Page 1 of 14 Capitalism vs Socialism Capitalism and socialism are somewhat opposing schools of thought in economics. The central arguments in the socialism/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 health care, social security for the elderly, higher taxes on the rich. On the other hand, capitalists believe that government does not use economic resources as efficiently as private enterprise 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 socialist democracies. However, the truth is every developed country has some programs that are socialist. An extreme form of socialiam is communism.. Comparison chart Capitalism Socialism Philosophy: Capital (or the "means of production") is owned, operated, and traded for the purpose of generating profits for private owners or shareholders. Emphasis on individual profit rather than on workers or society as a whole. From each according to his ability, to each according to his contribution. Emphasis on profit being distributed among the society or workforce in addition to receiving a wage. Ideas: Laissez-faire means to "let it be"; opposed to government intervention in economics because capitalists believe it introduces inefficiencies. Free market produces the best economic outcome for society. Govt. should not pick winners and losers. All people should be given an equal opportunity to succeed. Workers should have most say in their factory's management. The free market suffers from problems like tragedy of the commons.Government regulation is necessary. Economic System: Free-Market economy. Wealth redistributed so that everyone in society is given somewhat equal shares of the benefits derived from labor, but people can earn more if they work harder. Means of production are controlled by the workers themselves. Key elements: The accumulation of capital drives economic activity - the need to continuously produce profits and reinvest this profit into the economy. "Production for profit": useful goods and services are a byproduct of pursuing profit. Economic activity and production especially are adjusted to meet human needs and economic demands. "Production for use": useful goods and services are produced specifically for their usefulness. Economic coordination: Relies principally on markets to determine investment, production and distribution decisions. Markets may be Planned-Socialism relies principally on planning to determine investment and production decisions. Planning
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Page 1 of 14
Capitalism vs Socialism Capitalism and socialism are somewhat opposing schools of thought in economics. The
central arguments in the socialism/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 health care, social security for the elderly, higher taxes on the rich. On the other hand,
capitalists believe that government does not use economic resources as efficiently as private enterprise
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 socialist democracies. However, the truth is every developed country has some programs
that are socialist.
An extreme form of socialiam is communism..
Comparison chart
Capitalism Socialism
Philosophy: Capital (or the "means of production")
is owned, operated, and traded for the
purpose of generating profits for
private owners or shareholders.
Emphasis on individual profit rather
than on workers or society as a whole.
From each according to his ability, to
each according to his contribution.
Emphasis on profit being distributed
among the society or workforce in
addition to receiving a wage.
Ideas: Laissez-faire means to "let it be";
opposed to government intervention in
economics because capitalists believe
it introduces inefficiencies. Free
market produces the best economic
outcome for society. Govt. should not
pick winners and losers.
All people should be given an equal
opportunity to succeed. Workers
should have most say in their factory's
management. The free market suffers
from problems like tragedy of the
commons.Government regulation is
necessary.
Economic System: Free-Market economy. Wealth redistributed so that everyone
in society is given somewhat equal
shares of the benefits derived from
labor, but people can earn more if they
work harder. Means of production are
controlled by the workers themselves.
Key elements: The accumulation of capital drives
economic activity - the need to
continuously produce profits and
reinvest this profit into the economy.
"Production for profit": useful goods
and services are a byproduct of
pursuing profit.
Economic activity and production
especially are adjusted to meet human
needs and economic demands.
"Production for use": useful goods and
services are produced specifically for
their usefulness.
Economic
coordination:
Relies principally on markets to
determine investment, production and
distribution decisions. Markets may be
Planned-Socialism relies principally
on planning to determine investment
and production decisions. Planning
Page 2 of 14
Capitalism Socialism
free-markets, regulated-markets, or
may be combined with a degree of
state-directed economic planning or
planning within private companies.
may be centralized or decentralized.
Market-socialism relies on markets for
allocating capital to different socially-
owned enterprises.
Political
movements:
Classical liberalism, Social liberalism,
Libertarianism, Neo-liberalism,
Modern Social-Democracy
Democratic Socialism, Communism,
Libertarian Socialism, Anarchism,
Syndicalism
Ownership
structure:
The means of production are
privately-owned and operated for a
private profit. This drives incentives
for producers to engage in economic
activity.
The means of production are socially-
owned with the surplus value
produced accruing to either all of
society (in Public-ownership models)
or to all the employee-members of the
enterprise (in Cooperative-ownership
models).
Religion: Permitted/Freedom of Religion freedom of religion
Key Proponents: Adam Smith, David Ricardo, Milton
Friedman, Fredrich Hayek, Ayn Rand
Robert Owen, Pierre Leroux, Karl
Marx, Fredrick Engels, John Stuart
Mill, Albert Einstein, George Bernard
Shaw, Leo Tolstoy, Emma Goldman
Way of Change: Fast change within the system. In
theory, the relationship between buyer
and seller (the market) is what fuels
what is produced. Government can
change rules of conduct/business
practices through regulation or ease of
regulations.
Workers in a Socialist-state are the
agent of change rather than any
market or desire on the part of
consumers. Change by the workers
can be swift or slow, depending on
change in ideology or even whim.
Tenets
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 characterised
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, voluntary exchange (over forced
exchange of labor or goods). Socialists advocate greater government involvement but the differ in the
type of social ownership they advocate, the degree to which they rely on markets versus planning,
how management is to be organised within economic enterprises, and the role of the state in
constructing socialism.
Criticisms of Socialism and Capitalism
Criticisms of Capitalism
Critics argue that capitalism is associated with: unfair and inefficient distribution of wealth and
power; a tendency toward market monopol or oligopoly (and government by oligarchy); imperialism,
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counter-revolutionary wars and various forms of economic and cultural exploitation; repressions of
workers and trade unionists, and phenomena such as social alienation, inequality, unemployment, and
economic instability. Critics have argued that there is an inherent tendency towards oligolopolistic
structures when laissez-faire is combined with capitalist private property. Capitalism is regarded by
many socialists to be irrational in that production and the direction the economy is unplanned,
creating many inconsistencies and internal contradictions.
In the early 20th century, Vladimir Lenin argued that state use of military power to defend capitalist
interests abroad was an inevitable corollary of monopoly capitalism. Economist Branko Horvat states,
"it is now well known that capitalist development leads to the concentration of capital, employment
and power. It is somewhat less known that it leads to the almost complete destruction of economic
freedom." Southern Methodist university Economics Professor Ravi Batra argues that excessive
income and wealth inequalities are a fundamental cause of financial crisis and economic depression,
which wil lead to the collapse of capitalism and the emergence of a new social order.
Environmentalists have argued that capitalism requires continual economic growth, and will
inevitably deplete thefinite natural resources of the earth, and other broadly utilized resources. Murray
Bookchin has argued that capitalist production externalizes environmental costs to all of society, and
is unable to adequately mitigate its impact upon ecosystems and the biosphere at large. Labor
historians and scholars, such as Immanuel Wallerstein, Tom Brass and latterly Marcel van der Linden,
have argued that unfree labor — by slaves, indentured servants, prisoners, and other coerced persons
— is compatible with capitalist relations.
Many religions have criticized or opposed specific elements of capitalism; traditional Judaism and
christianity, and islam forbid lending money sat interst, although methods of Islamic banking have
been developed. Christianity has been a source of both praise and criticism for capitalism, particularly
its materialist aspects.
Criticisms of Socialism
Criticisms of socialism range from claims that socialist economic and political models are inefficient
or incompatible with civil liberties to condemnation of specific socialist states. There is much focus
on the economic performance and human rights records of communist states, although there is debate
over the categorization of such states as socialist.
In the economic calculation debate, classical liberal Friedrich Hayek argued that a socialist command
economy could not adequately transmit information about prices and productive quotas due to the
lack of a price mechanism, and as a result it could not make rational economic decisions. Ludwig von
Mises argued that a socialist economy was not possible at all, because of the impossibility of rational
pricing of capital goods in a socialist economy since the state is the only owner of the capital goods.
Hayek further argued that the social control over distribution of wealth and private property advocated
by socialists cannot be achieved without reduced prosperity for the general populace, and a loss of
political and economic freedoms.
Hayek's views were echoed by Winston Churchill in an electoral broadcast prior to the British general
election of 1945:
a socialist policy is abhorrent to the British ideas of freedom. Socialism is inseparably interwoven
with totalitarianism and the object worship of the state. It will prescribe for every one where they are
to work, what they are to work at, where they may go and what they may say. Socialism is an attack
on the right to breathe freely. No socialist system can be established without a political police. They
would have to fall back on some form of Gestapo, no doubt very humanely directed in the first
instance.
Communism vs Socialism
In a way, communism is an extreme form of socialism. Many countries have dominant
socialist political parties but very few are truly communist. In fact, most countries - including staunch
capitalist bastions like the U.S. and U.K. - have government programs that borrow from socialist
principles. "Socialism" is sometimes used interchangeably with "communism" but the two