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Capitalism Vs Socialism; A Comparative Study

Updated on April 7, 2016
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IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.

Socialism and Capitalism treating people differently. Capitalism gives more power to private individuals and socialism gives more role for state. So the question of human achievements is a question in both states
Socialism and Capitalism treating people differently. Capitalism gives more power to private individuals and socialism gives more role for state. So the question of human achievements is a question in both states | Source


The globe has divided by human beings in to various countries. From ancient time itself, various civilizations started in different areas. Later most of them developed a system of administration. Then the concepts of land area, population, wealth, army, trade etc are come in to existence. Now the world has changed a lot. Now around 200 countries are there with different identities. Each of them is independent from others in various matters such as culture, language, society, life style etc. Now the world economy is the combination of various countries of identity. Here this hub is focusing on the various forms of economies such as capitalism, socialism and mixed economy.

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Factories are the soul of capitalismImprovements in production is the ultimate aim of capitalismCapitalism focuses on faster economic growth
Factories are the soul of capitalism
Factories are the soul of capitalism | Source
Improvements in production is the ultimate aim of capitalism
Improvements in production is the ultimate aim of capitalism | Source
Capitalism focuses on faster economic growth
Capitalism focuses on faster economic growth | Source

What type of economic system exists in the world?

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Capitalist form of economies are more popular particularly in the names of developed countries. But actually there is no perfect capitalist country. Capitalism is the free system in which market determines all the economic functions such as production, consumption, exchange etc. there will be no more governmental role in the economy. But in modern economies even in developed countries, government regularly intervening in the state matters. So there is no pure capitalism, but there are some market based economies like United States of America, United Kingdom, and Canada etc.

Nature of Capitalism

Capitalism is a concept initially mentioned by Adam Smith. So the classical economists including Adam Smith and his followers referred many things about this system. It was at the time of industrial revolution in Europe. The most common nature of capitalism in their minds was the free economy or laissez-faire system. Under which the central problems of the economy will be automatically cleared. That is there is no need of intervention by the government in the economy to bring economic stability. Every problem will be cleared by the market without any determined force or action. So, capitalism is the system of society which is purely based on the automatic demand and supply adjustments. Based on this, some common features can be seen in the capitalist economies as listed below.

  • Maximum freedom for the economic agents such as producers, consumers etc.
  • Profit motive and private domination.
  • Superiority of capitalist or business class over the working class.
  • High competition among economic agents.
  • Role of price mechanism (that is the working of demand and supply forces).

CAPITALISM; Merits and Demerits

Higher efficiency and competitiveness
Threaten to environment
Faster economic growth
Class conflict
More consumer choices
Less welfare
Higher capital formation
Inequality may exist
Optimum utilisation of resources
Chances of monopoly
Automatic adjustments of economic problems
Socialism gives more emphasis for agricultural sector
Socialism gives more emphasis for agricultural sector | Source

Socialism and Communism

Socialism is another popular social setup. It was initially found in ancient Greek. The greatest Greek philosophers like Plato and Aristotle. At the same time most of their ideologies were utopian or unrealistic. In this modern era, the concept of socialism and communism arose again in 16th and 17th century onwards from the various parts of Europe. Karl Marx was one of the greatest leaders of school of thought. Basically this social system is the opposite of capitalism. Under this system the government or authority has to play a leading role in the society. The oldest USSR is a best example of this system.

Nature of Socialism and Communism

As mentioned above socialism or communism is a system of complete control over the economy. So the authority or government will work for the society without any profit motive. It will be more welfare oriented to bring equality and justice in the society. The authoritarian socialism of countries like China is the communism. But nowadays, only liberal socialism is exists in the world. That means the presence of market or private forces. In liberal socialist system, the government only intervenes in the matter of production. The remaining economic functions such as distribution, consumption and exchange etc are done by the market. Anyhow, a socialist economy function with the following features.

  • Central supervision over the economy
  • Social welfare, equality and justice
  • Planning is the key to run the economy
  • Less private ownership of properties and there is no profit motive
  • Less economic freedom to economic agents except government.

SOCIALISM; Merits and Demerits

Welfare state
Low efficiency
Less inequality snd higher justice
Less opportunities
No exploitation
No consideration for individual demands
No unnecessary competition
Less autonomy among economic agents
Controlled economy
Less quality and competitiveness
Less unemployment
Minimum consumer choices

Mixed Economy

Mixed economies are those economies featured with both capitalism and socialism. This form of economy is dominated in the world. Under this system, it aims to develop a system by combining benefits of both capitalism and socialism. So, there will be private and public forces actively participate in the economic functions of the country. India is the best example of mixed economies. In such countries, some of the crucial sectors are managed by the government alone and the remaining sectors will be handled by private agents or both private and public agents. Now this form of economy has higher importance because of its distinguished merits. Some of them are mentioned below.

  • Government can control the economy
  • Autonomy with restrictions
  • Less exploitation and inequality
  • Utilization of both private and public resources
  • Public interest will be considered
  • Less chances for monopolies.


Each country may have its own different features in many matters such as language, culture, tradition, customs etc. Moreover the system of society and the economy will be also different. Basically there are three most popular economic systems are there such as capitalism, socialism and mixed economy. Each of them has their own merits as well as demerits. At the same time nowadays, there is no pure capitalism or socialism. Every economy is mixed economies by the co-existence of private and public agents in the economic matters.


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    • icv profile image

      IRSHAD CV 22 months ago from India, Kerala

      thanks for all your comments

      @ jackclee lm : There is no pure socialism or communism. On the other side there are no pure capitalist systems too. This is because government is always intervening in the economic system through implementing laws and programs.

      @ Lipnancy : Thanks for you words

      @ Mel Carriere : Thanks for your comment. I think the mixed economic system has beauty since it incorporates both government and interested private sectors

    • Mel Carriere profile image

      Mel Carriere 22 months ago from San Diego California

      As you have mentioned, there is no true capitalist, or even socialist system. All contain elements of the other. Whether we like it or not, even in so called "capitalist" countries like the US, socialism has been around a long time, and no matter what you call it, it isn't going anywhere. Interesting hub.

    • Lipnancy profile image

      Nancy Yager 22 months ago from Hamburg, New York

      Thanks for explaining the differences. This article was real informative.

    • jackclee lm profile image

      Jack Lee 22 months ago from Yorktown NY

      History has shown us again and again the failure of socialism and communism pure or otherwise. With regard to Capitalism, the problem we have today in America is the crony capitalists that have perverted the free enterprise system. That can be addressed without turning to socialism with laws that keep the level playing field. No system is perfect but given the choice, the answer is self evident.

    • icv profile image

      IRSHAD CV 24 months ago from India, Kerala

      Thanks ladyguitarpicker for your comment. I think democracy can do better in capitalism

    • ladyguitarpicker profile image

      stella vadakin 24 months ago from 3460NW 50 St Bell, Fl32619

      Good article, but still think Capitalism is still the right way to go. There are a lot of good points for this thinking as poor people still have much hope.

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      IRSHAD CV 2 years ago from India, Kerala

      Special thanks Matt Easterbrook5 for your valuable words...

      I agree that inequality or two classes are the main problems of developed world. But government can do better things. Then it will be a mixed economy.

      another point is the discrimination is opportunities. Rich people get higher opportunities without much effort while the poor people can achieve it only through dedicated hard work and passion....

      So I would like to say that, the best thing that the government can do in any society is to invest in education and healthcare system... So the public welfare is depending on the functioning of the government...

      Thanks again for your comments....

    • Matt Easterbrook5 profile image

      Matthew A Easterbrook 2 years ago from Oregon

      ICV yes you are right mixed economies are the trend. In the U.S. we are a more capitalist prevalent country, but we do have welfare, social security, food stamps, section 8 housing, rich oil companies, rich retail chains-corporate businesses etc. So, we do have some high levels inequality amongst classes. One example would be if you are born into a filthy rich U.S. family you will probably never have to work as you will be living off of your family fortune. Then on the flip side if you are born poor through education you maybe able to lift yourself out of that class and through hard work with a higher paying career. So, there is hope for many in the lower classes unlike in a country with complete socialism there is no hope and you just go through a routine life. I am still an avid supporter of mixed economies. Great hub and well researched.

    • icv profile image

      IRSHAD CV 2 years ago from India, Kerala

      Thanks Carolyn M Fields for your strong comment.... We can assure that, any economic system can't function without human development even in capitalism. Because this 21 century will be the century of democracy. This is why the concept of welfare state is more important in current affairs

      Thanks again

    • Carolyn M Fields profile image

      Carolyn Fields 2 years ago from South Dakota, USA

      I enjoyed reading your hub. We disagree on a few points (e.g., I don't agree that there is no exploitation under socialism, etc.). I would be interested in hearing your thoughts about how these economic models interact with political systems - because economies do not exist in a void. For example, how is capitalism different in a democratic state as opposed to an authoritarian regime? Can it even exist that way? Can socialism exist with a libertarian political framework? And so on. Good food for thought.

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      IRSHAD CV 2 years ago from India, Kerala

      Thanks Venkatachari for reading and posting your positive words... Thanks!

    • Venkatachari M profile image

      Venkatachari M 2 years ago from Hyderabad, India

      Good post. You have mentioned it very clearly with the help of suitable tables comparing the merits and demerits of each system.

    • icv profile image

      IRSHAD CV 2 years ago from India, Kerala

      Thanks Laeer Rankin for your valuable comment... I agree with you that no capitalist system can't work without accompanying social needs. That is why most of the economies are mixed economies....

    • Larry Rankin profile image

      Larry Rankin 2 years ago from Oklahoma

      In my opinion, capitalism can't function correctly without having a few socialist systems accompanying it: social security, healthcare, roads, schools, etc.