Capitalism vs. Socialism


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 Communism vs Socialism).

Comparison chart



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. Govt. should not pick winners and losers. 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.
Religion Permitted/Freedom of Religion Freedom of religion, but usually promotes secularism.
Economic System Market-based economy combined with 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. 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.
Key Proponents Adam Smith, David Ricardo, Milton Friedman, Fredrich Hayek, Ayn Rand, Murray Rothbard Robert Owen, Pierre Leroux, Karl Marx, Fredrick Engels, John Stuart Mill, Albert Einstein, George Bernard Shaw, Thorstein Veblen, Emma Goldman.
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 to complement individual wages/salaries.
Political System Can coexist with a variety of political systems, including dictatorship, democratic republic, anarchism, and direct democracy. Can coexist with different political systems. Most socialists advocate participatory democracy, some (Social Democrats) advocate parliamentary democracy, and Marxist-Leninists advocate "Democratic centralism".
Economic coordination Relies principally on markets to 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. 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.
Private Property Private property in capital goods is the dominant form of property. Public property and state property play a secondary role, and there might also be a limited number of collective property in the economy. 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.
Social Structure Classes exist based on their relationship to the means of production: the ruling class, or "capitalists", own shares of the means of production and derive their income in that way. In contrast, the working class is dependent on wages or salaries. Class distinctions are diminished.
Political movements Classical liberalism, Social liberalism, Libertarianism, Neo-liberalism, Modern Social-Democracy, Anarcho-Capitalism Democratic Socialism, Communism, Libertarian Socialism, Anarchism, Syndicalism.
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.
Definition A theory or system of social organization based on the free market and privatization in which ownership is ascribed to the individual persons. A theory or system of social organization based on the holding of most property in common, with actual ownership ascribed to the workers.
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.
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).
Free Choice All individuals make decisions for themselves. People will make the best decisions because they must live with the consequences of their actions. All choices, including education, religion, employment and marriage, are up to the individual. All health care and education is provided through a socialized system funded by taxation. Citizens have free and equal access.
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. 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.
Discrimination Government does not discriminate based on race, color, or other arbitrary classification. The people are considered equal, laws are made when necessary to protect people from discrimination.

Contents: Capitalism vs Socialism


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 organised within economic enterprises, and the role of the state in regulating businesses to ensure fairness.

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 monopolies or oligopolies (and government by oligarchy); imperialism; counter-revolutionary wars; various forms of economic and cultural exploitation; repression 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 oligopolistic structures when laissez-faire principles are combined with capitalistic private property. Capitalism is regarded by many socialists to be irrational, in that production and direction of the economy is unplanned, creating many inconsistencies and internal contradictions.

Vladimir Lenin, a communist who served as head of the Russian government from 1917 to 1922, believed it was inevitable that monopolistic capitalism would resort to using state military power abroad to defend its interests. Economist Branko Horvat stated, "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 will 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 the finite natural resources of the earth. 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, Christianity, and Islam forbid lending money at interest, 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.

Further Reading

There are some good books on Capitalism and Socialism available for further reading on


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Comments: Capitalism vs Socialism

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Anonymous comments (15)

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 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

May 8, 2014, 7:59pm

In everything that is written here concerning capitalism is that the money made is to be reinvested back into the economy. Not put back into their own pockets. And that is what is being done today. And eventually there will be no middle class to buy the goods and then you will have a collapse of capitalism

— 98.✗.✗.35

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

August 17, 2013, 8:50pm

I am an American and I don't know about anyone else, but I bust my ass and I am still trying to make ends meet while executives are rolling around in their gravy and fat. Guess who does all the hard work for these executives? People like me. We work to make them rich. Sounds fair to me!?

— 24.✗.✗.14

December 6, 2013, 1:16pm

This site is interesting, but it's socialism that suffers the tragedy of the commons, not capitalism.

— 205.✗.✗.1

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

July 18, 2012, 7:47pm

In France their minimum wage is always above the poverty line. They also have minimum payed time off (5 weeks) just like every western European country Americans are oblivious uneducated and blind to all this. The top 1% have more money than 99% of the rest of Americans combined you know why? That 1% pays you a really shitty wage and gives you what 2 weeks paid time off while they pay themselves 40 million a year. Get educated almost every american has never even heard of minimum paid time off its pathetic.

— 76.✗.✗.53

January 29, 2012, 4:00pm

It is not true that people in the United States are pushed aside because of their poverty. People are pushed aside only because they allow themselves to be pushed aside. Maybe in Sweden it's more like a hand out instead of a hand up. I know that in The United States we work hard for what we have and if a person has an idea, or product that can make them rich, it is a lot of work to make it become reality. Unlike some parts of the world, then it is yours, and nobody else's. As far as healthcare, I like to choose, and not wait.

— 71.✗.✗.133

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

January 2, 2011, 1:09am

Clearly, this is composed by a socialist. It is extraordinarily difficult to rise from "rags to riches" in any of the European states, because the taxes are so high. Socialistic organization encourages less commitment to excellence.

In Sweden, a model Scandinavian socialistic system and one of the few European states not completely bankrupted by their idealistic but unworkable Utopian socialist systems, there are a dozen or so very large and successful industries with very deep pockets, who are able to fund the socialistic system, with the help of repressive taxation of the individual. But because of the tax burden, it is much more difficult to really rise in power and influence. That is what is desired by the puppet masters of these economies. The aim is to keep the people contented and happy with their state of being, not creating problems... and not creating dynamic growth or new ideas. Socialism is the effete degeneration of capitalism.

— 66.✗.✗.102

May 10, 2014, 10:52am

What a nice job.

— 41.✗.✗.235

November 4, 2013, 4:09am

Who's author for this and when was it written?

— 68.✗.✗.63

May 25, 2012, 12:51am

To people saying it is hard to rise from "Rags to Riches" in European states. They have to realize that European countries don't endorse Socialism as in Communism but rather Social Democracy. This means that there is a heavier emphasis on Keynesian economics, as in government spending and government planning of the Economy, but this proved very beneficial for the United States when they utilized it during the New Deal under FDR. There is a distinct difference between Socialism and Social Democracy, as Social Democracies have free markets, and the government does not intervene in all aspects of the Economy, it is largely consumer driven, but with a bigger emphasis of redistribution of wealth rather then private profit. The high taxes ensure that it IS possible to rise from Rags to Riches because no one is given an unfair advantage from birth due to a higher financial status the parents have. In Social Democracies, a good universal public education is provided, while the Us have lower taxes so many public schools are underfunded, while the rich can afford to send their kids to private school. In my eyes this disadvantage is much more of a limp than Europe's high taxes in the stride to obtain riches coming from rags

— 74.✗.✗.28

March 10, 2012, 5:51pm

Please don't refer to United States as "America". A big continent is not a country alone.

— 190.✗.✗.172

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


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