Capitalism Vs Socialism

In this write-up, I will contrast some of the differences between capitalism and socialism. Pure capitalism and pure socialism doesn’t exist in the real world, but they are on the opposite sides of the economic spectrum. My hope in discussing them, you’ll learn to identify a capitalist venture and a socialist venture when you see one.

First, Capitalism and Socialism are economic systems, not political systems. Examples of political systems are democracy, a republic, communism, monarchy and a dictatorship. In the US, we have a republic form of government, with a high element of capitalism, and a low (but growing) element of socialism. The USSR had a communist government and its economic system was close to pure socialism, with the government owning everything, setting the prices and doing a ton of economic planning.

Keep these three questions in mind when trying to identify a capitalist or a socialist idea or venture: Who owns the property? How are prices set? How much economic planning is done by the government?

Capitalism is an economic system in which factories, companies, land, etc. are owned privately in order to create profit for the owners. Prices of goods and services fluctuate depending on the desire of the consumer and the availability of the goods (the law of supply and demand). There is little central planning by the government, and the private sector determines what is produced and consumed.

Socialism is an economic system which advocates collective or governmental ownership and the administration of the means of production and distribution of goods. In a socialist society, there is no private property and, at least theoretically, everyone cares most about society. Prices are set by the government and everyone has generally the same amount of money, which means everyone is paid about the same thing or the income of the rich is largely transferred to the poor, so everyone ends up in the middle class.

Capitalism advocates private property, and that society does better when an individual can purchase and produce as he sees fit. For example, when an individual leases a building, buys gym equipment, sells memberships to his health club, and the membership prices are negotiated between the owner and the members, that is a capitalist idea or venture.

Socialism, in essence, is the theory that property ownership should reside in the hands of the government, and the government can produce more and better things with the economic assets than individuals can. When the government taxes the people's money through taxation, buys the building and gym equipment, opens the county health club and it sets the membership prices, that is socialistic venture.

No economy is pure Capitalistic or Socialistic. In a Capitalistic economy for instance a common defense must be built collectively for the nation and hence by the government. The interstate highway system is a socialistic venture. However, such government projects must be kept to a minimum and limited to government's basic functions and focused on things that private sector can not provide. Why? Socialism on a vast scale, like they have in Europe, doesn't work. Europe's economic growth, employment levels and standard of living has consistently been behind that of the US.

As we build more and more government projects and such ventures expand beyond the basic responsiblities government, our economic systems moves away from capitalism and toward socialism. Therefore, whenever I see the federal, state or local government building another massive government project or launching another huge government program, I get concerned.

I think the problem is, most people don’t know the difference between capitalism and socialism, and often don’t realize when they are embracing a socialist idea. Like Rush Limbaugh says, every US citizen needs to take a few economics courses, so education is the first step.