Capitalism vs socialism: An Overview.
The terms capitalism and socialism are both used to describe economic and political systems. On a theoretical level, both terms also describe specific schools of economic thought. One of the most fundamental differences between the systems of capitalism and socialism lies in government intervention within an economy.
The capitalist economic model relies on free-market conditions for the creation
of wealth. We base the production of goods and services on supply and demand
in the general market. We refer to this economic structure as a market
economy.In a socialist economic model, the production
of goods and services is partially or fully regulated by the government. We refer this to as central planning, and we know the economic structure that is created as a planned economy or a command economy.
KEY
TAKEAWAYS
- The capitalist economic model relies on the free market conditions for the creation of wealth; we base the production of goods and services on supply and demand in the general market.
- In a socialist economic model, the production of goods and services is partially or fully regulated by the government; this is referred to as central planning, and we know the economic structure that is created 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
In a capitalist economy, property and businesses are owned and controlled by
individuals. The production and prices of goods and services are determined by
how much demand they generate and how difficult they are to produce.
Socialism
In a socialist economy, the state owns and
controls the major means of production. In some socialist economic models,
worker cooperatives own and operate the primary means of production. A worker
cooperative is a firm that is owned and self-managed by its workers. Other
socialist economic models allow individual ownership of enterprise and
property, albeit with higher taxes and higher government controls.
The primary concern of the socialist model of
economics is a fair distribution of wealth An equitable distribution of
wealth is meant to ensure that all members of a society have an equal
opportunity to attain certain economic outcomes. To achieve this, the state
intervenes in the labor market.
In a socialist economy, the state is one of
the primary employers. During times of economic hardship, the socialist state
can order hiring, so there is close to full employment even if workers are not
performing tasks that are particularly in demand from the market.
In addition to capitalism and socialism, the
other major school of economic thought is communism. Many tenets of communism
and socialism stand in opposition to capitalism, but there are important distinctions between socialism and communism.
Special Considerations
We mix most modern 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 with no 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.
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.3
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