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).
|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.
There are some good books on Capitalism and Socialism available for further reading on Amazon.com: