Discuss the benefits and problems of capitalism and socialism and evaluate which system provides the greater overall benefit to society.
Capitalism vs. Socialism: What’s the Difference?
Capitalism vs. Socialism: An Overview
The terms capitalism and socialism are both used to describe economic and political systems. On a theoretical level, both of these terms also describe specific schools of economic thought. One of the most fundamental differences between the systems of capitalism and socialism lies in the scope of government intervention within an economy.
The capitalist economic model relies on free market conditions for the creation of wealth. The production of goods and services is based on supply and demand in the general market. This economic structure is referred to as a market economy.
In a socialist economic model, the production of goods and services is either partially or fully regulated by the government. This is referred to as central planning, and the economic structure that is created is known as a planned economy or a command economy.
KEY TAKEAWAYS
- The capitalist economic model relies on free market conditions for the creation of wealth; the production of goods and services is based on supply and demand in the general market.
- In a socialist economic model, the production of goods and services is either partially or fully regulated by the government; this is referred to as central planning, and the economic structure that is created is known 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.
Theoretically, this dynamic drives companies to make the best products they can for as cheaply as they can; capitalism is intended to drive business owners to find more efficient ways of producing quality goods. For consumers, this dynamic is intended to create a system wherein they have the freedom to choose the best and cheapest products.
This emphasis on efficiency takes priority over equality. An equal distribution of goods and services among all members of a society is of little concern within a capitalist system. According to the economic theories that underpin capitalism, inequality is the driving force that encourages innovation, which results in economic development.
In a capitalist economy, the state does not directly employ the workforce. This leads to high levels of unemployment during times of economic recession.
