Capitalism vs.

Socialism
Diffen › Politics
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
Capitalism versus Socialism comparison chart
Capitalism
Philosophy Capital (or the "means of production")
is owned, operated, and traded in order
to generate profits for private owners
or shareholders. Emphasis on
individual profit rather than on workers
or society as a whole. No restriction on
who may own capital.
Ideas Laissez-faire means to "let it be";
opposed to government intervention in
economics because capitalists believe
it introduces inefficiencies. A free
market produces the best economic
outcome for society. Government
should not pick winners and losers.
Key Richard Cantillon, Adam Smith, David
Proponents Ricardo, Frédéric Bastiat, Ludwig von
Mises, Fredrich A. Hayek, Murray N.
Rothbard, Ayn Rand, Milton
Friedman.
Definition A theory or system of social
organization based around a free
market and privatization in which
ownership is ascribed to the individual
persons. Voluntary co-ownership is
also permitted.
Key Elements Competition for ownership of capital
drives economic activity & creates a
price system that determines resource
allocation; profits are reinvested in the
economy. "Production for profit":
useful goods and services are a
byproduct of pursuing profit.
Political Can coexist with a variety of political
Socialism
From each according to his ability, to
each according to his contribution.
Emphasis on profit being distributed
among the society or workforce to
complement individual wages/salaries.
All individuals should have access to
basic articles of consumption and
public goods to allow for self-
actualization. Large-scale industries are
collective efforts and thus the returns
from these industries must benefit
society as a whole.
Robert Owen, Pierre Leroux, Karl
Marx, Fredrick Engels, John Stuart
Mill, Albert Einstein, George Bernard
Shaw, Thorstein Veblen, Emma
Goldman.
A theory or system of social
organization based on the holding of
most property in common, with actual
ownership ascribed to the workers.
Economic activity and production
especially are adjusted by the State to
meet human needs and economic
demands. "Production for use": useful
goods and services are produced
specifically for their usefulness.
Can coexist with different political
 Capitalism versus Socialism comparison chart
Capitalism
System systems, including
dictatorship, democratic republic,
anarchism, and directdemocracy. Most
capitalists advocate a democratic
republic.
Social Classes exist based on their
Structure relationship to capital: the capitalists
own shares of the means of production
and derive their income in that way
while the working class is dependent
on wages or salaries. Large degree of
mobility between the classes.
Religion Freedom of religion.
Economic Market-based economy combined with
System private or corporate ownership of the
means of production. Goods and
services are produced to make a profit,
and this profit is reinvested into the
economy to fuel economic growth.
Free Choice All individuals make decisions for
themselves. People will make the best
decisions because they must live with
the consequences of their actions.
Freedom of choice allows consumers
to drive the economy.
Private Private property in capital and other
Property goods is the dominant form of
property. Public property and state
property play a secondary role, and
there might also be some collective
property in the economy.
Discrimination Government does not discriminate
based on race, color, or other arbitrary
Socialism
systems. Most socialists advocate
participatorydemocracy, some (Social
Democrats) advocate parliamentary
democracy, and Marxist-Leninists
advocate "Democratic centralism."
Class distinctions are diminished.
Status derived more from political
distinctions than class distinctions.
Some mobility.
Freedom of religion, but usually
promotes secularism.
The means of production are owned by
public enterprises or cooperatives, and
individuals are compensated based on
the principle of individual contribution.
Production may variously be
coordinated through either economic
planning or markets.
Religion, jobs, & marriage are up to the
individual. Compulsory education.
Free, equal access to healthcare &
education provided through a
socialized system funded by taxation.
Production decisions driven more by
State decision than consumer demand.
Two kinds of property: Personal
property, such as houses, clothing, etc.
owned by the individual. Public
property includes factories, and means
of production owned by the State but
with worker control.
The people are considered equal; laws
are made when necessary to protect
 Capitalism versus Socialism comparison chart
Capitalism
classification. Under state capitalism
(unlike free-market capitalism),
government may have policies that,
intentionally or not, favor the capitalist
class over workers.
View of war War, although good for select
industries, is bad for the economy as a
whole. It wastefully diverts resources
away from producing that which would
raise consumers' standard of living
(i.e., that which is demanded by
consumers), toward destruction.
Examples The modern world economy operates
largely according to the principles of
capitalism. The UK, US, and Hong
Kong are mostly capitalist. Singapore
is an example of state capitalism.
Economic Relies principally on markets to
Coordination determine investment, production, and
distribution decisions. Markets may be
free-markets, regulated-markets, or
may be combined with a degree of
state-directed economic planning or
planning within private companies.
Ownership The means of production are privately-
Structure owned and operated for a private
profit. This drives incentives for
producers to engage in economic
activity. Firms can be owned by
individuals, worker co-ops, or
shareholders.
Variations Free-market capitalism (also known as
laissez-faire capitalism), state
capitalism (also known as neo-
mercantilism).
Socialism
people from discrimination.
Immigration is often tightly controlled.
Opinions range from prowar (Charles
Edward Russell, Allan L. Benson) to
antiwar (Eugene V. Debs, Norman
Thomas). Socialists tend to agree
withKeynesians that war is good for
the economy by spurring production.
Union of Soviet Socialist Republics
(USSR): although the actual
categorization of the USSR's economic
system is in dispute, it is often
considered to be a form of centrally-
planned socialism.
Planned-socialism relies principally on
planning to determine investment and
production decisions. Planning may be
centralized or decentralized. Market-
socialism relies on markets for
allocating capital to different socially-
owned enterprises.
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).
Market socialism, communism, state
socialism, social anarchism.
 Capitalism versus Socialism comparison chart

Capitalism
Political Classical liberalism, social liberalism,
Movements libertarianism, neo-liberalism, modern
social-democracy, and anarcho-
capitalism.
Socialism
Democratic socialism,communism,
libertarian socialism, social anarchism,
and syndicalism.

Way of Change Fast change within the system. In
theory, consumer demand is what
drives production choices. Government
can change the rules of conduct and/or
business practices through regulation
or ease of regulations.
Workers in a socialist state are the
nominal agent of change rather than
any market or desire on the part of
consumers. Change by the State on
behalf of workers can be swift or slow,
depending on change in ideology or
even whim.

Earliest The ideas of trade, buying, selling, and
Remnants such have been around since
civilization. Free-market, or lasseiz-
faire capitalism was brought to the
world during the 18th century by John
Locke and Adam Smith, aiming for an
alternative to feudalism.
In 1516, Thomas More write in
"Utopia" about a society based around
common ownership of property. In
1776, Adam Smith advocated the labor
theory of value, ignoring the previous
Cantillonian view that prices are
derived from supply and demand.

Contents: Capitalism vs Socialism

 1 Tenets
 2 Criticisms of Socialism and Capitalism
o 2.1 Criticisms of Capitalism
o 2.2 Criticisms of Socialism
 3 Capitalism vs. Socialism Timeline
 4 References

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 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
"When the rate of return on capital exceeds the rate of growth of output and income, as
it did in the nineteenth century and seems quite likely to do again in the twenty-first,
capitalism automatically generates arbitrary and unsustainable inequalities that radically
undermine the meritocratic values on which democratic societies are based." —French
economist Thomas Piketty in Capital in the Twenty-First Century
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 ofmonopolies or oligopolies. As postulated by British economist John
Maynard Keynes, oligopolies and monopolies can then lead to oligarchies
(government by a few) orfascism (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
"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." —British
Prime Minister Winston Churchill in 1945
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.