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Capitalism vs. Socialism

Capitalism and socialism are somewhat opposing schools of thought in economics. The central arguments in the socialism vs. capitalism debate are about economic equality and the role of government. Socialists believe economic inequality is bad for society, and the government is responsible for reducing it via programs that benefit the poor (e.g., free public education, free or subsidized healthcare, social security for the elderly, higher taxes on the rich). On the other hand, capitalists believe that the government does not use economic resources as efficiently as private enterprises do, and therefore society is better off with the free market determining economic winners and losers.
The U.S. is widely considered the bastion of capitalism, and large parts of Scandinavia and Western Europe are considered socialist democracies. However, the truth is every developed country has some programs that are socialist.
An extreme form of socialism is communism.

Comparison chart

Capitalism versus Socialism comparison chart
CapitalismSocialism
PhilosophyCapital (or the "means of production") is owned, operated, and traded in order to generate profits for private owners or shareholders. Emphasis on individual profit rather than on workers or society as a whole. No restriction on who may own capital.From each according to his ability, to each according to his contribution. Emphasis on profit being distributed among the society or workforce to complement individual wages/salaries.
IdeasLaissez-faire means to "let it be"; opposed to government intervention in economics because capitalists believe it introduces inefficiencies. A free market produces the best economic outcome for society. Government should not pick winners and losers.All individuals should have access to basic articles of consumption and public goods to allow for self-actualization. Large-scale industries are collective efforts and thus the returns from these industries must benefit society as a whole.
DefinitionA theory or system of social organization based around a free market and privatization in which ownership is ascribed to the individual persons. Voluntary co-ownership is also permitted.A theory or system of social organization based on the holding of most property in common, with actual ownership ascribed to the workers.
Key ProponentsRichard Cantillon, Adam Smith, David Ricardo, Frédéric Bastiat, Ludwig von Mises, Fredrich A. Hayek, Murray N. Rothbard, Ayn Rand, Milton Friedman.Charles Hall, François-Noël Babeuf, Henri de Saint-Simon, Robert Owen, Charles Fourier, Louis Auguste Blanqui, William Thompson, Thomas Hodgskin, Pierre-Joseph Proudhon, Louis Blanc, Moses Hess, Karl Marx, Friedrich Engels, Mikhail Bukinin.
Key ElementsCompetition for ownership of capital drives economic activity & creates a price system that determines resource allocation; profits are reinvested in the economy. "Production for profit": useful goods and services are a byproduct of pursuing profit.Calculation in kind, Collective ownership, Cooperative common ownership, Economic democracy Economic planning, Equal opportunity, Free association, Industrial democracy, Input–output model, Internationalism, Labour voucher, Material balancing.
Political SystemCan coexist with a variety of political systems, including dictatorship, democratic republic, anarchism, and direct democracy. Most capitalists advocate a democratic republic.Can coexist with different political systems. Most socialists advocate participatory democracy, some (Social Democrats) advocate parliamentary democracy, and Marxist-Leninists advocate "Democratic centralism."
Economic SystemMarket-based economy combined with private or corporate ownership of the means of production. Goods and services are produced to make a profit, and this profit is reinvested into the economy to fuel economic growth.The means of production are owned by public enterprises or cooperatives, and individuals are compensated based on the principle of individual contribution. Production may variously be coordinated through either economic planning or markets.
Social StructureClasses exist based on their relationship to capital: the capitalists own shares of the means of production and derive their income in that way while the working class is dependent on wages or salaries. Large degree of mobility between the classes.Class distinctions are diminished. Status derived more from political distinctions than class distinctions. Some mobility.
ReligionFreedom of religion.Freedom of religion, but usually promotes secularism.
Private PropertyPrivate property in capital and other goods is the dominant form of property. Public property and state property play a secondary role, and there might also be some collective property in the economy.Two kinds of property: Personal property, such as houses, clothing, etc. owned by the individual. Public property includes factories, and means of production owned by the State but with worker control.
Free ChoiceAll individuals make decisions for themselves. People will make the best decisions because they must live with the consequences of their actions. Freedom of choice allows consumers to drive the economy.Religion, jobs, & marriage are up to the individual. Compulsory education. Free, equal access to healthcare & education provided through a socialized system funded by taxation. Production decisions driven more by State decision than consumer demand.
Economic CoordinationRelies principally on markets to determine investment, production, and distribution decisions. Markets may be free-markets, regulated-markets, or may be combined with a degree of state-directed economic planning or planning within private companies.Planned-socialism relies principally on planning to determine investment and production decisions. Planning may be centralized or decentralized. Market-socialism relies on markets for allocating capital to different socially-owned enterprises.
ExamplesThe modern world economy operates largely according to the principles of capitalism. The UK, US, and Hong Kong are mostly capitalist. Singapore is an example of state capitalism.Union of Soviet Socialist Republics (USSR): although the actual categorization of the USSR's economic system is in dispute, it is often considered to be a form of centrally-planned socialism.
Ownership StructureThe means of production are privately-owned and operated for a private profit. This drives incentives for producers to engage in economic activity. Firms can be owned by individuals, worker co-ops, or shareholders.The means of production are socially-owned with the surplus value produced accruing to either all of society (in Public-ownership models) or to all the employee-members of the enterprise (in Cooperative-ownership models).
DiscriminationGovernment does not discriminate based on race, color, or other arbitrary classification. Under state capitalism (unlike free-market capitalism), government may have policies that, intentionally or not, favor the capitalist class over workers.The people are considered equal; laws are made when necessary to protect people from discrimination. Immigration is often tightly controlled.
View of warWar, although good for select industries, is bad for the economy as a whole. It wastefully diverts resources away from producing that which would raise consumers' standard of living (i.e., that which is demanded by consumers), toward destruction.Opinions range from prowar (Charles Edward Russell, Allan L. Benson) to antiwar (Eugene V. Debs, Norman Thomas). Socialists tend to agree with Keynesians that war is good for the economy by spurring production.
Political MovementsClassical liberalism, social liberalism, libertarianism, neo-liberalism, modern social-democracy, and anarcho-capitalism.Democratic socialism, communism, libertarian socialism, social anarchism, and syndicalism.
Way of ChangeFast change within the system. In theory, consumer demand is what drives production choices. Government can change the rules of conduct and/or business practices through regulation or ease of regulations.Workers in a socialist state are the nominal agent of change rather than any market or desire on the part of consumers. Change by the State on behalf of workers can be swift or slow, depending on change in ideology or even whim.
VariationsFree-market capitalism (also known as laissez-faire capitalism), state capitalism (also known as neo-mercantilism).Market socialism, communism, state socialism, social anarchism.
Earliest RemnantsThe ideas of trade, buying, selling, and such have been around since civilization. Free-market, or lasseiz-faire capitalism was brought to the world during the 18th century by John Locke and Adam Smith, aiming for an alternative to feudalism.In 1516, Thomas More write in "Utopia" about a society based around common ownership of property. In 1776, Adam Smith advocated the labor theory of value, ignoring the previous Cantillonian view that prices are derived from supply and demand.
Means of controlCapitalism promotes a "society of contract" as opposed to a "society of status." Production decisions are driven by consumer demand and resource allocation is driven by a price system arising from competition for profit.Usage of a government.
View of the worldCapitalists see capitalistic and market-based societies as beacons of freedom, priding themselves on permitting social and economic freedoms not experienced under Communism and Fascism. The focus is on individualism as opposed to nationalism.Socialism is a movement of both the worker and middle-class, all for a common democratic goal.