoning socialist movement.

Socialist and Marxist ideas spread among the working classes through labor unions, worker cooperatives, political parties, and activist organizations. Major early victories included winning the right to form unions , instituting child labor laws, establishing the 8-hour work day, and other progressive reforms. Outside Europe, socialist and even communist revolutions occurred in places like Russia, China, and Cuba where peasants and rural populations suffered extreme inequality and poverty.

Under capitalism, the means of production (i.e., the factories, tools, equipment, raw materials, etc., that are used to produce goods) are primarily owned by private enterprises and individuals. Companies produce goods and services in order to generate profit, and so they decide what to produce based on what is most profitable given market demand and they compete with each other for customers in free markets. In this way, successful companies and entrepreneurs can accumulate substantial wealth. But unsuccessful ones risk bankruptcy and closure.

Labor in a capitalist economy is provided by workers in exchange for wages or salaries. These workers, unlike the capitalists who control the means of production and reap the profits from their sales, only earn their wages. They do not own the tools or machinery they use in production, nor are they entitled to profits derived from selling the goods they produce. This structure effectively creates a societal divide between owners (capitalists) and workers (labor).

Market forces, particularly supply and demand , drive prices in a capitalist economy rather than government price controls or mandates. Business owners are incentivized to maximize efficiency and minimize costs to boost profits and increase their market share, which fosters intense competition. Importantly, this competition fuels innovation and technological progress. In search of profits and market share, companies develop and invent new processes or improve existing ones in order to undercut their competitors. This mechanism has led to significant technological advancements in many areas including healthcare, communications, transportation, and more.

However, these benefits of a market economy are not without certain drawbacks. Critics contend that unfettered capitalism can also concentrate wealth in the hands of a small number of large corporations and individuals. This could lead to monopolistic tendencies or oligopolies that undermine competition. Capitalism's focus on profits may also incentivize negative externalities such as environmental damage, worker exploitation, short-term thinking, and financial instability in the absence of thoughtful regulation.

There is active debate among economists and policymakers regarding these potential benefits and drawbacks of capitalist systems. Some argue that prudent regulation can temper capitalism's excesses while preserving economic freedom. Others advocate for a greater role of government planning or altered incentive structures under capitalism.

Under socialism, society as a whole owns and controls the major means of production. This often takes the form of the state (i.e., government) controlling industries on behalf of the people. Rather than markets, which distribute goods according to who can afford what, central planners decide what should be produced and in what quantities based on consumer needs and fair allocation. Prices are set to ensure affordable access for all citizens. As such, it is sometimes known as a command economy .

In theory, socialism aims to eliminate class divisions and create a more egalitarian society through shared ownership and democratic control of industry. Production is intended to directly satisfy human needs rather than maximize profits, where individuals receive access to basic necessities like healthcare, education, housing and employment that is either heavily subsidized or free of charge, funded by taxation.

Personal property and small business still exist under socialism, but larger corporations and important industries are placed under public and cooperative ownership. Income levels are generally more equitable due to policies focused on worker protections, economic inclusion, and social welfare programs.

Critics argue that socialist central planning is inefficient compared to free markets. Excessive regulation stifles innovation. Removing the profit motive reduces incentives for productivity and quality control. Dependence on the state could also erode individual liberties.

While some argue that removing the profit incentive under socialism stifles innovation, innovation can still occur in the absence of profits or competition. For example, publicly-funded research and development initiatives have achieved major innovations in areas like space exploration, medicine, and technology. Open source software has also innovated rapidly through non-profit collaboration.

Most modern economies are, in fact, mixed economies. This means they exist somewhere on a continuum between pure capitalism and pure socialism, with the majority of countries practicing a mixed system of capitalism wherein the government regulates and owns some businesses and industries.

In the purest form of a capitalistic system (sometimes referred to as laissez-faire capitalism), private individuals are unrestrained, and the economy operates without any government checks or controls. Private individuals and businesses may determine where to invest, what to manufacture and sell, and the prices of goods and services.

In a purely socialist system, all means of production are collective or state-owned. Proponents argue this eliminates class divisions and allows for equal distribution of resources and profits. However, critics contend it concentrates excessive power in the hands of the state and removes market incentives. In practice, very few socialist countries have ever fully abolished all private ownership, even if the state exerts major control over the economy.

Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems. In these economies, the government intervenes to prevent any individual or company from having a monopolistic stance and undue concentration of economic power. Resources in these systems may be owned by both the state and by individuals. The balance between public and private control is constantly debated, but mixed systems allow societies to harness benefits of both capitalist and socialist structures.

The debate between socialism and capitalism has long played out in America's economic policies and political discourse, as well as in Europe and elsewhere. Since its inception as a nation, capitalism has been deeply ingrained in the American social fabric, fostering a culture of entrepreneurship and a diverse marketplace of goods and services. The U.S. is often regarded as the epitome of a capitalist society with its strong emphasis on free markets, private property, and individual liberty. It has been, and still is, home to many of the world's largest and most influential corporations and has produced a significant number of successful entrepreneurs.

However, the prevalence of capitalism has not entirely extinguished socialist ideas from the American discourse. In the late 19 th and early 20 th centuries, socialist and communist ideas gained some prominence in America, leading to reforms like public education, antitrust regulations, the five-day work week, and child labor laws. In the wake of the Great Depression in the 1930s, President Franklin D. Roosevelt introduced the New Deal , a series of government programs and regulations aimed at providing relief, recovery, and reform. Many of these initiatives, such as Social Security and Medicare, have a socialistic nature as they involved government intervention to promote social welfare.

During the Cold War era, socialism as an economic system became entangled with the politics of Soviet communism in the American psyche. Capitalism was pitted against communism in an ideological battle of good vs. evil, leading to heightened resistance to socialist policies in the U.S. This binary framing left little space for nuance or balance, making socialism a dirty word in much of the mainstream discourse throughout the Cold War period. Any policy or program that smacked of collectivism, increased government involvement, centralized planning, or wealth redistribution was branded as a dangerous slippery slope towards Soviet-style communism and generated irrational fear and distrust of socialist ideas among the American public.

In recent years, the socialism versus capitalism debate has re-emerged in America. High-profile politicians like Bernie Sanders and Alexandria Ocasio-Cortez, have helped bring socialist ideas like universal healthcare , tuition-free college, and higher taxes on the wealthy back into the mainstream. While critics still equate socialism with excessive government control and a loss of individual liberties, defenders argue that socialist policies can coexist with capitalism and democracy in ways that promote the greater good. Public opinion has indeed become more favorable towards some government intervention in capitalism. For example, a Gallup poll in 2021 found around 40% of Americans believed some form of socialism would be good for the country – a level that has held steady since the 2010s. The rise of a more democratic socialism demonstrates many Americans wish to seek a middle ground between unchecked capitalism and government-dominated socialism.

It is wrong to imply that capitalism always inherently leads to inequality, while socialism leads to equality. In truth, there are variations of both systems, and outcomes depend greatly on implementation and broader political structures and social institutions.

While the U.S. has remained fundamentally capitalist, many programs incorporate socialist principles:

  • Social Security - Provides retirement and disability benefits through a centralized, social insurance system funded by taxes.
  • Medicare – Federal government-provided health insurance for the elderly.
  • Medicaid – State government-provided health insurance for low-income residents
  • Public Schools - Primary and secondary education funded by government at local, state, and federal levels.
  • State Colleges and Universities – Higher education subsidized by state governments.
  • U.S. Military - Collectively owned defense force funded through taxes.
  • Law Enforcement, Fire Departments, & Garbage Collection - Local government services available to all residents.
  • Public Libraries - Local libraries available to all residents, funded by taxes.
  • Public Parks - Recreational parks built and maintained by local governments.
  • Public Broadcasting - Radio and TV stations funded by the government and donations, such as PBS and NPR.
  • Interstate Highway System - Federally funded network of highways available for public use.
  • Progressive Taxation - Higher earners pay a larger share of their income in taxes to fund social services,
  • Federal Deposit Insurance Corporation ( FDIC ) - Government insurance on bank deposits to protect savers.
  • Public Housing - Subsidized rental housing for low-income families and individuals.
  • Food Stamps/ SNAP - Federal food assistance vouchers for low-income households.
  • Veterans Benefits & GI Bill - Variety of programs to support and compensate military veterans.

Very few societies adopt pure forms of either capitalism or socialism in practice. Most have mixed systems that combine elements of both philosophies . This demonstrates that capitalism and socialism exist more on a spectrum than as diametric opposites.

For instance, the U.S. is generally considered a very capitalist country. But the government does regulate certain industries like financial markets, healthcare, utilities, environmental standards, labor laws, and consumer protections. Moreover, the U.S. subsidizes industries such as agriculture, transportation, and energy, and implements public welfare programs like Social Security and Medicare—pointing to socialistic elements in the largely capitalist economy. Even in areas where private companies operate, such as postal services or waste management, the government often chooses who can run those operations and sets strict regulations and standards.

At the same time, countries like Sweden or France that are viewed as socialist democracies still allow substantial private ownership of businesses in most sectors. Their market economies coexist with expanded social welfare programs funded via taxation. Sweden, for example, has very generous universal social programs, but large and profitable companies like IKEA and H&M flourish with private ownership. And while France nationalized several industries after WWII, private enterprise drives most of its economy today.

Then there's China, a unique case that has evolved into a hybrid of capitalism and socialism. After its revolution in 1949, China was fundamentally a command economy, where the government controlled all the means of production and dictated economic output. However, from the late 1970s onward, under the leadership of Deng Xiaoping, China began to introduce market reforms. While it still identifies as a socialist country with "Chinese characteristics," it has embraced a mixed economy. In this model, large state-owned enterprises (SOEs) dominate strategic sectors such as energy, telecommunications, and defense, while private businesses and foreign investment have been allowed and even encouraged in other sectors. Today, China's economy is characterized by a mix of socialist planning, state ownership in the crucial sectors, and an open-market capitalism in its burgeoning private sector. This balance of public ownership and market competition has led to unprecedented economic growth and lifted hundreds of millions of people out of poverty

A " mixed economy " approach allows societies to incorporate the perceived benefits of both capitalism and socialism. Private ownership and free markets can incentivize innovation and production. But government intervention and redistribution of resources can potentially address areas where markets fail to serve social needs equitably. The balance between capitalist and socialist policies remains a continuous debate.

Given that most economies exist along a spectrum, there are different forms of capitalism and socialism with varying degrees of government intervention:

Varieties of Capitalism

  • Laissez-faire - Strict free market model with no government involvement outside law enforcement and national defense.
  • Welfare capitalism - Maintains free markets but government provides basic social services and protections.
  • State capitalism - Government exerts strong direction of investment and some state ownership.
  • Corporate capitalism - Economy dominated by large corporations and minimal competition.
  • Crony capitalism - Wealthy elites exert political influence to manipulate policies and maintain power.
  • Responsible capitalism - Private enterprise combined with ethics and social responsibility. Aims to balance profits with public welfare.

Varieties of Socialism

  • Communism - Sometimes lumped in with socialism, communism is a classless society with communal ownership and no private property.
  • Democratic socialism - Socialist principles achieved through democratic political processes. Many industries are nationalized or cooperatively run.
  • Market socialism - Worker-owned cooperatives and publicly owned industry compete in market economies.
  • Pragmatic socialism - Socially-owned sectors of the economy coexist with private enterprise and markets. Focused on achieving socialist goals gradually through reform. 

Examples of Socialist-Leaning Countries

  • China : Remains officially communist but has implemented market reforms that allow substantial private business. The economy exhibits a mix of socialist planning and capitalist characteristics.
  • Cuba : Agriculture, industry, and services are almost entirely state-run and planned. Private businesses are very limited.
  • Vietnam : Similar to China, Vietnam maintains public ownership over major industries but has increasingly integrated market-based reforms.
  • Venezuela : Oil production largely nationalized along with many other sectors. But sizable private businesses exist in consumer industries. Suffering severe economic crises.
  • Bolivia - Socialist president elected in 2006 implemented sweeping nationalization policies.
  • Sweden : While private companies dominate and Sweden ranks highly on business freedom, they have high taxes and an extensive welfare system.

Examples of Capitalist-Leaning Countries

  • United States : Economy based on private ownership and free markets. But government regulates many industries and provides welfare programs.
  • Japan : Private ownership dominates but the government plays a more active role in directing some investment and business activity compared to other capitalist countries.
  • Singapore : Extremely business-friendly, free market economy. Consistently ranks among the most capitalist countries in measurements of economic freedom.
  • Australia - Free market economy with some government intervention. Ranks high on economic freedom.
  • Canada - Mostly free market economy with universal healthcare and other social programs.
  • Ireland - Business-friendly economy with low corporate tax rates to attract foreign investment.
  • Switzerland - Long tradition of capitalism, free trade, and minimal regulation. Powerful financial sector.

Key Thinkers: Capitalism

  • Adam Smith : Developed modern free market economics. Wrote "The Wealth of Nations" advocating laissez-faire policies.
  • John Stuart Mill : Influential classical liberal philosopher who supported free markets and individual liberty.
  • Friedrich Hayek : Influential Austrian economist. Defended free markets and criticized socialist planning.
  • Ludwig von Mises : Prominent leader of the Austrian school of economics. Advocated laissez-faire capitalism and criticized government intervention.
  • Milton Friedman : Prominent advocate of free markets and limited government. Leader of the Chicago school of economics.
  • Ayn Rand - Bestselling author and radical defender of capitalism and individualism. Major influence on American libertarianism. 

Key Thinkers: Socialism

  • Karl Marx : Philosopher and economist. Wrote "The Communist Manifesto" and defined modern socialism and communism. He collaborated closely with Freidrich Engels.
  • Vladimir Lenin : Leader of the Bolshevik Revolution and architect of the Soviet Union's socialist model.
  • Leon Trotsky: Marxist revolutionary who promoted socialism worldwide, including permanent revolution.
  • John Maynard Keynes : Founder of Keynesian economics. He advocated for government intervention and public spending to achieve full employment and avoid recession.
  • Paul Sweezy : American Marxist economist. Sweezy helped popularize Marxian economics in the 20th century.
  • Erik Olin Wright : Contemporary analytical Marxist sociologist known for his work on class structure and social stratification. Wright sought to pragmatically insert socialist elements into larger capitalist structures.

Socialism and communism both advocate collective ownership of production and economic equality. But communism takes this further and seeks to establish a classless, egalitarian society with common ownership of all property and wealth. Under communism, the state is expected to eventually wither away after economic equality is achieved.

No countries today have purely socialist economies currently. But some examples of nations that have extensive socialist policies include China and the Nordic countries like Sweden and Norway. Most countries have mixed economies that combine elements of both capitalism and socialism.

Proponents argue capitalism promotes economic growth, innovation and individual choice through free market incentives and competition. Capitalism also encourages entrepreneurship, risk-taking, and innovation. Consumers benefit from greater efficiency, lower prices and higher quality goods and services resulting from businesses pursuing profits.

Critics, however, contend that unfettered capitalism leads to inequality, concentration of wealth, and lack of economic mobility. This is because it prioritizes profit over social welfare, public goods, and environmental concerns. Some economists have identified capitalism as contributing to cyclical instability and the tendency towards large monopolies/oligopolies without regulation or oversight.

In theory, socialism offers several advantages including greater equality, fairness, and shared prosperity through collective ownership of the means of production. Programs that provide basic services like healthcare and education are available to all citizens, and both workers and consumers are protected through careful regulation and oversight.

Critics argue that removing market incentives reduces productivity and economic output over time. Central planning is thought to react slower to changing consumer needs and preferences. Moreover, the fear of excessive government power and corruption at the top could also lead to reduced individual liberties and authoritarian tendencies.

The Bottom Line

Capitalism and socialism represent two opposing schools of thought when it comes to how economic systems and societies should operate. In their purest forms, neither system has ever been fully implemented in practice. Most modern nations have complex mixed economies that incorporate elements of both private enterprise and government control. The balance between free markets and centralized planning remains an ongoing source of political debate and economic reform around the world.

International Monetary Fund. " What Is Capitalism? "

Internet Encyclopedia of Philosophy. " Socialism ."

Braudel, F. (1992). Civilization and capitalism, 15th-18th century, vol. II: The wheels of commerce (Vol. 2). Univ of California Press.

Fulcher, J. (2015). Capitalism: A very short introduction (Vol. 108). Oxford University Press, USA.

Adam Smith. " An Inquiry into the Nature and Causes of the Wealth of Nations , " Project Gutenberg.

Taylor, Charles. " What's Wrong With Capitalism? ,"  New Left Review ,  2 (March/April), 5-11.

Bestor, Arthur. " The Evolution of the Socialist Vocabulary ."  Journal of the History of Ideas , Vol. 9, No. 3, 259-302.

Karl Marx and Friedrich Engels. " The Communist Manifesto ."

Piketty, T. (2014). Capital in the twenty-first century . Harvard University Press.

Patton, J. W. (1993). Winiecki, Jan. The Distorted World of Soviet-Type Economies . Journal of Interdisciplinary Studies , 5 (1/2), 205-206.

Economics Help. " Mixed Economy ."

Johnston, Gordon. " Revisiting The Cultural Cold War ." Social History, Vol 35 No. 3, Pages 290-307.

The Economist. " Millennial Socialists Want To Shake up the Economy and Save the Climate ."

Gallup. " Socialism, Capitalism Ratings in U.S. Unchanged ."

Robins, Fred. " China: A New Kind of 'Mixed' Economy? ," Asian Business and Management , Vol. 9, Pages 23-46.

Paul Sweezy. " The Theory of Capitalist Development ," NYU Press, 1970.

Erik Olin Wright. " Envisioning Real Utopias ," Verso, 2010.

capitalism vs socialism compare and contrast essay

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Difference Between Capitalism and Socialism

Capitalism vs socialism

A capitalist economy is featured with the free market and less government intervention in the economy, wherein top most priority is given to capital. As opposed to a socialist economy, refers to the organization of society, which is characterized by the abolition of class relations and thus give more importance to people.

So, here we have presented you all the differences between capitalism and socialism, which can help you to decide which system is best.

Content: Capitalism Vs Socialism

Comparison chart, definition of capitalism.

Capitalism is defined as an economic system in which the means of production, trade, and industry are owned and controlled by the private individuals or corporations for profit. Also known as the free market economy or laissez-faire economy.

Under this political system, there is minimal government interference, in the financial affairs. The key elements of a capitalistic economy are private property, capital accumulation, profit motive and highly competitive market. The salient features of capitalism are as under:

  • The factors of production are under private ownership. They can use them in a manner they think fit. Although government can put some restriction for public welfare.
  • There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity of his choice.
  • The gap between haves and have-nots are wider due to unequal distribution of income.
  • Consumer sovereignty exists in the economy i.e. producers produce those goods only that are wanted by the customers.
  • Extreme competition exists in the market between firms which uses tools like advertisement and discounts to call customer attention.
  • The profit motive is the key component; that encourages people to work hard and earn wealth.

Definition of Socialism

Socialist Economy or Socialism is defined as an economy in which the resources are owned, managed and regulated by the State. The central idea of this kind of economy is that all the people have similar rights and in this way, each and every person can reap the fruits of planned production.

As the resources are allocated, in the direction of the centralized authority, that is why it is also termed as a Command Economy or Centrally Planned Economy. Under this system, the role of market forces is negligible in deciding the allocation of factors of production and the price of the product. Public Welfare is the fundamental objective of production and distribution of product and service. The salient features of Socialism are as under:

  • In socialistic economy, collective ownership exists in the means of production that is why the resources are aimed to utilize for attaining socioeconomic goals.
  • Central Planning Authority exists for setting the socioeconomic objectives in the economy. Moreover, the decisions belonging to the objectives are also taken by the authority only.
  • There is an equal distribution of income to bridge the gap between rich and poor.
  • People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by the authority.
  • As there is planned production, consumer sovereignty has no place.
  • The market forces do not determine the price of the commodities due to lack of competition and absence of profit motive.

Key Differences Between Capitalism and Socialism

The following are the major differences between capitalism and socialism

  • The economic system, in which the trade and industry are owned and controlled by private individuals is known as Capitalism. Socialism, on the other hand, is also an economic system, where the economic activities are owned and regulated by the state itself.
  • The basis of capitalism is the principal of individual rights, whereas socialism is based on the principle of equality.
  • Capitalism encourages innovation and individual goals while Socialism promotes equality and fairness among society.
  • In the socialist economy, the resources are state-owned but in the case of the capitalist economy, the means of production are privately owned.
  • In capitalism the prices are determined by the market forces and therefore, the firms can exercise monopoly power, by charging higher prices. Conversely, in Socialism government decides the rates of any article which leads to shortages or surfeit.
  • In Capitalism the competition between firms is very close whereas in Socialism there is no or marginal competition because the government controls the market.
  • In Capitalism, there is a large gap between rich class and poor class because of unequal distribution of wealth as opposed to socialism where there is no such gap because of equal distribution of income.
  • In Capitalism, every individual works for his own capital accumulation, but in Socialism, the wealth is shared by all the people equally.
  • In Capitalism every person has the right to freedom of religion which also exists in Socialism, but Socialism gives more emphasis on secularism.
  • In Capitalism, the efficiency is higher as compared to Socialism because of the profit incentive that encourages the firm to produce such products that are highly demanded by the customers while in a socialist economy there is a lack of motivation to earn money, which leads to inefficiency.
  • In Capitalism, there is no or marginal government interference which is just opposite in the case of Socialism.

As we all know that every coin has two aspects, one is good and the other is bad and same is the case with the two economic systems. It is very difficult to say which system is better than the other. Capitalism leads to the development of the economy of the country along with the creation of wealth but it advocates distinction between the haves and have-nots.

Socialism fills the gap between rich and poor, and makes everything available to all the persons, but at the same time it wipes out the encouragement to work hard, due to which the country Gross Domestic Product falls down and everyone turns out to be poor.

In my opinion, the combination of the two economies is the best i.e. mixed economy that accepts the merits of both. It can help the country to grow and prosper along with less gap between haves and have-nots. There will be a public-private partnership in the economy and administered price exist.

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market vs command economy

mary mbatia says

March 14, 2017 at 7:00 pm

Thank you for helping me with my class work..So elaborate, simple to understand. .Layman’s wording. Thanks!!

December 3, 2017 at 1:38 pm

thanks for improve my knowlege

Frank G Anderson says

January 5, 2018 at 7:05 am

Gatluak Mut Beach says

August 12, 2018 at 5:03 pm

You break it down nicely and it help me understand it even better.

November 27, 2018 at 9:42 am

Thank you so much for this.. Simple and lucid language used.. Well done

AFLAH ZAMAN ABDULLA says

September 18, 2019 at 10:11 pm

I was confused why India had chosen MIXED ECONOMY, Now i am clear with that. Its being a pleasure to have such wisdom. Thank you.

June 6, 2020 at 4:53 pm

Thank you for this info.

Mabadeje Boluwatife says

December 3, 2020 at 10:51 pm

Thanks a lot.Now I understand clearly.

Goodness Ebere says

April 27, 2021 at 7:58 pm

Thank you so much for this information, I am just done with my economics assignment

October 27, 2021 at 5:31 pm

Thanks so much for helping, I now understand better.

October 9, 2023 at 10:29 am

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1000-Word Philosophy: An Introductory Anthology

1000-Word Philosophy: An Introductory Anthology

Philosophy, One Thousand Words at a Time

Arguments for Capitalism and Socialism

Author: Thomas Metcalf Category: Social and Political Philosophy Wordcount: 993

Editor’s Note: This essay is the second in a two-part series authored by Tom on the topic of capitalism and socialism. The first essay, on defining capitalism and socialism, is available here .

Listen here

Suppose I had a magic wand that allowed one to produce 500 donuts per hour. I say to you, “Let’s make a deal. You use this wand to produce donuts, and then sell those donuts for $500 and give me the proceeds. I’ll give you $10 for every hour you spend doing this. I’ll spend that time playing video games.”

My activity—playing video games—seems pretty easy. Your job requires much more effort. And I might end up with a lot more money than $10 for every hour you work. How is that fair?

In the story, the magic wand is analogous to capital goods : assets (typically machinery and buildings, such as robots, sewing machines, computers, and factories) that make labor, or providing goods and services, more productive. Standard definitions of ‘capitalism’ and ‘socialism’ indicate that, in general, capitalist systems permit people to privately own and control capital goods, whereas socialist systems do not. And capitalist systems tend to contain widespread wage labor, absentee ownership, and property income; socialist systems generally don’t. [1]

Capital goods are morally interesting. As in the case of the magic wand, ownership of capital goods can allow one to make lots of money without working. In contrast, other people have to work for a living. This might be unfair or harmful. This essay surveys and explains the main arguments in this debate. [2]

Commercial donut manufacturing.

1. Capitalism

Arguments for capitalism tend to hold that it’s beneficial to society for there to be incentives to produce, own, and use capital goods like the magic wand, or that it’s wrong to forcibly prevent people from doing so. Here are four arguments for capitalism, stated briefly:

(1) Competition: ‘When individuals compete with each other for profits, this benefits the consumer.’ [3]

Critique : Competition also may encourage selfish and predatory behavior. Competition can also occur in some socialist systems. [4]

(2) Freedom: ‘Preventing people from owning capital restricts their freedom. Seizing their income in the form of taxes may constitute theft.’ [5]

Critiques : Maybe owning property, itself, restricts freedom, by excluding others from using it. [6] If I announce that I own something, I may be thereby announcing that I will force you not to use it. And maybe “freedom” requires the ability to pursue one’s own goals, which in turn requires some amount of wealth. [7] Further, if people must choose between work and starvation, then their choice to work may not be really “free” anyway. [8] And the general distribution of wealth is arguably the result of a morally arbitrary “natural lottery,” [9] which may not actually confer strict property-rights over one’s holdings. [10] I didn’t choose where I was born, nor my parents’ wealth, nor my natural talents, which allow me to acquire wealth. So perhaps it’s not a violation of my rights to take some of that property from me.

(3) Public Goods: [11] ‘When objects, including capital, must be shared with others, then no one is strongly motivated to produce them. In turn, society is poorer and labor is more difficult because production is inefficient.’ [12]

Critique : People might be motivated to produce capital for altruistic reasons, [13] or may be coerced in some socialist systems to do so. Some putatively socialist systems allow for profitable production of capital goods. [14]

  (4) Tragedy of the Commons: ‘When capital, natural resources, or the environment are publicly controlled, no one is strongly motivated to protect them.’ [15]

Critique : As before, people might be motivated by altruism. [16] Some systems with partially-private control of capital may nevertheless qualify as socialist. [17]

2. Socialism

Arguments for socialism tend to hold that it’s unfair or harmful to have a system like in the story of the magic wand, a system with widespread wage labor and property income. Here are four arguments for socialism, stated briefly:

(1) Fairness: ‘It’s unfair to make money just by owning capital, as is possible only in a capitalist system.’ [18]

Critique : Perhaps fairness isn’t as morally important as consent, freedom, property rights, or beneficial consequences. And perhaps wage laborers consent to work, and capital owners have property rights over their capital. [19]

(2) Inequality: ‘When people can privately own capital, they can use it to get even richer relative to the poor, and the wage laborers are left poorer and poorer relative to the rich, thereby worsening the inequality that already exists between capital-owners and wage-laborers.’ [20]

Critiques : This is a disputable empirical claim. [21] And perhaps the ability to privately own capital encourages people to invest in building capital goods, thereby making goods and services cheaper. Further, perhaps monopolies commonly granted by social control over capital are “captured” by wealthy special-interests, [22] which harm the poor by enacting regressive laws. [23]

(3) Labor: ‘Wage laborers are alienated from their labor, exploited, and unfree because they must obey their bosses’ orders.’ [24]

Critiques : If this alienation and exploitation are net-harmful to workers, then why do workers consent to work? If the answer is ‘because they’ll suffer severe hardship otherwise,’ then strictly speaking, this is a critique of allowing poverty, not a critique of allowing wage labor.

(4) Selfishness: ‘When people can privately own capital, they selfishly pursue profit above all else, which leads to further inequality, environmental degradation, non-productive industries, economic instability, colonialism, mass murder, and slavery.’

Critique : These are also disputable empirical claims. Maybe when people are given control over socially -owned capital, they selfishly extract personal wealth from it. [25] Maybe when the environment is socially controlled, everyone is individually motivated to over-harvest and pollute. [26] State intervention in the economy may be a major cause of the existence of non-productive industry, pollution, and economic instability. [27] Last, some of the worst perpetrators of historical evils are governments, not private corporations. [28]

  3. Conclusion

It is difficult to justifiably draw general conclusions about what a pure capitalism or socialism would be like in practice. [29] But an examination of the merits and demerits of each system gives us some guidance about whether we should move a society in either direction.

[1] See my Defining Capitalism and Socialism for an explanation of how to define these systems.

[2] For much-more-extensive surveys, see Gilabert and O’Neill n.d. and Arnold n.d.

[3] By analogy, different people might try to construct even better magic wands, or use them for better purposes. Typically the benefits are thought to include lower prices, increased equality, innovation, and more options. See Smith 2003 [1776]: bk. 1, ch. 2 and Friedman and Friedman 1979: ch. 1.

[4] Schweickart 2011 presents an outline of a market socialism comprising much competition.

[5] By analogy, if I legitimately own the magic wand, then what gives you the right to threaten violence against me if I don’t give it to you? Nozick 1974: ch. 7 presents a general discussion of how socialism might restrict freedom and how taxation may be akin to theft or forced labor.

[6] Spencer 1995 [1871]: 103-4 and Zwolinski 2015 discuss how property might require coercion. See also Scott 2011: 32-33. Indeed, property in general may essentially be theft (Proudhon 1994 [1840]).

[7] See Rawls (1999: 176-7) for this sort of argument. See John Rawls’ ‘A Theory of Justice’ by Ben Davies for an introduction.

[8] See e.g. Burawoy 1979 for a discussion of whether workers consent to work. See also Marx 2004 (1867): vol. IV, ch. VII.

[9] Rawls 1999: 62 ff.

[10] Relatedly, while one may currently hold capital, one may greatly owe the existence of that product to many other people or to society in general. See e.g. Kropotkin 2015 [1913]: chs. 1-3 and Murphy and Nagel 2002.

[11] A public good is a good that is non-excludable (roughly, it is expensive to prevent people from using it) and non-rivalrously consumed (roughly, preventing people from using it causes harm without benefiting anyone) (Cowen 2008).

[12] By analogy, why bother building magic wands at all if someone else is immediately going to take it from me and start using it? Standard economic theory holds that public goods (non-excludable and non-rivalrous goods) will, on the free market, be underproduced. This is normally taken to be an argument for government to produce public goods. See e.g. Gaus 2008: 84 ff.

[13] For example, according to Marxist communism, the ideal socialist society would comprise production for use, not for profit. See e.g. Marx 2004 [1867]: vol. 1 ch. 7. See also Kropotkin 1902, which is a defense of the general claim that humans will tend to be altruistic, at least in anarcho-communist systems.

[14] In a market-socialist system (cf. Schweickart 2011), it is possible to make capital goods and sell them at a profit that gets distributed to the laborers.

[15] By analogy, if I know that anyone in the neighborhood can use the magic wand, I might not invest my own time and money to maintain it. But if it’s mine alone, I care a lot more about maintaining it. This is the basis of the well-known ‘Tragedy of the Commons’ alleged problem. See, e.g., Hardin 1968.

[16] Kropotkin 1902.

[17] As before, in Schweickart’s (2011) system, firms will be motivated to protect capital if they must pay for capital’s deprecation, even though the capital is owned by society.

[18] By analogy, as noted, the wand-owner might make lots of money for basically doing no work. Sherman 1995: 130; Schweickart 2011: § 3.2.

[19] See e.g. Friedman 2002 for a collection of consequentialist arguments for capitalism, and Nozick 1974: chs. 3 and 7 for some arguments concerning freedom and capitalist systems.

[20] By analogy, the wand-owner might accumulate so much money as to start buying other magic wands and renting those out as well. See e.g. Piketty 2014.

[21] Taking the world as a whole, wealth in absolute terms has been increasing greatly, and global poverty has been decreasing steeply, including in countries that have moved in mostly capitalist directions. See e.g. World Bank Group 2016: 3. Friedman 1989: ch. 5 argues that capitalism is responsible for the improved position of the poor today compared to the past.

[22] See e.g. Friedman 1989: ch. 7 for a discussion of regulatory capture.

[23] Friedman 2002: chs. IV and IX; Friedman 1989: ch. 4.

[24] By analogy, the person I’ve hired to use the wand might need to obey my orders, because they don’t have a wand of their own to rent out, and they might starve without the job I’ve offered them. Marx 2009 [1932] introduces and develops this concept of alienation. See Dan Lowe’s 2015 Karl Marx’s Conception of Alienation for an overview. See also Anderson 2015 for an argument that private corporations coercively violate their workers’ freedom.

[25] See n. 21 above. This result is most-obvious in countries in which dictators enrich themselves, but there is nothing in principle preventing rulers of ostensibly democratic countries from doing so as well. Presumably this worry explains the presence of the Emoluments Clause in the U. S. Constitution.

[26] See n. 14.

[27] See e.g. Friedman 2002: chs. III and V and the example of compliance costs for regulations.

[28] See Huemer 2013: ch. 6 ff.

[29] All or nearly all large-scale economies have been mixed economies. In contrast, a pure capitalism would be an anarcho-capitalism (see e.g. Gaus 2010: 75 ff. and Huemer 2013), and a pure socialism wouldn’t permit people to privately own scissors. See also the entry “Defining Capitalism and Socialism.”

Anderson, Elizabeth. 2015. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It) . Princeton, NJ: Princeton University Press.

Arnold, Samuel. N. d. “Socialism.” In The Internet Encyclopedia of Philosophy (ed.), The Internet Encyclopedia of Philosophy , URL = < https://www.iep.utm.edu/socialis/ >

Burawoy, Michael. 1979. Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism . Chicago, IL and London, UK: The University of Chicago Press.

Cohen, G. A. 2009. Why Not Socialism? Princeton, NJ: Princeton University Press.

Cowen, Tyler. 2008. “Public Goods.” In David R. Henderson (ed.), The Concise Encyclopedia of Economics . Indianapolis, IN: Liberty Fund.

Dagger, Richard and Terence Ball. 2019. “Socialism.” In Encyclopædia Britannica, inc. (ed.), E ncyclopædia Britannica . Retrieved from https://www.britannica.com/topic/socialism

Dahl, Robert A. 1993. “Why All Democratic Countries have Mixed Economies.” Nomos 35: 259-82.

Dictionary.com. N.d. “Capitalism.” URL = < https://www.dictionary.com/browse/capitalism >

Editors of Encyclopædia Britannica. 2019. “Henri de Saint-Simon.” In Encyclopædia Britannica , Retrieved from https://www.britannica.com/biography/Henri-de-Saint-Simon

Friedman, David D. 1989. The Machinery of Freedom: Guide to a Radical Capitalism , Second Edition. La Salle, IL: Open Court Publishing Company.

Friedman, Milton. 2002. Capitalism and Freedom . Chicago, IL: University of Chicago Press.

Friedman, Milton and Rose Friedman. 1979. Free to Choose: A Personal Statement . New York, NY: Harcourt Brace.

Gaus, Gerald. 2010. “The Idea and Ideal of Capitalism.” In George G. Brenkert and Tom L. Beauchamp (eds.), The Oxford Handbook of Business Ethics . New York, NY: Oxford University Press.

Gaus, Gerald. 2008. On Philosophy, Politics, and Economics . Belmont, CA: Thomson Wadsworth.

Gilabert, Pablo and Martin O’Neill. 2019. “Socialism.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy . Retrieved from https://plato.stanford.edu/entries/socialism/ .

Hardin, Garrett. 1968. “The Tragedy of the Commons.” Science 162(3859): 1243-48.

Herzog, Lisa. 2019. “Markets.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy , Spring 2019 Edition, URL =https://plato.stanford.edu/archives/spr2019/entries/markets/

Huemer, Michael. 2013. The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey . Houndmills, UK and New York, NY: Palgrave Macmillan.

Investopedia. 2019. “Mixed Economic System.” Retrieved from https://www.investopedia.com/terms/m/mixed-economic-system.asp

Kropotkin, P. 1902. Mutual Aid: A Factor of Evolution . New York, NY: McClure Phillips & Co.

Kropotkin, Peter. 2015 [1913]. The Conquest of Bread. London, UK: Penguin Classics.

Lowe, Dan. 2015. “Karl Marx’s Conception of Alienation.” 1000-Word Philosophy . Retrieved from https://1000wordphilosophy.com/2015/05/13/karl-marxs-conception-of-alienation/.

Marx, Karl. 2009 [1932]. “Economic and Philosophic Manuscripts of 1844.” In Karl Marx and Friedrich Engels, Economic and Philosophic Manuscripts of 1844 and the Communist Manifesto , tr. Martin Milligan (Amherst, NY: Prometheus Books), pp. 13-202.

Marx, Karl. 2004 [1867]. Capital: A Critique of Political Economy, Volume One . New York, NY: Penguin Classics.

Merriam-Webster. N.d. “Capitalism.” URL = < https://www.merriam-webster.com/dictionary/capitalism >

Mill, John Stuart. 1965 [1848]. Principles of Political Economy with Some of Their Applications to Social Philosophy, Volume I: The Principles of Political Economy I , ed. J. M. Robson. Toronto, ON: University of Toronto Press.

Murphy, Liam and Thomas Nagel. 2002. The Myth of Ownership: Taxes and Justice. Oxford, UK: Oxford University Press.

Nozick, Robert. 1974. Anarchy, State, and Utopia . New York, NY: Basic Books.

Oxford English Dictionary, N.d. a. “Capital.” Retrieved from http://www.oed.com/view/Entry/27450

Oxford English Dictionary. N.d. b. “Capitalism.” Retrieved from http://www.oed.com/view/Entry/27454

Oxford English Dictionary. N.d. c. “Mixed Economy.” Retrieved from http://www.oed.com/view/Entry/120348

Oxford English Dictionary. N.d. d. “Socialism.” Retrieved from http://www.oed.com/view/Entry/183741

Piketty, Thomas. 2014. Capital in the Twenty-First Century , tr. Arthur Goldhammer. Cambridge, MA: Harvard University Press.

Proudhon, Pierre-Joseph. 1994 [1840]. What is Property? Ed. Donald R. Kelley and Bonnie G. Smith. Cambridge, UK: Cambridge University Press.

Rawls, John. 1999. A Theory of Justice, Revised Edition . Cambridge, MA: Harvard University Press.

Schweickart, David. 2011. After Capitalism , Second Edition. Lanham, MD: Rowman & Littlefield.

Scott, Bruce R. 2011. Capitalism: Its Origins and Evolution as a System of Governance . New York, NY: Springer Science+Business Media.

Sherman, Howard J. 1995. Reinventing Marxism . Baltimore, MD: Johns Hopkins University Press.

Smith, Adam. 2003 [1776]. The Wealth of Nations . New York, NY: Bantam Dell.

Wikipedia. N.d. “Capitalism.” URL =

Wiktionary. N.d. “Capitalism.” URL =

World Bank Group. 2016. Global Monitoring Report 2015/2016: Development Goals in an Era of Demographic Change. Washington, DC: World Bank Group and The International Monetary Fund.

Zwolinski, Matt. 2015. “Property Rights, Coercion, and the Welfare State: The Libertarian Case for a Basic Income for All.” The Independent Review 19(4): 515-29

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About the Author

Tom Metcalf is an associate professor at Spring Hill College in Mobile, AL. He received his PhD in philosophy from the University of Colorado, Boulder. He specializes in ethics, metaethics, epistemology, and the philosophy of religion. Tom has two cats whose names are Hesperus and Phosphorus. shc.academia.edu/ThomasMetcalf

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Capitalism Vs Socialism : Comparison and Example (With Table)

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“The main difference between Capitalism and Socialism is in who owns the means for production. Under Capitalism, the means for production are owned by private individuals or companies. Under Socialism, the means for production are either controlled by a state entity or jointly owned by those that work in it.” The following article will help us understand the complete difference between capitalism and socialism.

Table of Contents

Capitalism Vs Socialism (Comparison Table)

  • Bull Vs Market
  • Society Vs Community
  • Market Vs Marketing

What Is Capitalism?

Capitalism is an economic system in which private individuals or businesses own the means of production and operate for profit. The production of goods and services is based on market demand and prices, rather than on central planning.

Moreover, in a capitalist economy, businesses compete with each other for customers and profits. They are free to set their own prices and decide what to produce. This competition can lead to innovation and efficiency.

However, capitalism also has its drawbacks . For example, it can create income inequality as those who own the means of production reap the rewards while workers receive only a fraction of the profits. Additionally, because businesses are motivated by profit, they may not always act in the best interests of consumers or the environment.

Salient Features of Capitalism

  • Private Property: Under capitalism, private individuals or businesses own the means of production, such as factories, land, and machinery. This allows them to earn profits by selling goods and services.
  • Competition: In capitalist economies, businesses compete with each other to win customers and market share. This drives innovation and efficiency as companies strive to be the best in their industry.
  • Consumer sovereignty: In capitalism, consumers are sovereign, meaning they have the ultimate power over what gets produced. Businesses must produce what consumers demand in order to make a profit.
  • Free markets: Free markets are another key feature of capitalism. They allow buyers and sellers to trade without government intervention or regulation. This promotes economic growth and efficiency.
  • Laissez-faire: Laissez-faire is a French term that means “let it be.” It’s often used to describe capitalist economies, where the government leaves businesses alone to operate freely without interference.
  • Profit motive: The profit motive is what drives capitalists to produce goods and services. They want to make money by satisfying consumer demand in the marketplace.

What Is Socialism?

Socialism is defined as “a way of organizing a society in which major industries are owned and controlled by the government rather than by private individuals.” In a socialist economy, the government owns and manages key industries, such as healthcare, education, energy, and transportation. The goal of socialism is to create a more egalitarian society, in which everyone has an equal opportunity to succeed.

In a nutshell, socialism is an economic system where the means of production are owned and controlled by the state or community as a whole. Production is carried out for the benefit of society, rather than for private profit.

Four Features of Socialism

  • Socialism is an economic system in which the government owns and controls the means of production.
  • Secondly, socialism is a political system in which the government controls all aspects of the economy
  • Socialism is an economic system in which workers receive compensation based on their contribution to society
  • Finally, socialism is a social system in which people are treated equally and have equal access to education, health care, and other social services

Two Disadvantages Of Socialism

In theory, socialism sounds great. But in practice, it often leads to two problems: 

  • The first problem is that socialist economies tend to be very inefficient. This is because government bureaucrats are not good at making decisions about what products people want to buy or how best to produce them. As a result, socialist economies often experience shortages of goods and services.
  • The second problem with socialism is that it gives rise to corrupt and powerful government officials who use their positions to enrich themselves instead of working for the benefit of society as a whole. This can lead to crony capitalism, where businesses get special favors from the government in exchange for kickbacks or bribes.

Key Differences Between Capitalism and Socialism

While comparing capitalism vs socialism, here we have included some of the key differences between them as well. These include the following:

  • Meaning – Capitalism is an economic system based on private ownership of the means of production. On the other hand, socialism is an economic system based on public or collective ownership of the means of production.
  • Motive and Objective – In capitalism, the primary motive for economic activity is to generate profit, while in socialism it is to meet human needs.
  • Competition – Capitalism encourages competition, while socialism emphasizes cooperation.
  • Purpose – Finally, capitalism leads to a class society with a tiny minority of wealthy people at the top and a large majority of poor people at the bottom, while socialism strives for equality among all people.

comparison table comparing capitalism vs socialism

  • Marketing Vs Advertising
  • Market Vs Command Economy

In conclusion, the main difference between capitalism and socialism is the ownership of the means of production. In capitalism, the means of production are owned by private individuals, while in socialism, the means of production are owned by the government. Both systems have their pros and cons, but ultimately it is up to each individual to decide which system they prefer.

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Basir Saboor

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Capitalism vs. Socialism: Principles and Arguments

The fundamental principles and arguments of the supporters of socialism and capitalism as opposing systems were established in the period of the 19th century and the practical implication of the 20th century led to the adaptation and further solidification of their respective argumentative basis. Capitalism is an economic system, which is based on the idea of private property and the market distribution of goods and factors of production.

It emphasizes the rationality and efficiency of the process of capitalist development. The main bias and fallacy of the author is the fact that he states most capitalist nations have almost no absolute poverty, which is not necessarily true due to the presence of mass homelessness in countries, such as US (Caplan). Through the mechanism of competition, the private interests of individual economic entities spontaneously fall into line with public interests, which allows to systematically improve the standard of living of the population in the long term.

The rhetorical argument is effective because another claim is the statement about fair distribution based on the market mechanism, since the generated income of the entities is proportional to their productive contribution. The author uses mainly logos as a rhetorical appeal, but ethos and pathos are also present. It is important to understand that capitalism promotes free market, which allow people to improve themselves (Caplan). Theoretical or real-life socialism, that is, absolute equality, is stated to be economically inefficient and irrational, since it diminishes the moral and institutional foundations of society through dictatorship. Moreover, this contradicts not only economic, but also political freedom.

The prevalent interpretations of socialism and capitalism as systems of economy have certain similarities such as wage labor, the expanded division of labor, problems of finding stable regimes or forms of capital, the accumulation and distribution of income, and the regulation of the activities of institutional economic entities. Majority of capitalist nations are proponents of freedom and human rights, whereas the latter usually deprives citizens from their fundamental needs (Caplan).

In general terms, national systems of economy are complicated states of numerous interconnected entities – some of which are newly created, while others have evolved. In a dynamic perspective, they, on the one hand, should have consistency and stability, and on the other, flexibility and adaptability. In addition, most capitalist nations are indeed richer and more developed than their socialist counterparts (Caplan). The historical experience of national systems has shown the existence of contrasting models of each system. While some of the positive features of the preferred system intensified during certain periods and in individual countries, its existing weaknesses also became apparent.

Moreover, the reasons presented by the author fall under the *STAR acronym. The situation is manifested in the fact that these systems are reviewed as ideal economies for both cases. The task is to identify the reasons why socialism fails to be viable compared to capitalism as an economic system. The actions undertaken by the author is to compare the ideals versions and their manifestations in the real countries. The overall results are that modern form capitalism does not fully match the ideal capitalism, but these nations are still outperforming socialist counterparts.

The arguments given to the audience are correct and plausible due to the fact that it uses straight forward examples and common-sense knowledge. Supporters of socialism adhere to the notion that it is defined as an economic system manifested on organized regulation of the economic processes and public ownership. It also uses similar basic economic tools, but with opposing derivatives about economic realities. This system considered capitalism as an unequal system and it is a result of free markets. The ideal existing socialism, is considered to be a model that allows conscious organized development, which eliminates capitalist flaws, like crises and social conflicts. It is such a model that promotes its own progress and a high degree of freedom, which in practice almost always had the opposite character.

Evidently, existing economic systems are structurally contrasting, but capitalism can offer more flexibility and adjustability to its proponents. The differences between the historical realities of favored systems are far from the ideal model, which is considered the direction of further development. The arguments given by the author are a comparative analysis based on the proclaimed values ​​and objectives, such as efficiency, rationality, justice, freedom and modernization.

However, in general, they provide regulatory standards for economic modernity. The capitalist model of housekeeping has proven its viability in the long run. Socialism, as an alternative system, proved to be more stable in the short term.

In conclusion, deep transformations, as a rule, are associated with changes in cultural values, social differences, and international relations. Moreover, these transformations occur within a short historical period and differ in their rhythm and pace. The traditional economic theory, based on the analysis of equilibrium, is unable to resolve the causal relationships that have arisen.

There is a need to formulate an approach to explain how the general historical background, the same starting conditions, systemic interdependence, institutional reform and similar policies can lead to different country results. The transformation of economies, the testing of diverse development models is, of course, a multifaceted and controversial historical process. However, the arguments given throughout the article give a clear picture of capitalism being more reliable and suitable for prosperity of the nations and its population.

Caplan, Bryan. “Capitalism vs. Socialism: The Bruenig-Caplan Debate.” EconLog , 2018. Web.

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Socialist vs. Capitalist Approach to Social Issues Essay

Introduction.

  • Differences Between Capitalism and Socialism

Similarities Between Capitalism and Socialism

Works cited.

While researching articles about Socialist and Capitalist economies, I came across four authors who had discussed the topics. Some of these authors outlined the benefits of capitalism while others redefined the socialist economy. My goal in this paper is to compare and contrast capitalism and socialism based on three social issues, namely; personal property, company, and retirement pension.

To achieve this goal, I have organized my paper into four sections. In the first section, I discuss the concept of capitalism. I also describe the concept of socialism. In the second section, I explain the differences between the two concepts. In the third section, I discuss the similarities between socialism and capitalism. I state their strengths and their weaknesses. I conclude my paper in the fourth section. I also include a list of references after my conclusion.

Capitalism refers to an economic system defined by privately owned resources. Blumenthal (8) defines capitalism as the freedom to exploit one’s resources. Capitalism also refers to a system where the economy is independent of the state (Ross 237). Capitalists argue that everyone has the right to own land, property, and housing among other private possessions (Blumenthal 247). Capitalism is based on the assumption that those who do not work should not eat (Pierce 387). Most Capitalists fail to consider the fact that the government cannot secure everyone’s employment. A country’s natural resources are not always evenly distributed (Ross 85).

Pierce (16) defines Socialism as a system where the government evenly distributes a country’s wealth and resources. Socialism refers to a process through which material wealth is controlled by the government (Kronenwetter 63).

Private Property

Capitalist countries have very strict policies on the private ownership of property. Capitalism leans toward private investment and innovation (Ross 128). Unlike Socialism, Capitalism provides an environment that is conducive for people to buy and sell their possessions.

Countries that practice Socialism does not have Property Rights (Kronenwetter 67). Some scholars argue that Socialism discourages people from investing in their commercial activities (Pierce 214).

Blumenthal (267) argues that Capitalism encourages creativity through the unequal distribution of resources. People with limited access to resources tend to work harder than those who have ample resources. On the other hand, Socialists give the hard-earned wealth and resources of the rich to the poor (Pierce 229). Blumenthal (114) therefore asserts that some lazy Socialists exploit their hard-working counterparts.

In a Capitalist economy, intellectual property can be patented. Capitalists are free to do as they please as long as they do not infringe on the rights of others (Blumenthal 28). In a Socialist economy, the intellectual property belongs to the government. No one is allowed to monopolize the economy (Pierce 38). The government decides how intellectual property is used.

Some scholars argue that Capitalism rewards entrepreneurs. Pierce (178) asserts that self-motivated members of a capitalist economy are more likely to generate income than their lazy counterparts.

The companies that are part of a country’s stock exchange define a capitalist market. Anyone is allowed to buy and sell shares in a capitalist economy (Blumenthal 67). The government does not distribute privately owned resources. On the other hand, a Socialist environment does not encourage private ownership (Ross 145). Government-controlled resources, therefore, define socialism (Kronenwetter 182).

In a Socialist economy, the government controls the distribution of a country’s resources. Everyone has access to healthcare and education among other social amenities. The government caters to everyone’s needs. Socialism can therefore be termed as a socially indiscriminate phenomenon (Pierce 72).

Capitalism encourages companies to maximize their profits and minimize their losses (Ross 314). Most Socialist companies do not care about the bottom line because the government controls their profits.

Capitalist companies encourage creativity among their employees. Workers in a Capitalist economy are more efficient than workers in a Socialist economy (Blumenthal 115). Capitalists are rewarded for their hard work and their resilience. Socialists are generally ineffective because there are not motivated to work harder (Pierce 227).

In a Capitalist economy, prices are determined by the market (Blumenthal 302). Prices are therefore determined by the concept of supply and demand (Ross 26). Companies are free to raise the prices of their commodities when the demand for such items is high. Companies are also required to lower the prices of their commodities when the supply outweighs demand (Pierce 224).

In a Socialist economy, the government regulates the prices of commodities (Pierce 222). Socialist governments monopolize their country’s resources. They decide how money is spent and how it is distributed among the people.

The government is not entirely responsible for creating jobs in a Capitalist economy (Blumenthal 117). Private investors create most of the jobs in a Capitalist economy (Ross 248). In a Socialist economy, the government is responsible for providing employment regardless of the country’s economic state of affairs (Pierce 216). Even unemployed Socialists are entitled to food and healthcare (Kronenwetter).

Retirement Pension

Capitalism encourages people to plan for their retirement in advance. Most organizations give their employees a retirement pension based on the nature of their work. Capitalism, therefore, rewards retirees depending on the work they did before their contracts expired. In a Capitalist economy, a retired doctor would receive a more substantial retirement pension than a janitor in the same economy.

A Socialist government caters to the needs of retirees regardless of the work they did. In a Socialist environment, everyone is entitled to the same level of care. The government is like a welfare office. Retired doctors and janitors are entitled to the same retirement pensions.

Both Socialism and Capitalism are defined by the distribution of resources. The resources in a Capitalist economy are exploited by those who can afford to do so. The government evenly distributes the resources in a Socialist economy.

Socialism can be ineffective because the government decides how resources are distributed. A socialist government can therefore take the earnings of employed individuals and give them to the unemployed members of society (Ross 42).

Capitalism can also seem ineffective because wealth is not evenly distributed. The government has little control over how a country’s resources are exploited. Private business owners tend to monopolize the economy (Kronenwetter 142).

Both concepts are based on the idea that the market can be monopolized. The richest companies control a capitalist market. In a Socialist economy, the government controls the market (Blumenthal 231).

In both cases, private parties run companies. The government has the final say in a Socialist economy. The government can also influence private companies in a Capitalist economy.

Retirement Pensions

In a Capitalist economy, private companies and government organizations provide pensions for people whose contracts have expired. In a Socialist economy, the government caters to the needs of both the retired and the unemployed.

Capitalism encourages innovation through competition. However, the Capitalist approach can be cruel and Darwinian (Kronenwetter 303). Capitalism is based on Darwin’s ideology of the survival of the fittest (Pierce 217). Socialism is based on the concept of brotherhood. The Socialist approach ensures the even distribution of resources. However, it also contributes to widespread laziness and apathy among socialists. Both ideologies have strengths and weaknesses. Socialists should embrace the concept of a hard day’s pay for a hard day’s work (Pierce 34). Capitalists should likewise, embrace the concept of sharing. Perhaps a hybrid of the two ideologies would offer a lasting solution to the problems that they face.

Blumenthal, Max. Republican Gomorrah: Inside the Movement that Shattered the Party. Minnesota: Minneapolis, 2009. Print.

Kronenwetter, Michael. Capitalism versus Socialism: Economic Policies of the US and The USSR. California: San Francisco, 1986. Print.

Pierce Charles, P. Idiot America: How Stupidity Became a Virtue in the Land of the Free. Massachusetts: Yarmouth, 2009. Print.

Ross, John. Murdered by Capitalism: A memoir of 150 Years of Life and Death on the American Left. California: San Francisco, 2006. Print.

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IvyPanda. (2024, February 7). Socialist vs. Capitalist Approach to Social Issues. https://ivypanda.com/essays/socialist-vs-capitalist-approach-to-social-issues/

"Socialist vs. Capitalist Approach to Social Issues." IvyPanda , 7 Feb. 2024, ivypanda.com/essays/socialist-vs-capitalist-approach-to-social-issues/.

IvyPanda . (2024) 'Socialist vs. Capitalist Approach to Social Issues'. 7 February.

IvyPanda . 2024. "Socialist vs. Capitalist Approach to Social Issues." February 7, 2024. https://ivypanda.com/essays/socialist-vs-capitalist-approach-to-social-issues/.

1. IvyPanda . "Socialist vs. Capitalist Approach to Social Issues." February 7, 2024. https://ivypanda.com/essays/socialist-vs-capitalist-approach-to-social-issues/.

Bibliography

IvyPanda . "Socialist vs. Capitalist Approach to Social Issues." February 7, 2024. https://ivypanda.com/essays/socialist-vs-capitalist-approach-to-social-issues/.

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