Difference Between Capitalism and Socialism

Socialism Vs. Capitalism is one of the highly debated topics in group discussion. These are two economic systems which are prevalent in or adopted by different countries of the world. Capitalism is the ancient political system, whose origin dates back to 1400 AD in Europe. On the contrary, Socialism, which is evolved from 1800 AD and its place of origin is France.

A capitalist economy is featured with the free market and less government intervention in the economy, wherein top most priority is given to capital. As opposed to a socialist economy, refers to the organization of society, which is characterized by the abolition of class relations and thus give more importance to people.

So, here we have presented you all the differences between capitalism and socialism, which can help you to decide which system is best.

Content: Capitalism Vs Socialism

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for Comparison	Capitalism	Socialism
Meaning	Capitalism refers to the economic system prevalent in the country, where there is private or corporate ownership on the trade and industry.	The economic structure in which the government has ownership and control over the economic activities of the country is known as Socialism.
Basis	Principle of Individual Rights	Principle of Equality
Advocates	Innovation and individual goals	Equality and fairness in society
Means of Production	Privately owned	Socially owned
Prices	Determined by the market forces	Determined by the Government
Market	Freedom to compete along with the right to invest	Competition is limited but industries are owned by state.
Degree of distinction in the class of people	High	Low
Wealth	Each individual works for the creation of his own wealth	Equally shared by all the people of the country
Religion	Freedom to follow any religion	Freedom to follow any religion but it encourages secularism
Efficiency	Much	Less
Government Interference	No or marginal	Government decides everything
Profit	Profit and wages are given as per one's ability and willingness to work.	Profit based wages fairly as per the efforts.
Labor	Workers can choose their employer and occupation.	Workers are permitted to choose occupation. State planning promotes employment.
Business	Individual have the right to own the business and enter into contract.	State own the basic industries, but other businesses also exist.

Definition of Capitalism

Capitalism is defined as an economic system in which the means of production, trade, and industry are owned and controlled by the private individuals or corporations for profit. Also known as the free market economy or laissez-faire economy.

Under this political system, there is minimal government interference, in the financial affairs. The key elements of a capitalistic economy are private property, capital accumulation, profit motive and highly competitive market. The salient features of capitalism are as under:

• The factors of production are under private ownership. They can use them in a manner they think fit. Although government can put some restriction for public welfare.
• There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity of his choice.
• The gap between haves and have-nots are wider due to unequal distribution of income.
• Consumer sovereignty exists in the economy i.e. producers produce those goods only that are wanted by the customers.
• Extreme competition exists in the market between firms which uses tools like advertisement and discounts to call customer attention.
• The profit motive is the key component; that encourages people to work hard and earn wealth.

Definition of Socialism

Socialist Economy or Socialism is defined as an economy in which the resources are owned, managed and regulated by the State. The central idea of this kind of economy is that all the people have similar rights and in this way, each and every person can reap the fruits of planned production.

As the resources are allocated, in the direction of the centralized authority, that is why it is also termed as a Command Economy or Centrally Planned Economy. Under this system, the role of market forces is negligible in deciding the allocation of factors of production and the price of the product. Public Welfare is the fundamental objective of production and distribution of product and service. The salient features of Socialism are as under:

• In socialistic economy, collective ownership exists in the means of production that is why the resources are aimed to utilize for attaining socioeconomic goals.
• Central Planning Authority exists for setting the socioeconomic objectives in the economy. Moreover, the decisions belonging to the objectives are also taken by the authority only.
• There is an equal distribution of income to bridge the gap between rich and poor.
• People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by the authority.
• As there is planned production, consumer sovereignty has no place.
• The market forces do not determine the price of the commodities due to lack of competition and absence of profit motive.

Conclusion

As we all know that every coin has two aspects, one is good and the other is bad and same is the case with the two economic systems. It is very difficult to say which system is better than the other. Capitalism leads to the development of the economy of the country along with the creation of wealth but it advocates distinction between the haves and have-nots.

Socialism fills the gap between rich and poor, and makes everything available to all the persons, but at the same time it wipes out the encouragement to work hard, due to which the country Gross Domestic Product falls down and everyone turns out to be poor.

In my opinion, the combination of the two economies is the best i.e. mixed economy that accepts the merits of both. It can help the country to grow and prosper along with less gap between haves and have-nots. There will be a public-private partnership in the economy and administered price exist.