In our today’s topic, we will discuss the economic ideologies that emerged in the last centuries, i.e. capitalism and communism. Adam Smith, the renowned Scottish Economist, wrote a book, The Wealth of Nations in which he sparked the idea of Capitalism.
On the other hand, Karl Marx, a famous Philosopher, and Sociologist, from Germany, initiated the idea of Communism, in his book The Communist Manifesto, as a response to Capitalism. These two political theories are in opposition to each other as in the former promotes private ownership, the latter stands against it. Take a full read of the article given below, to have a clear understanding of the differences between capitalism and communism.
Content: Capitalism Vs Communism
|Basis for Comparison||Capitalism||Communism|
|Meaning||Capitalism is an economic system in which the trade and industry of the economy is owned and controlled by private individuals, to make profit.||Communism refers to social system in which country's trade and industry are controlled by the community and the share of each individual relies on his ability and needs.|
|Basis||Principle of Individual Rights||Principle of Community Rights|
|Promotes||Class Distinction||Egalitarian Society|
|System of Government||Democratic||Totalitarian|
|Government interference||No or negligible||High|
|Wealth Distribution||Every individual has to work for himself to create wealth.||Wealth is distributed as per needs and ability.|
|Factors of production||Privately-owned||State-owned|
|Preference to||Individual freedom||Society|
|Market||Free and Competitive||Absence of competition with State-owned market|
|Individual Incentives||Profit and wages depends on the person's ability and willingness to work||Profits not allowed. Workers are pushed to work for the fame of the state.|
|Capital Sources||Invested by owners which may be borrowed. It may be reinvested out of profits earned.||state provide all the resources, to begin the business owned by the state.|
|Labour||Workers are free to select the employer and occupation||State determines one's employer and employment.|
|Business||Individuals have the right to own business||All the productive capacity including communes are owned by the state.|
Definition of Capitalism
The term ‘capitalism’ implies an economic system that advocates private ownership of the means of production, distribution, and exchange, to earn profit. In this system, the determination of production and price of the goods and services are done by the market, i.e. the demand and supply forces play a significant role here.
The key features of capitalism are individual rights, private property, accumulation of wealth, market economy, free and competitive market, self-interest, minimal government intervention. In a capitalist economy, it is the owners who decide and invest, in the financial and capital market on the production inputs. The competition in the economy decided the price and distribution of merchandise in the economy.
Definition of Communism
A form of socialism, in which the means of production, resources, and property are owned and controlled by the egalitarian society, i.e. by the community equally is called Communism. It is based on the idea of shared ownership. The theory of communism was mainly sparked by the German philosophers cum sociologist Karl Marx and Friedrich Engels. The central principle behind communism is, the contribution and share of each would be based on his ability and needs.
In this political system, the government owns everything and all the individual works for a common goal. Therefore, class distinction does not exist, as all are considered equal. Communism aims at removing the gap between the wealthy and poor and establishing equality in the economy.
Key Differences Between Capitalism and Communism
The following points are noteworthy so far as the difference between capitalism and communism is concerned:
- An economic system in which the trade and industry of the economy are owned and controlled by private individuals to generate profit is called Capitalism. A social system in which a country’s trade and industry are controlled by the community and the share of each individual relies on his ability and needs, is called communism.
- Capitalism is based on the Principle of Individual Rights, whereas Communism is based on the Principle of Community Rights.
- Capitalism is in favor of class distinction, i.e. working class and capitalist class, hence the degree of class distinction between rich and poor is very high. On the contrary, communism opposes a division of society according to class, as it promotes a classless society, so, there is no gap between rich and poor.
- There is a democratic system of government in capitalism. As against this, a totalitarian government system exists in socialism. Totalitarianism is a form of government in which government owns and controls almost everything.
- Under capitalism, the government does not have much involvement. In contrast to communism, there is a high level of government intervention.
- In capitalism, every individual has to work for himself to create wealth. As opposed to this, in communism wealth is distributed as per needs and ability.
- The production inputs like land, labor, and capital are privately owned by the individuals and enterprises, while the means of production are held by the state, in the case of communism.
- In communism, more preference is given to society rather than an individual which is not in the case of capitalism, i.e. freedom of the individual is vital.
- In capitalism, fierce competition exists between the firms whereas in communism, as the market is controlled by the state, the competition is quite low.
- In communism, the profit earned by the enterprise is distributed among all the people of the economy. On the contrary, the profit of the enterprise, in capitalism, is enjoyed by the owner only.
- While capitalism can be found in western countries, socialism is more popular in eastern countries of the world.
Both communism and capitalism are a form of social organization, that is associated with trade and industry in the economy and discusses the ownership of property.
As every coin has two aspects, a good and a bad, so as with the case of communism and capitalism. In capitalism, the distribution of wealth is uneven, due to which the rich get richer while the poor become poorer. On the other hand, in communism, there is an equal distribution of wealth, but it does not allow individuals to have private property. Communism attempts to eliminate capitalism in the economy, as it was introduced, as a response to injustices of capitalism.
Betsy Trotwood says
This is a very clear explanation.
Umer Azib says
great explanation it help me for assignment in class thanks for uploading
Thank you so much, I have been struggling to understand the difference between the two and now i finally do, plus i have a presentation in class and i will definitely use this.
Alexander Braaahmilton says
Thank you, keep us updated.
Diriga khalid says
Great info thanks a lot.
David Harris says
The US is a great Capitalist country. We have the greatest system in the world in my opinion.
Loved these explanations. This should be required reading for all US citizens (starting with junior high students). Our US Congress should have to memorize these differences and pass a test before they could run for any national office.
Mercy Omani (Ikediuba) says
Very Helpful. Thank you so much.
I like this website
Wilhelm Weber says
thanks it helped me
Deez Nutz says
Clement Etchie says
Thanks for helping me am so grateful
Easy to understand! Thank you!
Haseeb Khattak says
Tomorrow I have a presentation on these two topics Capitalism Vs Communism, it’s too much helpful.
Thank you so much
Syed Zaini says
well, I have prepared my presentation from it, for IR class.
Thanks for this website, now I understand and know the meaning and also the different between ( Capitalism and Communism).
Well explained for your understanding.
Great explanation of the differences.