Basics of Socialism and Capitalism

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Basics of Socialism and Capitalism

Socialism is a system of economics where the means of producing goods and services are under public ownership. Under a pure socialism, the government makes all the legal decisions related to producing goods and services and distributing them, and the people depend on the state for fulfilling all their needs. On the other hand, capitalism is a system of economics where capital goods are privately owned by businesses or individuals. Under a pure capitalism, a free market economy exists rather than a command or a planned economy.

Historical background


When the European pilgrims migrated to America back in 1620, they established a huge garden and let all people work in it and grow fruits and vegetables, so that they would share them equally when the season would come to an end. This was done with the aim of promoting equality and affection in the community. However, since the people knew they would all be given the same product despite working more than others they became reluctant to work at all, that too when the garden was also not theirs. As a result, the community had poor crops to eat followed by famine and the idea of combined effort to derive equal resources proved to be a complete fiasco.


In the following year, the same people were given plots to plant their own gardens, the yield of which would belong to them only. Interestingly that year, their progress was incredible. The plan turned out to be a success and the produce was beyond amazing in terms of quality and quantity both. Hence the lesson was that when humans own something they tend to put their utmost effort in developing that thing, otherwise they don’t.

This former initiative was an experiment with socialism and the latter was that with capitalism.

There are several things that differentiate a capitalist economy from a socialist economy. Let’s have a look at them!

Ownership of financial resources

In capitalism, the people are given the freedom to own, grow and expand their property. There’s private ownership of resources, capital and the owners are wholly entitled to the profit they earn without any element of governmental intervention. In contrast, in the system of socialism, the state government owns all the resources and it allocates them to the citizens on an equal level. In short, in socialism the assets are owned by the public sector whereas in capitalism they’re owned by the private companies.

Equality among citizens

The doctrine of socialism strictly revolves around equity among people whereas in capitalism there can be a concentration of wealth in hands of the rich, giving rise to poverty.

Control over prices

In socialism, the prices are controlled by the state while in capitalism they’re not and mostly depend on demand and supply of goods.

Taxation of Socialism and Capitalism

There are high taxes in a socialist economy whereas in a capitalist economy they’re limited because government spending is limited.

Problems of Socialism and Capitalism

Socialist economies are down with the problems like poor industrial performance due to insufficient incentives. On the other hand, capitalist systems can give rise to problems like monopoly, market failure and inequality.

Mixed economy

Apart from core capitalist and socialist economies there’s a middle of the road policy, which is known as the mixed economy system. In this system, the state is partly capitalist and partly socialist, meaning institutions are semi-government and semi-private. For example, Sweden is a welfare State in which there’s high tech capitalism along with policies of massive public benefits. It is a developed State which has reached to the zenith of its success by employing a mixed economy, blending both the capitalist and socialist reforms. Similar is the case with the USA and all the major countries that are excelling on the global map.

Capitalism alone cannot be a success in the overall growth of the economy, because government intervention is important to ensure the existence of public welfare as for the economic growth what matters the most is the overall living standard of people which is impossible when there’s poverty existing in the country. 

Key Facts and Statistics about Socialism and Capitalism:

  • According to ideology and beliefs, socialism comes between communism and capitalism.
  • Human, society and the whole universe, all are equal- this is the core belief of socialism.
  • Countries where socialism exists, citizens usually get free healthcare. The United States is a capitalist, democratic country where citizens don’t get free healthcare and some even cannot afford it.
  • Only about 25% population of the United States supports capitalism.
  • The laws of demand and supply are the driving force of capitalism.
  • Countries where capitalism exists, people are more free in choosing their own career paths.
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