The Differences Between Capitalism and Socialism

The Differences Between Capitalism and Socialism

1. Introduction

This article aims to describe the events that led to the establishment of different economic systems of capitalism and socialism. What socialist thinkers as Karl Marx, Friedrich Engels thought? Capitalism began in the fifteenth century onwards, but from the eighteenth century with the advent of steam power and new techniques of production had to Industrial Revolution.

In 1750, Britain became the symbol of the Industrial Revolution, the cradle of capitalism. Later in the nineteenth century other countries like the United States, Germany, France, Japan and others begin to adopt the system of Capitalism. The consequences of capitalism were drastic, caused a massive displacement of people from the countryside to the cities, creating urban concentrations. This led to much of the labour force men to the development of rail roads, women and children were used in textile factories and mines with long working hours and reduced wages.

With the growing of social inequalities, the socialist thinkers who were Karl Marx (1818-1883), Friedrich Engels (1820-1895) began to study the facts to explain the social phenomena that was occurring. According to Campos (2007), in Marxist theory, the state is the means by which one class dominates and exploits another.

The Communist Manifesto, written in 1848, the authors say, when communism was implemented, society would live in collectives, without division of social classes and not the presence of a coercive state.

2. Capitalism

The capitalist system that began in the fifteenth century until nineteenth century, the accumulation of capital through profits from the trade and exploitation of human labour, whether employed or slave, calling the Commercial Capitalism. From the mid eighteenth century with the advent of steam power, the power loom and other techniques comes the Industrial Revolution. The Industrial Revolution began in England in 1750, when the man came to buy the work of another man in exchange for wages.

In the social environment, the main change was the emergence of the working class, which are living in precarious conditions in cities, living in slums, undergoing wages, with long working hours and no labour law. Later comes the banking, lending money at interest, where the currency has become the main product of the capitalist system.

According Guareschi (2003, p.51), Capitalism is a system that separates the working capital and whose relations are of domination and exploitation, for there to be domination and exploitation is necessary for the work of production and capital are separated. For Marx, the mode of production is the way society organizes the production of goods necessary for survival.

The capitalist system can be characterized in three aspects:

  • Private property or private means of production;
  • Employment with low wages;
  • Free enterprise over the state planning.

In view of the foregoing, it is observed that the capitalist society was divided into two classes: the bourgeoisie, who own the means of production, the proletariat, which only offers the workforce.

The social organization, and therefore, the forms of behavior and interaction between the men are, in fact, regulated by the relations between men entered in the production of goods necessary for their existence.

In the early twentieth century, capitalism was characterized by liberalism, a situation in which government interference in economic affairs was minimal. After the 1929 crisis, the state will interfere in economic activities in many countries, calling the new liberalism, for example, in the United States President Franklin Roosevelt implemented in 1933, the New Deal (new agreement), an economic and social program introducing the unemployment allowance, helps the needy, public works projects, etc..

In 1936, the British economist John Maynard Keynes published the General Theory of Employment, Interest and Money, which maintains a policy against unemployment sponsored by the government. According Kopelke (2007, p.22) Capitalism is now the main economic system in activity, although there are still some countries that adopt Socialism.

3. Socialism

In the nineteenth century, there was the emergence of a new scientific method of study of society, which seeks to understand social change, its consequences for society and the future.

For Max Weber (2002, p.24) the modern State represents a complexity of harmonious action by individuals, because many people act on the belief that it exists or should exist to promote the legal validity of their orders.

Since ancient times, some people worried about the social life, thought of changing relationships that capitalism had been causing. According to Marx, he criticizes capitalism by definition of interest by money and material gains as the main reason for the survival of man.

As Singer (2002, p.174) the promise of socialism is to establish a society superior to capitalism in three aspects:

  • The economy would not be subject to crises, unemployment, because it was planned, with a control by the community about the social process of production and distribution, so the individual would no longer be dominated by unpredictable forces of the market;
  • The establishment of equality: the capitalist society would be the last class society, whose evolution simplify the social structure, transforming the majority of the population more or less homogeneous;
  • Socialism would give to all members of society a greater degree of material well-being and freedom.

Some of the pioneers of the mental model of an ideal society was the Englishman Thomas Morus, who wrote in 1516 the work Utopia, which described an imaginary society run by an ideal State, free of internal contradictions and injustices unable to perform on its members (KOPELKE, 2007, p.23). But the founders of scientific socialism or communism was Karl Marx and Friedrich Engels, who left the contradictory relations of capitalist production for his own destruction through the action of workers.

According to Campos (2007) Marx did not consider the classes only one group that shares a certain social status, but shares in property relations. In Guareschi (2003, p.52) explains that the capital gain is the profit that remains after all expenses deducted. For Marx who had productive capital with which to expropriate surplus value, for which the exploiting class, on the other side were the employees, who do not own property, thus the proletariat (CAMPOS, 2007).

Bourgeoisie is defined as the class of modern capitalists, owners of means of social production, employing low wage labour. Proletariat, the class of modern low wages employees who do not have the means of production, are forced to sell their labour power to survive.

In 1917, the Russian Revolution installed in power the communist system, under the leadership of the Russian Vladimir Lenin (1870-1924), and establishing the Dictatorship of the proletariat and the Communist Party. In view Kopelke (2007, p.25) the Russian Revolution destroyed the capitalist institutions of the country, but never got to complete the point of the disappeared, as predicted by Marx.

Socialist system can be characterized as a system where there is no private property or private means of production. The economy is controlled by the state in order to promote the fair distribution of wealth among all people in society. After the Second World War (1939-1945) other countries have become socialists, for example, China in 1949, led by Mao Zedong (1893-1976), Cuba in 1959 by Fidel Castro and others. However, this new system put in place had several problems:

  • Lack of participation of the people in government decisions;
  • Lack of freedom of thought and expression;
  • Formation of a highly privileged politic group.

4. The Differences Between Capitalism and Socialism

Currently, most countries adopted capitalism. Globalization and the Information Age is making capitalist system more dynamic and constantly changing. Capitalism has some advantages:

  • Low rate of illiteracy;
  • High income per capita;
  • High feeding level;
  • Economic domination;
  • Control of science and technology,

Looking at the data one can argued that in developed countries or first world countries, life expectancy is excellent, meanwhile developing countries, the situation is aggravated by the fact that there is a poor accessibility to basic needs. With the growth of neoliberalism, social inequality and social exclusion will increasing.

Socialism is still adopted in some countries such as Cuba, which is headed by Fidel Castro. Looking at the theory and practice in leading, the country ends up being closed, the people have no right to democracy and also does not provide a decent quality of life for citizens as was expected. Finally who benefits the most often is the government and its dome. According to Guareschi (2003, p.63) the countries that call themselves communist in practice reach the approach of Capitalism, because instead of there be some who own the means of production, there is only the State Party, which exploits in the same way the workers.

Nova (2004, p.42) understands that in underdeveloped societies, where social injustices are awakened in many, strong feelings of indignation, some looking at socialism a means of settling - not only for the scientific explanation and social problems.

5. Conclusion

It can be concluded that the differences of the two economic systems, which provide both advantages and disadvantages. That is, while one enriches the other impoverished. Capitalism present in most countries that have democracy, which gives right of choice to the people, but when it comes to market, the government is the one who makes the final decisions, and sometimes not possible for a growing portion of society. Socialism only in theory is good, because in practice it is totally different, each with their wishes, dreams in a different perspective of others.

As Paganatto (2007) the model of social structure is that it should be replaced by a more modern, cultural phases and perpetuating itself through the identification of individuals with their social contract and subsequent rules. Souza (2007) The modern neo-liberalism is the future of humanity, a single company, radically competitive substrate which results in a global free market, unified guaranteed by the natural impulse of man in the competition.

According to Paulini Silva (2005, p.17) Marx's dialectical method to the understanding of reality as contradictory and constantly changing. The company must check the internal laws of historical development through identification of contradictions in order to liberate man from his alienated consciousness. According Kopelke (2007, p.27) capitalist economies liberals accept the growing participation of the state in economic decisions, and the other countries of centrally planned economies in the hand of State accept the increasing participation of private, economic decisions.

In Singer (2002, p.186) the struggle for liberation movements not only adds to the struggle for socialism, but in fact, broadened the very latitude of Socialism, which is not limited to the elimination of economic exploitation of the proletariat, but proposes fight the kinds of exploitation and discrimination, both in business or in other institutions, including the family. Guareschi (2003, p.63) a big difference in reality between the capitalist and communist countries is that the communist-socialist majority of the population has guaranteed the basic sustenance - food, shelter, education, health, clothing etc.. Meanwhile in capitalist countries, where the holding is large, much of the population lacks such basic services and poverty is high, as can be seen on every corner.

Finally i let the phrase that Marx and Engels (1987, p.109) posing as reflection at the end of the book Communist Manifesto for the working people "Workers of all countries, unite!"

Comments 18 comments

Evan G Rogers profile image

Evan G Rogers 6 years ago from Dublin, Ohio

You forgot the most important difference: Socialism requires aggression and capitalism requires freedom.

Because Socialism is (pretty much) defined by state control over things, and the state pays for things through taxes (borrowing and inflation just lead to future taxes), and if you don't pay taxes you go to jail... Socialism requires aggression.

Capitalism, in order for it to actually work, requires the ability of anyone to own property. This automatically means that people have to be free to choose what they do with their own property.

Check out more with my series: "Evan's Easy Economics"

Johnny 6 years ago

Your answers are right

Thehumanmachine 6 years ago

Workers will be allways workers. In Capitalism becouse you work for small businesses or private Coorporation you can choose where to work and the kind of work you wan to do. In communism everything is imposed on you as if you'll never able to grow up and allways will depend on your parents and their rules. I think "THAT IS UNFAIR". Becouse in Socialism or Communism; those who wants to take it easy will be force to produce certain amount for the GOVERMENT. All those as free louders, homeless, mentaly ill, phisical disable, blind, traumatize, or simple lazy, the elderly; will be put to death. How? Throught the medical system becouse it is free and we do not have a say . They will put and inyection or drug that will make us sick and die for their convinience becouse the GOVERMENT will not have to finnancially support them. No one will be able to help becouse no one will have nothing to spare. It is a cruel Society. Like in Cuba you can go to College be an Chemical Engeneer and working for the Govermet will only give you $27.00 with the excuse that the Goverment give you housing , medical care and paid your career.

That is the reality of SOCIALISM . I take CAPITALISM with out hesitation. Becouse I can dream and HOPE.


VENUGOPAL SIVAGNA 6 years ago from India.

Capitalism is profit oriented and socialism is labour oriented.


VENUGOPAL SIVAGNA 6 years ago from India.

In other words, capitalism is socialists' wish; and socialism is capitalists' wish. Both like the other,but they are unable to stick to some norms in their fields.

A socialist likes capitalism but could not.... because he has no enough funds or resources to become so.

A capitalist likes to become socialist but could not.... because he cannot part with his treasures.

Only by government legislations and sustained hardwork by socialist, they can be uplifted to the level of capitalists. But it is nearly impossible to bring down capitalists to the level of socialists.... It requires a great revolution which will have many other repercussions.

JON EWALL profile image

JON EWALL 6 years ago from usa



Only by government legislations and sustained hardwork by socialist, they can be uplifted to the level of capitalists'' COMMUNIST CHINA

Daarey igiaba 6 years ago

I as a citizen of Nigeria i also surport capitalism, becouse the merits are much more than the a student and according to what our teachers thout us.

CHRIS57 profile image

CHRIS57 5 years ago from Northern Germany

Well reseached hub. I enjoyed the academic essay.

For every day life, things with capitalism and socialism were and are not that complicated.

In my understanding socialism is a bonus note reward system, while capitalism is a cash pay reward system. Let me try to explain:

Every economic system relies on rewarding people for their productive contribution to the economy, socialist, capitalist, you name it..

In socialism you don´t get rewarded directly if you try hard. You get a bonus note and a little money. Socialist common sense found out that without some money it wouldn´t do.

In capitalism you get payed imediately for your economic contributions and success. But capitalist common sense found out, that some money had to be held back for administrative use (taxes).

The socialist economy´s bonus notes are a little tricky. They can´t be transformed directly into personal benefits. You need to be member of a savings club to be eligible for benefits. This club was called "Nomenklatura" in former USSR.

I wouldn´t go too deep into socialist philosopy and ideas. Real life prooved, that the cash pay system by far outperformed the bonus note system.

buhari 5 years ago


Capitalism Democracy

Modern Capitalism

Capitalism Fascism

Capitalism Communism


Post 12 The way I learned it (way back) is that "socialism" usually means "democratic socialism" while "communism" means "totalitarian socialism" or "socialism under a dictatorship."

Communism is worse than socialism because the people collectively cannot make any adjustments. It's the ruler's whim. (Good to be king!) They argue that one person can react faster, like a commander in the military. But one person doesn't have the wisdom of the many.

However, socialism is worse than free-market democratic capitalism. People, using "spontaneous order," can adjust far better than any democratic process.

Furthermore, human nature shows that humans need personal motivation, which socialism doesn't account for. Even Ayn Rand's theory neglects the reality that A) people don't really know what's in their own long-term best interests, and B) even if they knew, there are conflicts with what is in your best interest and what is in society's best interest.

Ayeni segun G. 5 years ago

It is obvious that capitalism is the best economic system that will escalate successive growth and development in a given economy arena, because it encourage group of people or individual to strive for profit and benefits.

Charles Bunu 5 years ago

I love this site, it's very educative.

Mohammad Daud Amin 5 years ago

I enjoyed reading your article.

Gokhale Pramod 5 years ago

I can understand author's views,but human mind and human society can not function under fixed rules and regulations .Religion is a perfect Union.Socialism and capitalism can not compete with it.Your explanation is fine but by and large both isms failed to understand human needs and greeds

Yetalent@gmail 5 years ago

Its very educative it is indeed an eye opener

Adewuyi kehinde 4 years ago

I real enjoy the different between the capitalism and socialism.tanks for the authors that contribute to it.

Rakau Thabo 4 years ago

this was very helpful of the outher to offer.i 've learned a lot than i thought.i actually found more than my lecterer needed.thanks.keep the good work and you 'll go places.thanks again...

Yasir 4 years ago

well written but needs more improvement. We should brief the things to the point.

sarah mbabazi 3 years ago

it is so obvious that capitalism sa contributed to the braindrian you are see in differet countries and increased the level of exploitation on the workers, profits repatriated to their countries hence leading to the under development of some countries

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