A Comparison Between Socialism And Capitalism Economics Essay

The political and economic universe has ever been dependent on each other, non one can last without the other and the universe can non work without both. States have been viing in happening the best economic and political combination that brings their states into the power they need to take the universe. First Europe has ever conquered the universe history by strong military power based, the power of the church and deficiency of freedoms for the people, as things developed and the two universe wars ended, the political universe as we know it ended every bit good ; Europe is no longer in charge of the universe, as new political orientations started to demo, United States of America began developing into a universe power, Russia adopted the communist attack of the universe, and began roll uping states under their brotherhood. Capitalism evolved with Adam Smith and got adopted by the United States ; Faced by the Communist USSR ( Union of Soviet Socialist Republics ) led by Russia. During their cold war and the battle to demo which political economic theory is better, capitalist economy won the first unit of ammunition, USSR was demolished, Capitalism invaded the universe for the past 20 old ages, and to our surprise after believing for so long, that we eventually reached the perfect political economic system theory, Capitalism collapses in 2008 and showed the universe how vulnerable this theory is, at the same clip, theres certain economic experts who have ever predicted the prostration of the fiscal system and the universe economic system, advancing the prostration of the political economic theories, and they are the Austrian economic experts lead by Fredrick Hayek and Robert Vin Misis. Although there have been a batch of scenarios for these political economic systems, a comparing and contrast of Socialism ( communism ) , and the Free-Market system ( Capitalism ) will be the chief focal point of my survey to happen the best mix of theories that can supply the universe with a stable, consistent and developing economic theory that will go forth the universe better off.

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Literature Reappraisal:

Socialism harmonizing to Marxian system who is the laminitiss of this theory is Socialism, a set of dealingss of production that will follow capitalist economy, contains some traces of capitalist economy. One of the main features of capitalist economy is that the agencies of production, capital, are non owned or controlled by the labor. The major alteration that occurs in the passage from capitalist economy to socialism is that the expropriators are expropriatedthe labor now owns the agency of production. However, under socialism, a staying trace of capitalist economy is that economic activity is still fundamentally organized through the usage of incentive systems: wagess must still be given in order to bring on people to labour. ( Karl Marx, 1991 )

On the other manus capitalist economy that was found by Adam Smith its defined as capitalist economy is a societal system based on private ownership of the agencies of production. It is characterized by the chase of material self-interest under freedom and it rests on a foundation of the cultural influence of ground. Based on its foundations and indispensable nature, capitalist economy is farther characterized by salvaging and capital accretion, exchange and money, fiscal opportunism and the net income motive the freedoms of economic competition and economic inequality, the monetary value system, economic advancement, and a harmoniousness of material opportunism of all persons who participate in it ( George Reisman. 1998 )

The economic development phases were said by Marx to dwell of two major groups which include the workers and proprietors of agencies of production, he provided a historical description of economic development whereby he pointed out the major phase, the first phase was slavery, so feudal system, so capitalist economy and eventually communism, he viewed communism as a signifier of economic organisation that would emerge from the ruins of capitalist economy, harmonizing to him workers were oppressed and alienated and a revolution would take topographic point that would replace capitalist economy with the communist signifier of society. ( Benedetto, 1996 )

However, Many theoreticians and policymakers in preponderantly capitalist states have emphasized capitalist economy ‘s ability to advance economic growing, as measured by Gross Domestic Product ( GDP ) , capacity use or criterion of life ; This statement was cardinal, for illustration, to Adam Smith ‘s protagonism of allowing a free market control production and monetary value, and allocate resources. Many theoreticians have noted that this addition in planetary GDP over clip coincides with the outgrowth of the modern universe capitalist system. ( Capitalism, Robert E. Lucas Jr 2008 )

As for Labor value was besides another rule of Karl Marx economic sciences, labour value refers to the value of a merchandise that is normally determined by the sum of labour utilized to bring forth the merchandise. This means that he assumed that the value of merchandises depended on the sum of labour used in the production of that merchandise, he stated that the greater the productiveness of labour so this means that less labour hours will be spent in bring forthing the merchandise and hence the lower will be the value of the merchandise. ( Skousen, 2007 )

On the other manus, harmonizing to the capitalistic point of position of labour, they said: The greatest betterment in the productive powers of labor, and the greater portion of the accomplishment, sleight, and judgement with which it is anyplace directed, or applied, seem to hold been the effects of the division of labor.

The effects of the division of labor, in the general concern of society, will be more easy understood by sing in what mode it operates in some peculiar industries… .. The division of labor, nevertheless, so far as it can be introduced, occasions, in every art, a proportionable addition of the productive powers of labor. The separation of different trades and employments from one another seems to hold taken topographic point in effect of this advantage. This separation, excessively, is by and large called furthest in those states which enjoy the highest grade of industry and betterment ; what is the work of one adult male in a ill-mannered province of society being by and large that of several in an improved 1. In every improved society, the husbandman is by and large nil but a husbandman ; the maker, nil but a maker. The labor, excessively, which is necessary to bring forth any one complete industry, is about ever divided among a great figure of custodies… . This great addition of the measure of work which, in effect of the division of labor, the same figure of people are capable of acting, is owing to three different fortunes ; foremost, to the addition of sleight in every peculiar workingman ; secondly, to the economy of the clip which is normally lost in go throughing from one species of work to another ; and in conclusion, to the innovation of a great figure of machines which facilitate and abridge labor, and enable one adult male to make the work of many. ( The Wealth of Nations, Adam, 1937 )

Sing rewards in the economic system Marx pointed out that workers sold labour power to the proprietor of the production procedure, harmonizing to him the value of rewards that prevailed were determined by the market forces which include the demand for labour by the capitalist and the supply of labour by workers, these forces determined the pay rates and given that the agencies of production were owned by merely a few capitalist so workers were the bulk and hence labour supply was high. Wage rate in the economic system nevertheless were sufficient to enable workers to reproduce labour power. ( Skousen, 2007 )

As for the capitalist, they argued about the pay as The value of labour is determined on a foundation of its public-service corporation and scarceness, by demand and provide _ more specifically, by the competition of purchasers for the limited supply non by any signifier of cost of production, least of all by any cost of production of labour ( Capitalism, George Reisman. 1998 )

Karl Marx distinguished two signifiers of capital as changeless and variable capital, harmonizing to him changeless capital referred to non generative capital, changeless capital refers to the capital value that does non undergo any alterations in its value in the production procedure illustration machinery and natural stuffs, harmonizing to him involvement and depreciation costs were transferred to the cost of merchandises and therefore these signifier of capital does non add value to the merchandise produced. ( Karl Marx, 1991 )

The other signifier of capital harmonizing to him was variable capital, variable capital refers to the part of capital that represented labour power, labour power produced value to the merchandise that was equal to its value and besides produced a excess. Labor was the exclusive beginning of value of the merchandise and this refers to the part of capital that was spent in hiring of the workers. ( Karl Marx, 1991 )

For the capitalists, There are two dimensions to the scarceness of capital and capital goods. In one regard, capital goods are merely every bit scarce as our labour and ability to bring forth consumers goods. The 2nd dimension of the scarceness of capital refers to the fact that goods can be produced with changing sums of capital per unit, that is, with changing grades of capital intensity. ( Capitalism, George Reisman. 1998 )

Marx besides pointed out the importance of engineering in the production procedure, engineering and machinery were of import ingredients in the production procedure, and engineering increased the productiveness of labour given that cut downing the clip taken by laborers to bring forth his exchange pay value, hence capitalists aimed at cut downing the clip spent by labour in the production procedure by presenting machines in the production procedure. ( Benedetto, 1996 )

The economic grade of capitalist economy and the grade of capital intensity in the economic system operate, as it were, as a sort of long-range radio detection and ranging cyberspace for technological advancement with commutative long-term effects for capital accretion and the ability to implement technological progresss, in that they determine which sorts of engineerings can be picked up and implemented at any given clip. ( Capitalism, George Reisman. 1998 )


Comparing and contrasting the two theories, demoing their pros and cons, uniting their pros, and coming up with a theoretical account that shows the best tantrum for a perfect economic theory. This theory will be proved by plants of other scholarly, and by illustrations of states that have taken this theory into action and now are taking the universe economic systems.

Capitalism VS Socialism: comparing

As we have seen capitalist economy consisted of free market system with little authorities intercession in the market harmonizing to Adam Smith, labors are fit to work every bit much as possible to come up with the optimal production, rewards are distributed harmonizing to the demand and supply of the labor itself, capital is accumulated and saved, and engineering is important for economic growing and development which are based on GDP and life criterions.

On the other manus, socialism is a planned market economic system, where the agency of production ballads in the custodies of the authorities, labors are suppressed therefore they need to revenge on the agencies of production proprietors through revolutions that would destruct the capitalist economy system and replace it with the Communist system, furthermore the socialists believed that the rewards it was referred to as the value of a merchandise that is normally determined by the sum of labour used to bring forth the merchandise, capital was separated into two classs, changeless and variable, where changeless capital is the capital from machinery and natural stuffs that depreciated hence can non be included in the factors of production and the variable capital that is the labour capital, which is the exclusive power of valuing the merchandises produced. Last but non least, one of the factors I am analyzing in this paper, is engineering which harmonizing to Marx and Socialists in general, is a chief beginning of economic development, as it facilitates the production procedure on the labor and is more productive and efficient, they besides argued that it is the ground for the economic development in the capitalist systems.

Capitalism Socialism

Political and economical power accessible to all Economic and political power in the manus of the authorities

Capital ownership for all Capital ownership controlled the authorities

Capital incomes beyond ingestion capacity for a affluent elect Adequate and unafraid incomes from capital for a regulating elite

Individualist system Collectivist system

Materialistic political orientation and system which ignores the turning income insecurity and inequality Materialistic political orientation and system based on and furthering the absolute dependence of all citizens on the province for their income security and wellbeing

Labor-centric, classical laissez-faire economic system Labor-centric Marxist and Keynesian systems

Win-lose, zero-sum, scarceness, orientation Lose-lose, zero-sum, scarceness, forced-levelling orientation

Forfeits justness for efficiency Sacrifices efficiency for leftist “ justness ”

Wage system ( occupations for the many, capital ownership for the few ) Wage system ( occupations for all, capital ownership for none )

Equality of chance to work ; inequality of chance to have Forced responsibility to work and forced equality of consequences as determined by regulating elite

Protects private belongings rights eliminates rights of private belongings and seting control over agencies of production in custodies of the authorities

“ Hands-off ” function of the province sing monopolisation of ownership and command Economic power is wholly centralized in or regulated by the province

Monetary values and rewards are unprotected from planetary competition Monetary values and rewards controlled by authorities

Capital recognition available to all All recognition controlled by province

Technology controlled by private sectors Technology controlled by the authorities

Basically these two systems have more into them than merely, engineering, economic development, labor, and capital ; they vary in a really of import figure which is authorities intercession along with certain different sectors summarized in the tabular array below:

In less words, Capitalism is based on a free market, least authorities intercession in the economic procedures, Labors have to depend on their accomplishments, instruction and cognition to be able to acquire paid and unrecorded decently, yet they are free to make any concern, and purchase and sell in the market. Competition is really high due to the free concern system, which enhances monetary value disposition, go forthing the society better off. Furthermore, private ownership and belongings is accepted for all the people as in, they are free to have anything they pay for, moreover, concern is dealt with harmonizing to demand and supply, which pushes the monetary values to increase or diminish ( as the demand addition monetary value addition, as supply addition monetary value lessening ) . On the other manus a socialist system is based on authorities having all factors of production, authorities puting a standard monetary value for goods and services, administering wealth and rewards to all labors, happening occupations and employment for everyone in the society, concentrating on the well being and the equality among citizens, instead than heightening competition and competition, all belongings is owned by the province, and concern is based on the States good being and determinations of what goods shall be sold and at what monetary value and in what measures.

Advantages and Disadvantages:

The advantages of Capitalism chiefly circulates around the distinctive freedom the people have, as they are allowed to get down up a concern whenever they can, they can come in and go forth the market freely which enhances competition. This competition increases supply, hence monetary values of normal goods will diminish and quality of goods will increase, go forthing the society better off. Besides when the market has all these concerns coming in and out, system corruptness do non take topographic point as there arent any specific people commanding everything to their benefits, therefore corruptness will least happen in a capitalistic system. Furthermore, making great competition between houses and concerns, will take each house to heighten its engineerings and inventions, coming up with new goods and services that will all profit the consumer on the long tally. On the other manus, capitalist economy leads to income inequality as the hapless will stay hapless since they lack the ability to get down a concern and do money, as for the rich, they will go richer as they have all the tools that leads to monopoly and the dismantle of the poorer. Furthermore this system will make high unemployment rates, as every person is self-dependent to acquire an instruction and happen a occupation and do money, if you dont have the ability to work you will stop up impotently unemployed with no 1 to assist you out. Besides one of the disadvantages of capitalist economy highlighted by Karl Marx, it states that:

The capitalists will confront falling net income degrees and the lone solution to this job will be increased development of labour, development of labour will affect cut downing rewards in order to achieve coveted excess values, there will be a rise in unemployment and this will be due to engineering promotion and population growing, the high unemployment will increase labour supply enabling capitalist to farther exploit labour. ( Hollander, 2008 )

Monopoly capitalist will take to increased changeless capital and as more and more workers become unemployed and due to farther development of labour through low pay rates at that place will be a revolution where the capitalist signifier of society will be replaced by the communist signifier of society. ( Hollander, 2008 )

As for socialisms advantages, foremost this system promotes equality among the society, where everyone is treated precisely the same, everyone is employed and everyone gets paid an equal pay at the terminal of the month, 2nd, the authorities provides its people with everything they need, health care, instruction, etc… Third the authorities puts all the regulations for the economic system, the political relations, the judicial system and the society, hence no monopolistic power to work the hapless, but the hapless doesnt exist. Socialism has faced a batch of unfavorable judgment, and the chief point is that, although there are no monopolistic powers working the people and everyone is treated every bit, but the authorities or the province that is commanding everything becomes the working power. As the province controls all resources, all the wealth the labors make, all the concerns working on its lands, having every piece of land and administering really small to its citizens is what puts socialism up to the inquiry. In construct, the theory is perfect on the human degree, but in action, most provinces functionaries exploit the labor, administer really small to them, maintaining all the wealth for themselves, and holding the power in the custodies of a little figure of people will take to dictatorship, as whats go oning in Venezuela and Cuba, there the people are hapless but their authoritiess are rich. Socialism promotes corruptness as there are no supervisors or controls on the elites who holds the factors of production.

In short the tabular array provided will demo the pros and cons of socialism and capitalist economy:


Socialism Capitalism

Income Equality for all Competition leads to take down monetary values and higher quality of goods and services

Employment for all Innovation and engineering additions

Government provides health care, instruction, security and income for its people Least signifiers of corruptness

No monopolies takes topographic point as monetary values are fixed Economic freedom and concerns induction, creates chances for people to do as much money as they work for


Socialism Capitalism

Exploitation of labors Monopoly

Corruptness Unemployment

High degrees of poorness therefore high degrees of offense Income Inequality

State owns all the agencies of production, economic system is controlled, no entry of new concerns unless under the power of the State Big spread between the rich and the hapless, where the hapless have no hope in keeping a good life criterions, and the rich exploits the hapless as they are the 1s who can open and shut concerns as they own the bulk of the capital.


As I have merely laid out the advantages and disadvantages, the facts on both theories and a brief sum-up of what they consist off, its clip to come up with the economic theory that have minimum disadvantages, by uniting both systems, Socialism and Capitalism.

First, we must hold a free economic system, where concerns can vie against each other freely, this will advance promotions in engineering, invention and quality of goods and services produced, it will besides advance monetary value lessening due to an addition in supply, which will go forth the society better away, and the economic system ramping in assortment and growing.

Second, we must hold authorities intercession in certain facets of the state, like health care, instruction and substructure, as these three are the rudimentss for any future economic growing. When the society is healthy and good educated, it will derive more accomplishments and features that allow them to open concerns and houses that will take to economic growing and development.

Third, authoritiess and private concerns should work together in order to be able to construct up the perfect employment system, where no 1 is left behind, this manner houses and concern will hold their labors, and authoritiess will acquire rid of unemployment. Having full employment will take to a better efficient and effectual working society, which will finally take to economic growing and development, which will take the state to progress and go more powerful.

Fourth, holding a Social political system combined with a free market will cut down the spread between the rich and hapless, as the authorities will be supplying those who are non able to work, with nice life criterions of basic wellness, instruction and shelter.

Fifth, keeping free trade is indispensable for economic development ( capitalist economy ) , but holding trade excesss is whats perfect for economic growing, in order to make that, the houses and authoritiess should unite their attempts in making fabricating goods industries that will make full up the domestic market and have a excess for free trade. This will hike the economic system upwards and will open the market to the universe, besides importing less expensive goods and services than if manufactured by the state, i.e. do usage of comparative advantage.


Although the battle and argument between these two economic theories have been traveling on for every bit long as history can take us, yet history has proved the incompatibility of these theories by first the failure of the Soviet Union and the hapless conditions the Socialist states presents are populating in, like Venezuela, Cuba, Sweden, Greece, Russia, Vietnam, and Syria. On the other manus, the universe was heartening for Adam Smith few old ages ago, as Capitalism was demoing success and stableness added to great economic power taking to political power, until 2008 where the whole economic system crashed, throwing the universe into its worst economic recession since 1929. The few economic systems that survived this economic downswing inspired the universe with the best economic system ; one of few was Singapore, a state with no natural resources whatsoever, and a combined assorted economic system of Socialism and Capitalism. The survey of this state itself, has inspired me to brood into the chief economic theories of Marx and Smith, in order to come up with this system that if practiced right and ethically will take to economic growing and development ; and the president of the biggest capitalist state of the universe, Barak Obama, certain supports me on this, as he has merely been go throughing measures that supports authorities intercession in the state societal public assistance, on the other manus Hu Jintao, the president of the biggest socialist state in the universe, can non hold more that holding a free market combined with a socialist attack is the best thing to make to keep a countrys power economically and therefore political. As Chinas economic system boosted one time they opened their markets, and the U.Ss market recovered after authorities intercession in the market and bailouts provided to those who went insolvent.


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