It is defined as an economic system in which private individuals or businesses, rather than the government, own and control the factors of production: entrepreneurship, capital goods, natural resources, and labor. Capitalism's success is dependent on a free-market economy, driven by supply and demand. With socialism, all legal production and distribution decisions are made by the government, with individuals dependent on the state for food, employment, healthcare, and everything else.
The government, rather than the free market, determines the amount of output or supply and the pricing levels of these goods and services. Communist countries, such as China, North Korea, and Cuba, tend toward socialism, while Western European countries favor capitalist economies and try to chart a middle course. But even at their extremes, both systems have their pros and cons.
In capitalist economies, governments play a minimal role in deciding what to produce, how much to produce, and when to produce it, leaving the cost of goods and services to market forces. When entrepreneurs spot openings in the marketplace, they rush in to fill the vacuum.
Capitalism is based around a free-market economy, meaning an economy that distributes goods and services according to the laws of supply and demand. The law of demand says that increased demand for a product means an increase in prices for that product. Signs of higher demand typically lead to increased production. The greater supply helps level prices out to the point that only the strongest competitors remain. Competitors try to earn the most profit by selling their goods for as much as they can while keeping costs low.
Also part of capitalism is the free operation of the capital markets. Supply and demand determine the fair prices for stocks, bonds, derivatives, currencies, and commodities. In his seminal work, An Inquiry Into the Nature and Causes of the Wealth of Nations , economist Adam Smith described the ways in which people are motivated to act in their own self-interest. This tendency serves as the basis for capitalism, with the invisible hand of the market serving as the balance between competing tendencies.
Because markets distribute the factors of production in accord with supply and demand, the government can limit itself to enacting and enforcing rules of fair play. In socialist economies , important economic decisions are not left to the markets or decided by self-interested individuals. Instead, the government—which owns or controls much of the economy's resources—decides the whats, whens, and hows of production. This approach is also referred to as central planning.
Advocates of socialism argue that the shared ownership of resources and the impact of central planning allow for a more equal distribution of goods and services and a fairer society. Both communism and socialism refer to left-wing schools of economic thought that oppose capitalism. However, socialism was around several decades before the release of The Communist Manifesto , an influential pamphlet by Karl Marx and Friedrich Engels.
Socialism is more permissive than pure communism, which makes no allowances for private property. In capitalist economies, people have strong incentives to work hard, increase efficiency, and produce superior products.
Difference between Capitalism and Socialism Take a look at the differences between the two types of economies- Capitalism and Socialism here. The two terms have been used over the past year. Capitalism vs Socialism. Related Categories. This website uses cookie or similar technologies, to enhance your browsing experience and provide personalised recommendations. By continuing to use our website, you agree to our Privacy Policy and Cookie Policy.
Home 20 Trending Quiz Feedback Add to home. Means of production is owned by private individuals. Capitalism and socialism first came into use in the s. Capitalism described an economic system in which wealth or capital , another word for wealth was owned by individuals for their personal profit. The British policy of government regulation of trade called mercantilism was being abandoned by the s, and the free market not the government determined the production and distribution of goods.
The word capitalism was a product of the changing economy of Great Britain during the Industrial Revolution. The word socialism also began to be used in the s, to describe a system different from capitalism. Socialism held that groups of people should own and regulate the economy for the benefit of all the members, not just a few.
Early nineteenth-century socialists were often disturbed by the economic and social changes caused by the Industrial Revolution. An even older ideal of Christian socialism described in the Bible inspired religious socialist communities such as the Shakers, Rappites, Amana Colonies, and Hutterites.
Even the term social studies alludes to how a community or wider society benefits from shared knowledge.
Communism was first a French word, coined in the s, to describe a system of collective ownership in which individuals did not own private property and worked together for the benefit of all community members. This new French word described ideals similar to the English concept of socialism and derived from the word common , meaning something is free or open to everyone. This cookie is used to identify the visitor and to serve them with relevant ads by collecting user behaviour from multiple websites.
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