an argumentative essay on capitalism is better than communism

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Arguments for Capitalism and Socialism

Author: Thomas Metcalf Category: Social and Political Philosophy Wordcount: 993

Editor’s Note: This essay is the second in a two-part series authored by Tom on the topic of capitalism and socialism. The first essay, on defining capitalism and socialism, is available here .

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Suppose I had a magic wand that allowed one to produce 500 donuts per hour. I say to you, “Let’s make a deal. You use this wand to produce donuts, and then sell those donuts for $500 and give me the proceeds. I’ll give you $10 for every hour you spend doing this. I’ll spend that time playing video games.”

My activity—playing video games—seems pretty easy. Your job requires much more effort. And I might end up with a lot more money than $10 for every hour you work. How is that fair?

In the story, the magic wand is analogous to capital goods : assets (typically machinery and buildings, such as robots, sewing machines, computers, and factories) that make labor, or providing goods and services, more productive. Standard definitions of ‘capitalism’ and ‘socialism’ indicate that, in general, capitalist systems permit people to privately own and control capital goods, whereas socialist systems do not. And capitalist systems tend to contain widespread wage labor, absentee ownership, and property income; socialist systems generally don’t. [1]

Capital goods are morally interesting. As in the case of the magic wand, ownership of capital goods can allow one to make lots of money without working. In contrast, other people have to work for a living. This might be unfair or harmful. This essay surveys and explains the main arguments in this debate. [2]

1. Capitalism

Arguments for capitalism tend to hold that it’s beneficial to society for there to be incentives to produce, own, and use capital goods like the magic wand, or that it’s wrong to forcibly prevent people from doing so. Here are four arguments for capitalism, stated briefly:

(1) Competition: ‘When individuals compete with each other for profits, this benefits the consumer.’ [3]

Critique : Competition also may encourage selfish and predatory behavior. Competition can also occur in some socialist systems. [4]

(2) Freedom: ‘Preventing people from owning capital restricts their freedom. Seizing their income in the form of taxes may constitute theft.’ [5]

Critiques : Maybe owning property, itself, restricts freedom, by excluding others from using it. [6] If I announce that I own something, I may be thereby announcing that I will force you not to use it. And maybe “freedom” requires the ability to pursue one’s own goals, which in turn requires some amount of wealth. [7] Further, if people must choose between work and starvation, then their choice to work may not be really “free” anyway. [8] And the general distribution of wealth is arguably the result of a morally arbitrary “natural lottery,” [9] which may not actually confer strict property-rights over one’s holdings. [10] I didn’t choose where I was born, nor my parents’ wealth, nor my natural talents, which allow me to acquire wealth. So perhaps it’s not a violation of my rights to take some of that property from me.

(3) Public Goods: [11] ‘When objects, including capital, must be shared with others, then no one is strongly motivated to produce them. In turn, society is poorer and labor is more difficult because production is inefficient.’ [12]

Critique : People might be motivated to produce capital for altruistic reasons, [13] or may be coerced in some socialist systems to do so. Some putatively socialist systems allow for profitable production of capital goods. [14]

  (4) Tragedy of the Commons: ‘When capital, natural resources, or the environment are publicly controlled, no one is strongly motivated to protect them.’ [15]

Critique : As before, people might be motivated by altruism. [16] Some systems with partially-private control of capital may nevertheless qualify as socialist. [17]

2. Socialism

Arguments for socialism tend to hold that it’s unfair or harmful to have a system like in the story of the magic wand, a system with widespread wage labor and property income. Here are four arguments for socialism, stated briefly:

(1) Fairness: ‘It’s unfair to make money just by owning capital, as is possible only in a capitalist system.’ [18]

Critique : Perhaps fairness isn’t as morally important as consent, freedom, property rights, or beneficial consequences. And perhaps wage laborers consent to work, and capital owners have property rights over their capital. [19]

(2) Inequality: ‘When people can privately own capital, they can use it to get even richer relative to the poor, and the wage laborers are left poorer and poorer relative to the rich, thereby worsening the inequality that already exists between capital-owners and wage-laborers.’ [20]

Critiques : This is a disputable empirical claim. [21] And perhaps the ability to privately own capital encourages people to invest in building capital goods, thereby making goods and services cheaper. Further, perhaps monopolies commonly granted by social control over capital are “captured” by wealthy special-interests, [22] which harm the poor by enacting regressive laws. [23]

(3) Labor: ‘Wage laborers are alienated from their labor, exploited, and unfree because they must obey their bosses’ orders.’ [24]

Critiques : If this alienation and exploitation are net-harmful to workers, then why do workers consent to work? If the answer is ‘because they’ll suffer severe hardship otherwise,’ then strictly speaking, this is a critique of allowing poverty, not a critique of allowing wage labor.

(4) Selfishness: ‘When people can privately own capital, they selfishly pursue profit above all else, which leads to further inequality, environmental degradation, non-productive industries, economic instability, colonialism, mass murder, and slavery.’

Critique : These are also disputable empirical claims. Maybe when people are given control over socially -owned capital, they selfishly extract personal wealth from it. [25] Maybe when the environment is socially controlled, everyone is individually motivated to over-harvest and pollute. [26] State intervention in the economy may be a major cause of the existence of non-productive industry, pollution, and economic instability. [27] Last, some of the worst perpetrators of historical evils are governments, not private corporations. [28]

  3. Conclusion

It is difficult to justifiably draw general conclusions about what a pure capitalism or socialism would be like in practice. [29] But an examination of the merits and demerits of each system gives us some guidance about whether we should move a society in either direction.

[1] See my Defining Capitalism and Socialism for an explanation of how to define these systems.

[2] For much-more-extensive surveys, see Gilabert and O’Neill n.d. and Arnold n.d.

[3] By analogy, different people might try to construct even better magic wands, or use them for better purposes. Typically the benefits are thought to include lower prices, increased equality, innovation, and more options. See Smith 2003 [1776]: bk. 1, ch. 2 and Friedman and Friedman 1979: ch. 1.

[4] Schweickart 2011 presents an outline of a market socialism comprising much competition.

[5] By analogy, if I legitimately own the magic wand, then what gives you the right to threaten violence against me if I don’t give it to you? Nozick 1974: ch. 7 presents a general discussion of how socialism might restrict freedom and how taxation may be akin to theft or forced labor.

[6] Spencer 1995 [1871]: 103-4 and Zwolinski 2015 discuss how property might require coercion. See also Scott 2011: 32-33. Indeed, property in general may essentially be theft (Proudhon 1994 [1840]).

[7] See Rawls (1999: 176-7) for this sort of argument. See John Rawls’ ‘A Theory of Justice’ by Ben Davies for an introduction.

[8] See e.g. Burawoy 1979 for a discussion of whether workers consent to work. See also Marx 2004 (1867): vol. IV, ch. VII.

[9] Rawls 1999: 62 ff.

[10] Relatedly, while one may currently hold capital, one may greatly owe the existence of that product to many other people or to society in general. See e.g. Kropotkin 2015 [1913]: chs. 1-3 and Murphy and Nagel 2002.

[11] A public good is a good that is non-excludable (roughly, it is expensive to prevent people from using it) and non-rivalrously consumed (roughly, preventing people from using it causes harm without benefiting anyone) (Cowen 2008).

[12] By analogy, why bother building magic wands at all if someone else is immediately going to take it from me and start using it? Standard economic theory holds that public goods (non-excludable and non-rivalrous goods) will, on the free market, be underproduced. This is normally taken to be an argument for government to produce public goods. See e.g. Gaus 2008: 84 ff.

[13] For example, according to Marxist communism, the ideal socialist society would comprise production for use, not for profit. See e.g. Marx 2004 [1867]: vol. 1 ch. 7. See also Kropotkin 1902, which is a defense of the general claim that humans will tend to be altruistic, at least in anarcho-communist systems.

[14] In a market-socialist system (cf. Schweickart 2011), it is possible to make capital goods and sell them at a profit that gets distributed to the laborers.

[15] By analogy, if I know that anyone in the neighborhood can use the magic wand, I might not invest my own time and money to maintain it. But if it’s mine alone, I care a lot more about maintaining it. This is the basis of the well-known ‘Tragedy of the Commons’ alleged problem. See, e.g., Hardin 1968.

[16] Kropotkin 1902.

[17] As before, in Schweickart’s (2011) system, firms will be motivated to protect capital if they must pay for capital’s deprecation, even though the capital is owned by society.

[18] By analogy, as noted, the wand-owner might make lots of money for basically doing no work. Sherman 1995: 130; Schweickart 2011: § 3.2.

[19] See e.g. Friedman 2002 for a collection of consequentialist arguments for capitalism, and Nozick 1974: chs. 3 and 7 for some arguments concerning freedom and capitalist systems.

[20] By analogy, the wand-owner might accumulate so much money as to start buying other magic wands and renting those out as well. See e.g. Piketty 2014.

[21] Taking the world as a whole, wealth in absolute terms has been increasing greatly, and global poverty has been decreasing steeply, including in countries that have moved in mostly capitalist directions. See e.g. World Bank Group 2016: 3. Friedman 1989: ch. 5 argues that capitalism is responsible for the improved position of the poor today compared to the past.

[22] See e.g. Friedman 1989: ch. 7 for a discussion of regulatory capture.

[23] Friedman 2002: chs. IV and IX; Friedman 1989: ch. 4.

[24] By analogy, the person I’ve hired to use the wand might need to obey my orders, because they don’t have a wand of their own to rent out, and they might starve without the job I’ve offered them. Marx 2009 [1932] introduces and develops this concept of alienation. See Dan Lowe’s 2015 Karl Marx’s Conception of Alienation for an overview. See also Anderson 2015 for an argument that private corporations coercively violate their workers’ freedom.

[25] See n. 21 above. This result is most-obvious in countries in which dictators enrich themselves, but there is nothing in principle preventing rulers of ostensibly democratic countries from doing so as well. Presumably this worry explains the presence of the Emoluments Clause in the U. S. Constitution.

[26] See n. 14.

[27] See e.g. Friedman 2002: chs. III and V and the example of compliance costs for regulations.

[28] See Huemer 2013: ch. 6 ff.

[29] All or nearly all large-scale economies have been mixed economies. In contrast, a pure capitalism would be an anarcho-capitalism (see e.g. Gaus 2010: 75 ff. and Huemer 2013), and a pure socialism wouldn’t permit people to privately own scissors. See also the entry “Defining Capitalism and Socialism.”

Anderson, Elizabeth. 2015. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It) . Princeton, NJ: Princeton University Press.

Arnold, Samuel. N. d. “Socialism.” In The Internet Encyclopedia of Philosophy (ed.), The Internet Encyclopedia of Philosophy , URL = < https://www.iep.utm.edu/socialis/ >

Burawoy, Michael. 1979. Manufacturing Consent: Changes in the Labor Process under Monopoly Capitalism . Chicago, IL and London, UK: The University of Chicago Press.

Cohen, G. A. 2009. Why Not Socialism? Princeton, NJ: Princeton University Press.

Cowen, Tyler. 2008. “Public Goods.” In David R. Henderson (ed.), The Concise Encyclopedia of Economics . Indianapolis, IN: Liberty Fund.

Dagger, Richard and Terence Ball. 2019. “Socialism.” In Encyclopædia Britannica, inc. (ed.), E ncyclopædia Britannica . Retrieved from https://www.britannica.com/topic/socialism

Dahl, Robert A. 1993. “Why All Democratic Countries have Mixed Economies.” Nomos 35: 259-82.

Dictionary.com. N.d. “Capitalism.” URL = < https://www.dictionary.com/browse/capitalism >

Editors of Encyclopædia Britannica. 2019. “Henri de Saint-Simon.” In Encyclopædia Britannica , Retrieved from https://www.britannica.com/biography/Henri-de-Saint-Simon

Friedman, David D. 1989. The Machinery of Freedom: Guide to a Radical Capitalism , Second Edition. La Salle, IL: Open Court Publishing Company.

Friedman, Milton. 2002. Capitalism and Freedom . Chicago, IL: University of Chicago Press.

Friedman, Milton and Rose Friedman. 1979. Free to Choose: A Personal Statement . New York, NY: Harcourt Brace.

Gaus, Gerald. 2010. “The Idea and Ideal of Capitalism.” In George G. Brenkert and Tom L. Beauchamp (eds.), The Oxford Handbook of Business Ethics . New York, NY: Oxford University Press.

Gaus, Gerald. 2008. On Philosophy, Politics, and Economics . Belmont, CA: Thomson Wadsworth.

Gilabert, Pablo and Martin O’Neill. 2019. “Socialism.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy . Retrieved from https://plato.stanford.edu/entries/socialism/ .

Hardin, Garrett. 1968. “The Tragedy of the Commons.” Science 162(3859): 1243-48.

Herzog, Lisa. 2019. “Markets.” In E. N. Zalta (ed.), The Stanford Encyclopedia of Philosophy , Spring 2019 Edition, URL =https://plato.stanford.edu/archives/spr2019/entries/markets/

Huemer, Michael. 2013. The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey . Houndmills, UK and New York, NY: Palgrave Macmillan.

Investopedia. 2019. “Mixed Economic System.” Retrieved from https://www.investopedia.com/terms/m/mixed-economic-system.asp

Kropotkin, P. 1902. Mutual Aid: A Factor of Evolution . New York, NY: McClure Phillips & Co.

Kropotkin, Peter. 2015 [1913]. The Conquest of Bread. London, UK: Penguin Classics.

Lowe, Dan. 2015. “Karl Marx’s Conception of Alienation.” 1000-Word Philosophy . Retrieved from https://1000wordphilosophy.com/2015/05/13/karl-marxs-conception-of-alienation/.

Marx, Karl. 2009 [1932]. “Economic and Philosophic Manuscripts of 1844.” In Karl Marx and Friedrich Engels, Economic and Philosophic Manuscripts of 1844 and the Communist Manifesto , tr. Martin Milligan (Amherst, NY: Prometheus Books), pp. 13-202.

Marx, Karl. 2004 [1867]. Capital: A Critique of Political Economy, Volume One . New York, NY: Penguin Classics.

Merriam-Webster. N.d. “Capitalism.” URL = < https://www.merriam-webster.com/dictionary/capitalism >

Mill, John Stuart. 1965 [1848]. Principles of Political Economy with Some of Their Applications to Social Philosophy, Volume I: The Principles of Political Economy I , ed. J. M. Robson. Toronto, ON: University of Toronto Press.

Murphy, Liam and Thomas Nagel. 2002. The Myth of Ownership: Taxes and Justice. Oxford, UK: Oxford University Press.

Nozick, Robert. 1974. Anarchy, State, and Utopia . New York, NY: Basic Books.

Oxford English Dictionary, N.d. a. “Capital.” Retrieved from http://www.oed.com/view/Entry/27450

Oxford English Dictionary. N.d. b. “Capitalism.” Retrieved from http://www.oed.com/view/Entry/27454

Oxford English Dictionary. N.d. c. “Mixed Economy.” Retrieved from http://www.oed.com/view/Entry/120348

Oxford English Dictionary. N.d. d. “Socialism.” Retrieved from http://www.oed.com/view/Entry/183741

Piketty, Thomas. 2014. Capital in the Twenty-First Century , tr. Arthur Goldhammer. Cambridge, MA: Harvard University Press.

Proudhon, Pierre-Joseph. 1994 [1840]. What is Property? Ed. Donald R. Kelley and Bonnie G. Smith. Cambridge, UK: Cambridge University Press.

Rawls, John. 1999. A Theory of Justice, Revised Edition . Cambridge, MA: Harvard University Press.

Schweickart, David. 2011. After Capitalism , Second Edition. Lanham, MD: Rowman & Littlefield.

Scott, Bruce R. 2011. Capitalism: Its Origins and Evolution as a System of Governance . New York, NY: Springer Science+Business Media.

Sherman, Howard J. 1995. Reinventing Marxism . Baltimore, MD: Johns Hopkins University Press.

Smith, Adam. 2003 [1776]. The Wealth of Nations . New York, NY: Bantam Dell.

Wikipedia. N.d. “Capitalism.” URL =

Wiktionary. N.d. “Capitalism.” URL =

World Bank Group. 2016. Global Monitoring Report 2015/2016: Development Goals in an Era of Demographic Change. Washington, DC: World Bank Group and The International Monetary Fund.

Zwolinski, Matt. 2015. “Property Rights, Coercion, and the Welfare State: The Libertarian Case for a Basic Income for All.” The Independent Review 19(4): 515-29

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Tom Metcalf is an associate professor at Spring Hill College in Mobile, AL. He received his PhD in philosophy from the University of Colorado, Boulder. He specializes in ethics, metaethics, epistemology, and the philosophy of religion. Tom has two cats whose names are Hesperus and Phosphorus. shc.academia.edu/ThomasMetcalf

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Home — Essay Samples — Economics — Capitalism — Essay On Capitalism And Communism

Essay on Capitalism and Communism

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Published: Mar 13, 2024

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Role of government, distribution of wealth, impact on society and economy.

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Essay Capitalism vs Communism

Socialism vs. Capitalism: What Is the Difference?

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• U.S. Economy
• Supply & Demand
• Archaeology
• B.S., Texas A&M University

Socialism and capitalism are the two main economic systems used in developed countries today. The main difference between capitalism and socialism is the extent to which the government controls the economy.

Key Takeaways: Socialism vs. Capitalism

• Socialism is an economic and political system under which the means of production are publicly owned. Production and consumer prices are controlled by the government to best meet the needs of the people.
• Capitalism is an economic system under which the means of production are privately owned. Production and consumer prices are based on a free-market system of “supply and demand.”
• Socialism is most often criticized for its provision of social services programs requiring high taxes that may decelerate economic growth.
• Capitalism is most often criticized for its tendency to allow income inequality and stratification of socio-economic classes.

Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.

The United States is generally considered to be a capitalist country, while many Scandinavian and Western European countries are considered socialist democracies. In reality, however, most developed countries—including the U.S.—employ a mixture of socialist and capitalist programs.

Capitalism Definition

Capitalism is an economic system under which private individuals own and control businesses, property, and capital—the “means of production.” The volume of goods and services produced is based on a system of “ supply and demand ,” which encourages businesses to manufacture quality products as efficiently and inexpensively as possible.

In the purest form of capitalism— free market or laissez-faire capitalism—individuals are unrestrained in participating in the economy. They decide where to invest their money, as well as what to produce and sell at what prices. True laissez-faire capitalism operates without government controls. In reality, however, most capitalist countries employ some degree of government regulation of business and private investment.

Capitalist systems make little or no effort to prevent income inequality . Theoretically, financial inequality encourages competition and innovation, which drive economic growth. Under capitalism, the government does not employ the general workforce. As a result, unemployment can increase during economic downturns . Under capitalism, individuals contribute to the economy based on the needs of the market and are rewarded by the economy based on their personal wealth.

Socialism Definition 

Socialism describes a variety of economic systems under which the means of production are owned equally by everyone in society. In some socialist economies, the democratically elected government owns and controls major businesses and industries. In other socialist economies, production is controlled by worker cooperatives. In a few others, individual ownership of enterprise and property is allowed, but with high taxes and government control. 

The mantra of socialism is, “From each according to his ability, to each according to his contribution.” This means that each person in society gets a share of the economy’s collective production—goods and wealth—based on how much they have contributed to generating it. Workers are paid their share of production after a percentage has been deducted to help pay for social programs that serve “the common good.” 

In contrast to capitalism, the main concern of socialism is the elimination of “rich” and “poor” socio-economic classes by ensuring an equal distribution of wealth among the people. To accomplish this, the socialist government controls the labor market, sometimes to the extent of being the primary employer. This allows the government to ensure full employment even during economic downturns. 

The Socialism vs. Capitalism Debate  

The key arguments in the socialism vs. capitalism debate focus on socio-economic equality and the extent to which the government controls wealth and production.

Ownership and Income Equality 

Capitalists argue that private ownership of property (land, businesses, goods, and wealth) is essential to ensuring the natural right of people to control their own affairs. Capitalists believe that because private-sector enterprise uses resources more efficiently than government, society is better off when the free market decides who profits and who does not. In addition, private ownership of property makes it possible for people to borrow and invest money, thus growing the economy. 

Socialists, on the other hand, believe that property should be owned by everyone. They argue that capitalism’s private ownership allows a relatively few wealthy people to acquire most of the property. The resulting income inequality leaves those less well off at the mercy of the rich. Socialists believe that since income inequality hurts the entire society, the government should reduce it through programs that benefit the poor such as free education and healthcare and higher taxes on the wealthy. 

Consumer Prices

Under capitalism, consumer prices are determined by free market forces. Socialists argue that this can enable businesses that have become monopolies to exploit their power by charging excessively higher prices than warranted by their production costs. 

In socialist economies, consumer prices are usually controlled by the government. Capitalists say this can lead to shortages and surpluses of essential products. Venezuela is often cited as an example. According to Human Rights Watch, “most Venezuelans go to bed hungry.” Hyperinflation and deteriorating health conditions under the socialist economic policies of President Nicolás Maduro have driven an estimated 3 million people to leave the country as food became a political weapon. 

Efficiency and Innovation 

The profit incentive of capitalism’s private ownership encourages businesses to be more efficient and innovative, enabling them to manufacture better products at lower costs. While businesses often fail under capitalism, these failures give rise to new, more efficient businesses through a process known as “creative destruction.” 

Socialists say that state ownership prevents business failures, prevents monopolies, and allows the government to control production to best meet the needs of the people. However, say capitalists, state ownership breeds inefficiency and indifference as labor and management have no personal profit incentive. 

Healthcare and Taxation 

Socialists argue that governments have a moral responsibility to provide essential social services. They believe that universally needed services like healthcare, as a natural right, should be provided free to everyone by the government. To this end, hospitals and clinics in socialist countries are often owned and controlled by the government. 

Capitalists contend that state, rather than private control, leads to inefficiency and lengthy delays in providing healthcare services. In addition, the costs of providing healthcare and other social services force socialist governments to impose high progressive taxes while increasing government spending, both of which have a chilling effect on the economy. 

Capitalist and Socialist Countries Today 

Today, there are few if any developed countries that are 100% capitalist or socialist. Indeed, the economies of most countries combine elements of socialism and capitalism.

In Norway, Sweden, and Denmark—generally considered socialist—the government provides healthcare, education, and pensions. However, private ownership of property creates a degree of income inequality. An average of 65% of each nation’s wealth is held by only 10% of the people—a characteristic of capitalism.

The economies of Cuba, China, Vietnam, Russia, and North Korea incorporate characteristics of both socialism and communism .

While countries such as Great Britain, France, and Ireland have strong socialist parties, and their governments provide many social support programs, most businesses are privately owned, making them essentially capitalist.

The United States, long considered the prototype of capitalism, isn’t even ranked in the top 10 most capitalist countries, according to the conservative think tank Heritage Foundation. The U.S. drops in the Foundation’s Index of Economic Freedom due to its level of government regulation of business and private investment.

Indeed, the Preamble of the U.S. Constitution sets one the nation’s goals to be “promote the general welfare.” In order to accomplish this, the United States employs certain socialist-like social safety net programs , such as Social Security, Medicare, food stamps , and housing assistance.

Contrary to popular belief, socialism did not evolve from Marxism . Societies that were to varying degrees “socialist” have existed or have been imagined since ancient times. Examples of actual socialist societies that predated or were uninfluenced by German philosopher and economic critic Karl Marx were Christian monastic enclaves during and after the Roman Empire and the 19th-century utopian social experiments proposed by Welsh philanthropist Robert Owen. Premodern or non-Marxist literature that envisioned ideal socialist societies include The Republic by Plato , Utopia by Sir Thomas More, and Social Destiny of Man by Charles Fourier. 

Socialism vs. Communism

Unlike socialism, communism is both an ideology and a form of government. As an ideology, it predicts the establishment of a dictatorship controlled by the working-class proletariat established through violent revolution and the eventual disappearance of social and economic class and state. As a form of government, communism is equivalent in principle to the dictatorship of the proletariat and in practice to a dictatorship of communists. In contrast, socialism is not tied to any specific ideology. It presupposes the existence of the state and is compatible with democracy and allows for peaceful political change.

Capitalism 

While no single person can be said to have invented capitalism, capitalist-like systems existed as far back as ancient times. The ideology of modern capitalism is usually attributed to Scottish political economist Adam Smith in his classic 1776 economic treatise The Wealth of Nations. The origins of capitalism as a functional economic system can be traced to 16th to 18th century England, where the early Industrial Revolution gave rise to mass enterprises, such as the textile industry, iron, and steam power . These industrial advancements led to a system in which accumulated profit was invested to increase productivity—the essence of capitalism.

Despite its modern status as the world’s predominant economic system, capitalism has been criticized for several reasons throughout history. These include the unpredictable and unstable nature of capitalist growth, social harms, such as pollution and abusive treatment of workers, and forms of economic disparity, such as income inequality . Some historians connect profit-driven economic models such as capitalism to the rise of oppressive institutions such as human enslavement , colonialism , and imperialism .

Sources and Further Reference

• “Back to Basics: What is Capitalism?” International Monetary Fund , June 2015, https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
• Fulcher, James. “Capitalism A Very Short Introduction.” Oxford, 2004, ISBN 978-0-19-280218-7.
• de Soto, Hernando. The Mystery of Capital.” International Monetary Fund , March, 2001, https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
• Busky, Donald F. “Democratic Socialism: A Global Survey.” Praeger, 2000, ISBN 978-0-275-96886-1.
• Nove, Alec. “The Economics of Feasible Socialism Revisited.” Routledge, 1992, ISBN-10: 0044460155.
• Newport, Frank. “The Meaning of ‘Socialism’ to Americans Today.” Gallup , October 2018), https://news.gallup.com/opinion/polling-matters/243362/meaning-socialism-americans-today.aspx.
• What Is Socialism? Definition and Examples
• The Differences Between Communism and Socialism
• What Is Communism? Definition and Examples
• What Is Capitalism?
• What Is Neoliberalism? Definition and Examples
• What Is Anarchy? Definition and Examples
• Command Economy Definition, Characteristics, Pros and Cons
• What Is a Traditional Economy? Definition and Examples
• What Is a Free Market Economy?
• A Mixed Economy: The Role of the Market
• What Is Classical Liberalism? Definition and Examples
• The Main Points of "The Communist Manifesto"
• Understanding Karl Marx's Class Consciousness and False Consciousness
• What Is an Oligarchy? Definition and Examples
• Vladimir Lenin Quotes
• What Is Cultural Hegemony?

Communism Versus Capitalism

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For capitalism: Free market, Free enterprise; For communism: Collectivism

“Capitalism can be described, in simple terms, as a social system of production and distribution , dominated by markets (markets being where buyers and sellers meet to trade goods and services).” (See “Capitalism” , in this volume). Communism can be described as a social system of production and distribution , dominated by command (command being where the details of production and distribution are determined by the state). Communist economies are associated with the central government, long-term planning of production and distribution; capitalism is associated with production and distribution adapting to market pressures that lead to socially beneficial results. While capitalist economies have aspects of command (i.e., the judiciary, national defense, and other roles of the state) that control some aspects of production and distribution, markets play the dominant role. Similarly, communist economies often...

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Marx K (1867) (Reprinted 1967) Capital, 3 vols. International Publishers, New York

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Marx K, Engels F (1848) (Reprinted 2002) The communist manifesto. Penguin, New York

Smith A (1776) (Reprinted 1971) An inquiry into the nature and causes of the wealth of nations. Cannan E (ed) Methuen, London

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Phillips, T.F. (2023). Communism Versus Capitalism. In: Poff, D.C., Michalos, A.C. (eds) Encyclopedia of Business and Professional Ethics. Springer, Cham. https://doi.org/10.1007/978-3-030-22767-8_232

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Capitalism v. Communism: Introduction to Arguments

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Sat / act prep online guides and tips, the 9 key capitalism vs socialism differences, explained.

General Education

Capitalism vs socialism is often framed as the major political face-off of our time. People often think of capitalism vs socialism as two totally opposite political ideologies. But are they really completely different systems? And should we compare capitalism and socialism at all? 

Here’s the facts: it does make sense to compare capitalism and socialism because they’re the main economic systems used in developed countries today. But to truly understand the differences between capitalism and socialism, we have to look to unbiased sources . These terms refer to complex philosophies that can’t be summed up by a meme, stereotype, or hot take! 

Capitalism vs socialism can be a complex topic, which is why we’re here to help you gain an objective understanding of capitalism vs socialism. In this article, we’ll provide a full guide to capitalism vs socialism that includes the following: 

• A deep dive into socialism, and a deep dive into capitalism
• A guide to the differences between democratic socialism vs capitalism
• A socialism vs capitalism chart with side-by-side comparisons
• A brief comparison of these concepts and other political theories, particularly capitalism vs socialism vs communism

Let’s get started!

Featured Image: Expert364/ Wikimedia

Capitalism vs Socialism: What’s the Difference?

Capitalism is an economic system in which the means of production are under private ownership, rather than government control. The means of production generally refers to entrepreneurship, capital goods, natural resources, and labor. Capitalism depends on a free market economy driven by supply and demand. 

In simplest terms, socialism is an umbrella term for types of economic systems that aim to eradicate inequality through shared ownership. To socialists, wealth should belong to the  workers who make the products, rather than groups of private owners. In practice, this means that the means of production are run and controlled by the government, which represents the will of the people.

As such, socialism is ultimately designed to increase social justice and equality regardless of class, race, or other socioeconomic factors . 

As models for economic systems, the primary difference between capitalism and socialism is the extent to which the government controls the economy. Capitalists believe that private enterprise, or privately owned business, is better at using economic resources. Asa result, capitalism argues that private business is what facilitates equitable distribution of wealth through a free market. In contrast, socialists believe that income inequality is most effectively managed through tight control of businesses and redistribution of wealth through social programs that are run by the government, such as free healthcare, education, and housing.

At first glance, capitalism and socialism might seem entirely incompatible. The truth is, most developed countries today implement some combination of capitalist and socialist practices in their economic structure and domestic policy. To help you understand how capitalism and socialism can be integrated in practice, we’ll do a deep dive into both socialism and capitalism, starting with socialism, next. 

What Is Socialism?

We’ve covered the core differences between capitalism vs socialism, so let’s take a closer look at socialism next. Below, we’ll give you a more comprehensive definition of socialism, go over the history of the term, explain democratic socialism vs capitalism, and provide some examples of socialist governments today . 

Because socialism and communism are often easily confused, we’ll also touch on capitalism vs socialism vs communism.

Socialism: Overview and Definition

Socialism is a social, economic, and political doctrine that calls for collective ownership of a society’s means of production. The main goal of socialism is to eliminate socioeconomic classes by ensuring equal distribution of wealth among the people. To accomplish this, a socialist government--which is elected by the people--has control over the country’s economy, including major businesses and industries and the labor market. At its core, socialism is designed to eliminate inequality through government regulation.

The word “socialism” comes from the Latin sociare, which means to combine or to share. But the modern term “socialism” didn’t appear until the 19th century. French philosopher and revolutionary Henri de Saint-Simon coined the term in his writings about the  abuses of the capitalist system and the  Industrial Revolution. 

The thing to keep in mind about socialism is that it’s a blanket term that covers a wide variety of socialist ideas, practices, and theories. In his 1924 encyclopedia of socialism, historian Angelo Rappoport identified forty different definitions of socialism. This is why it’s tough to pin down a universal definition of socialism today. 

As an economic system and political theory, socialism has been applied in many different countries in many different ways . For example, communism is at its heart a form of socialism because it argues that everything in a society should be collectively owned and distributed to each according to their needs. But democratic socialism--which can combine capitalist and socialist ideologies--is also a type of socialism! 

Having said that, socialism is almost always employed as a critique of some aspect of capitalism . In some cases, socialism is also employed to replace capitalism. In most cases, though, socialism and capitalism are used together so that each ideology can make up for the other’s shortcomings. 

History of Socialism

Socialism was first used to criticize capitalist systems at the height of the Industrial Revolution in the 19th century. Henri de Saint-Simon and other prominent French philosophers were the first to critique the poverty and inequality of industrialized capitalism, and socialist thinkers advocated the transformation of society into small communities without private property. 

Socialism gained international recognition at the end of the 19th century. It was during this time that the movement became more oriented toward revolutionary thinking . This strain of socialist thought is largely attributed to the work of German philosophers Karl Marx and Friedrich Engels . In 1848, Marx and Engels wrote and dispersed a pamphlet called The Communist Manifesto detailing their ideas about socialism . 

According to the Communist Manifesto, socialism must eventually evolve into a more advanced system: communism . In the communist form of socialism as described by Marx and Engels (called Marxism), there would be no state, no money, and no social classes. Essentially, communism argues that private enterprise shouldn’t exist, and that the public (through the government) should own all the means of production in a society. 

This means that when socialism evolves into communism, it is fundamentally incompatible with capitalism . That’s because communism argues everything should be owned by the people and managed by government, whereas capitalism believes that economies should be run on private enterprise, which is controlled by individuals and not the government.This is why capitalism vs socialism vs communism can often be confusing. Just remember: the key difference between socialism and communism is that communism seeks to eliminate capitalism. But communism is just one type of socialism, and many other forms of socialism can be integrated into a capitalist economy. 

Marx and Engels helped popularize socialism, and in the 20th century, the first socialist governments appeared . The first mass party in Latin America, the Socialist Party of Argentina, was established in the 1890s, and in 1902, the British Labour Party won its first seats in Parliament. These elections of socialist politicians ushered in a new era of political legitimacy for the socialist movement. 

More radical forms of socialism emerged following World War I . In 1917, the Bolshevik Revolution occurred in Russia, led by philosopher Vladimir Lenin . Lenin and the Bolshevik faction of socialists overthrew the Russian monarchy and installed the first ever constitutionally socialist state, known as the Russian Socialist Federative Soviet Republic. Socialists who embrace Lenin’s methods today are most often referred to as communists.

By the 1920s, socialism in various forms had become the dominant secular movement on a global scale. That’s not to say that most governments were “socialist,” but they had definitely begun incorporating socialist ideas into their political policies. As socialism became more accepted, new forms of socialism continued to emerge, including the most common forms of socialism today: social democracy and democratic socialism. 

Bernie Sanders is the most well-known proponent of democratic socialism in the United States. (Secret-Name101/WikiMedia) 

Democratic Socialism vs Capitalism

Democratic socialism brings three core concepts together: democracy , socialism, and capitalism. Generally speaking, democratic socialism co mbines the safety net of a socialist economy with the wealth creation of capitalism within a democratic system of government. 

Here’s what that means. First things first: the organizational structure of the government is a democracy. Every citizen of a country can vote in a free and fair election to elect officials to represent them in government. These officials then represent the will of the people that elected them. You can learn more about democracies (vs republics and other types of government) in this article. 

Democratic socialism also combines aspects of socialism and capitalism in terms of its political ideologies and economic systems. Under democratic socialism , the elements of society that provide for basic human needs--like healthcare, labor protections, and childcare--are owned collectively and run by the government. 

However, democratic socialism also embraces aspects of capitalism--usually in terms of economic structure. Democratic socialism recognizes the importance of private enterprise, especially in terms of building national wealth. When the two are combined, though, capitalism is more tightly regulated by the government. 

Examples of Socialist Governments Today

There are many different ways that a country can implement socialism today . Socialism is a broad category that encompasses multiple types of economic systems. It’s also compatible with various government systems. 

While there aren’t any purely socialist countries in the world today, there are nations that are categorized as communist by virtue of how much power the government has over social and economic systems. Those countries are: 

• China, or the People’s Republic of China
• Cuba, or Republic of Cuba
• Laos, or Lao People’s Democratic Republic
• Vietnam, or Socialist Republic of Vietnam
• North Korea, or Democratic People’s Republic of Korea

Most countries implement aspects of socialism that are compatible with their form of government and economy in order to create equality for all people. These countries tend to have prominent socialist or democratic socialist political parties. Having a socialist political party does not necessarily mean that a country “is socialist.” Most of the time, it just means that some aspects of a country’s domestic agenda are influenced by socialism. 

Some of the countries with very influential socialist parties include the following: 

• Denmark 
• Poland 
• South Korea
• United Kingdom
• Venezuela 

Because democratic socialism is such a popular topic today, let’s look more closely at one country that implements democratic socialism: Sweden.

Sweden adheres to the Nordic Model , which refers to the economic and social policies common to the Nordic countries of Denmark, Finland, Iceland, Norway, and Sweden. The Nordic Model in Sweden fits the description of democratic socialism for two main reasons: it supports a universalist welfare state to promote social mobility, but it remains committed  to a market-based economy that’s partially fueled by private enterprise.

Sweden’s democratic government provides free health care, education, and lifetime retirement income. As a result, their Swedish citizens pay some of the highest taxes in the world. A high percentage of Sweden’s workers belong to a labor union, and the country is ranked high for protection of workers’ rights because of its strong social partnership between employers, trade unions, and the government.

At the same time, Sweden has a mixed-market capitalist economic system and high degrees of private ownership. To regulate its capitalist economy, Sweden allows free trade combined with collective risk sharing. These measures provide a form of protection against the risks associated with economic openness.

In other words: the country combines socialism and capitalism! in order to ’s political ideology is socialist, but its economy is capitalist. 

Because the government meets most of their needs, the Swedish people aren’t very concerned with accumulating wealth. As of 2020, Sweden also ranks high on the Global Peace Index and is ranked in the top 10 on the World Happiness Report.

Many people associate capitalism with making money. That's because capitalism believes that privately owned businesses should be the bedrock of a national economy.

What Is Capitalism?

Now that we’ve covered socialism, let’s tackle capitalism next . Below, we’ll give you a comprehensive definition and history of capitalism, and we’ll provide some examples of capitalist governments today . 

Capitalism: Overview and Definition

Capitalism is an economic system in which the private sector owns most of the means of production . In a capitalist economy, the government plays a lesser role. The main goal of capitalism is to employ the means of production to make a profit and generate capital. To accomplish this, capitalism usually has a free market economy , which is based on supply and demand and limited government control. At its core, capitalism is designed to enable private entities, which are often corporations, to make a profit . 

The term capitalism is derived from the word “capital,” which evolved from the late Latin word capitale . Capitale is based on the Latin word caput , which means "head" and connotes something of value, such as money, property, or livestock. Capitale emerged in the 12th to 13th centuries to refer to funds, stocks of merchandise, sum of money, or money carrying interest. By 1283, it was used to describe the capital assets of a trading firm . By this time, capital was often used interchangeably with other words, including wealth, money, funds, goods, assets, and property.

In English language usage, the term “capitalism” first appears in author William Makepeace Thackeray’s 1854 novel, The Newcomes. In Thackeray’s novel, “capitalism” refers to “having ownership of capital.” Other initial usage of capitalism in the modern period employs the term to describe a new type of economy. In this economy, capital, or the source of income, doesn’t belong to the workers who generate it through labor. Instead, it belongs to the people who own the businesses and companies that pay for the labor. 

Also keep in mind that just like socialism, capitalism exists on a spectrum . But whereas types of socialism are often categorized by how much power a centralized government has, types of capitalism are usually defined by how free and unregulated the economy is. 

History of Capitalism

Capitalism developed out of systems of feudalism and mercantilism in Europe during the Renaissance. In these systems, capital existed in the form of simple commodity exchange and production. 

At the end of the 16th century, the economic foundations of the agricultural feudal system began to break down in England. Land and resources became concentrated in the hands of a few private owners, and the labor market became more competitive. The expanding system put pressure on owners and workers to increase productivity to make greater profits. By the early 17th century, feudalism was effectively replaced by a new centralized state and economic market in England.

Between the 16th and 18th centuries in England, an economic doctrine of mercantilism prevailed. Merchant traders explored foreign lands and engaged in trade for profit. Under the rule of Queen Elizabeth I, merchants were granted state support. Through subsidies and other economic incentives, merchants expanded commerce and trade and made profits by buying and selling goods. 

The continued growth of capitalism required specific technologies for mass production, which early feudalist societies and individual merchants didn’t have. These technologies became widely available during the Industrial Revolution, and those who owned them were called industrialists. Industrialists facilitated the development of factory systems and manufacturing . These systems required a complex division of labor and established the modern concept of the capitalist mode of production. 

The Industrial Revolution established the dominance of capitalism as an economic system in the western world. By the 19th century, capitalism had spread globally . And by the end of the 19th century, goods and information were able to circulate around the world at a whole new pace. This was due to technologies such as the telegraph, the steamship, and railway. But this growth also hinged on a large--and cheap--labor force. 

When the Great Depression had a global impact in the 1930s, socialist practices first entered into the capitalist economies of the world. By the end of World War II, governments began  regulating these open, capitalist markets. Welfare states emerged in capitalist countries during this time as well. Since then, there hasn’t been a purely capitalist system in the world. Today, most capitalist economies incorporate some form of socialist practice. 

Many countries embrace capitalism...even if they also implement socialist policies. One good example of this is the United Kingdom, which has strong social programs but still allows for a robust private sector.

Examples of Capitalism Governments Today

There are many types of capitalism in existence today. Different countries’ implementation of capitalism may feature different economic policies and institutional structures. However, at their core, all capitalist countries share a common element: they are primarily based on private ownership of the means of production, generating profit through production, market-based control of resources, and accumulation of capital. 

Today, there are over 100 countries that have a capitalist economy . Here are a few examples of countries have some form of a capitalist economy:

• Austria 
• Chile 
• Ireland 
• Japan 
• Mauritius 
• Netherlands 
• United States of America

It’s important to recognize that none of these countries implement pure capitalism . Instead, they implement a form of capitalism that may be combined with other types of economic markets or political ideologies, including socialism. Let’s look at an example of a capitalist economy to understand what capitalism looks like in practice next.

The United States has a democratic capitalist political-economic system . The U.S. economy is also referred to as a mixed market economy. This means that it has characteristics of both capitalism and socialism that are combined with a democratic system of government. 

In the form of capitalism implemented by the U.S., the means of production are based on private ownership and for-profit business. In other words: most businesses and services are privately owned, and those companies’ primary goal is to make money. But because the economy has regulations, taxation, and some subsidization, the U.S. can’t be considered a purely capitalist economy. 

Prior to World War II, the U.S. more closely resembled a truly free market . However, the government has always had some role in controlling the U.S. economy. Today, the U.S. government has partial control over education, physical infrastructure, healthcare, and postal deliveries. The government also provides subsidies to oil and financial companies and agricultural producers. While private businesses have a high degree of autonomy in the U.S., they are required to register with government agencies.

Some critics argue that the U.S. capitalist system serves the interests of a small percentage of the population, known as the one percent. Because of income inequality and intensifying class divisions in the U.S., many critics of capitalism advocate for the adoption of more socialist policies as a means to bridge that class divide . Two well-known advocates of increasing socialist policy in the U.S. are senator Bernie Sanders of Vermont and Alexandria Ocasio-Cortez of New York. 

Socialism vs Capitalism: Chart Comparison

We’ve covered a lot of info concerning capitalism vs socialism, so let’s condense things down to the core differences between capitalism and socialism next. 

Keep reading for a side by side comparison of capitalism and socialism in our chart below.

Fascism, Communism, and Marxism: A Quick Comparison 

Now that we’ve covered the differences between capitalism and socialism, let’s explain how they compare to other systems that they’re sometimes confused with. We’ll briefly clarify the differences between the socialist and capitalist systems and communism and fascism. 

Fascism vs Capitalism and Socialism

Fascism is a political ideology that supports authoritarianism and ultra-nationalism. Fascist states are ruled under dictatorships. They also suppress opposition by force and tightly control society and the economy. 

But how does fascism compare to socialism and capitalism? Socialism is generally considered incompatible with fascism. Socialism is liberally-minded and progressive, and it’s a relatively flexible ideology, whereas fascism is none of these things. In fact, because it is a far-right ideology, fascism opposes socialism. 

The relationship between capitalism and fascism is a little more complicated. Historically, fascism has sought to do away with capitalism because of its emphasis on autonomy and limited state control. However, fascism supports private ownership, wealth accumulation among private individuals, and a market economy. This means that fascism can support a very specific kind of capitalism, but capitalist economies are rarely fascist.

Communism vs Capitalism and Socialism

Let’s talk now about capitalism and socialism in relation to communism. Communism proposes a socioeconomic structure and political system that completely replaces a capitalist system with public ownership and communal control of the means of production. In communism, everything is collectively owned and private enterprise is eliminated. Because it seeks to eliminate money and social classes, communism is ultimately incompatible with capitalism.

However, socialism and communism are more closely related. In simplest terms, communism is a more revolutionary form of socialism , based on the ideology of Karl Marx. Socialism and communism share a core goal of placing power over the means of production in the hands of workers. Unlike communism, though, socialism is widely compatible with other forms of government. Forms of socialism can also be integrated into other economic systems, such as capitalism. 

Marxism vs Capitalism And Socialism 

You may also be wondering how Marxism relates to socialism and capitalism . Marxism is the political and economic theory proposed by Karl Marx and Friedrich Engels. Marxist theory was adapted by followers of Marx and Engels to articulate a specific approach to communism. This means that Marxism is a type of communism that incorporates socialist principles. Ultimately, socialism is a much broader concept than Marxism.

Marxism also addresses capitalism, though. In his book, Das Kapital, Karl Marx describes a capitalist mode of production. He is often credited as defining the modern concept of capitalism through his harsh critiques of it . He ultimately believed that capitalism would eventually stagnate, and socialism would take its place. 

What’s Next? 

If you want to learn more about how different governments work , check out our article on democracies versus republics.

The U.S. government is set up in three parts where no one section of the government has more power than the other . We’ll teach you everything you need to know about this checks and balances system.

If all of these topics are fascinating to you, then you might be interested in majoring in political science. Our experts will teach you everything you need to know about a political science degree , including what types of careers are available for poli-sci grads.

Ashley Sufflé Robinson has a Ph.D. in 19th Century English Literature. As a content writer for PrepScholar, Ashley is passionate about giving college-bound students the in-depth information they need to get into the school of their dreams.

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Events, news & press, capitalism vs. socialism.

Over the last century countries have experimented with variations on both capitalism and socialsm. So how do socialism, capitalism, and their many variants compare?

From economic shutdowns to trillions of dollars in new government spending, the 2020 COVID-19 pandemic led to a dramatic increase in government action. While much of the increase was temporary, there is now a growing desire to further expand government. We see calls for single-payer health care systems, expanded child-care subsidies, and trillions of dollars in federal infrastructure investments.

Arguments about what government should and should not do are not new. We regularly see them in the debates over the merits of socialism versus free market capitalism. While these debates are often in the abstract, over the last century countries have experimented with variations on both economic systems. The  Hoover Institution’s Human Prosperity Project  critically examined many of these experiments to see which economic system is best for human flourishing. The video below describes the project’s objectives:

So how do socialism, capitalism, and their many variants compare?

Part 2: How do socialism and capitalism affect income and opportunities?

Delivering broad-based prosperity should be the primary goal of all economic systems, but not all systems deliver the same results. Supporters of capitalism argue that free markets give people—entrepreneurs, investors, and workers—the right incentives to create goods and services that people value. The result is higher standards of living. Those sympathetic to socialism, however, respond that capitalism may produce wealth for some, but without government involvement in the economy many are left behind.

In his Human Prosperity Project essay  Socialism, Capitalism, and Income  economist Edward Lazear analyzed decades of income trends across 162 countries. He studied how incomes for low and high earners changed as countries shifted from government-controlled economies to more market-oriented economies. His conclusion?

The historical record provides evidence on how countries have fared under the two extreme systems as well as under intermediate cases, where countries adopt primarily private ownership and economic freedom but couple that with a large government sector and transfers. The general evidence suggests that both across countries and over time within a country, providing more economic freedom improves the incomes of all groups, including the lowest group.

Lazear points to several specific examples. First, China: in the 1980s, the Chinese Communist government began to adopt market-based reforms. Lazear finds that the market reforms, as skeptics of capitalism would predict, did increase income inequality. But, more importantly, the market reforms lifted millions of people out of poverty. Lazear notes:

Today, the poorest Chinese earn five times as much as they did just two decades earlier. Throughout the 1980s and before, a large fraction of the Chinese population lived in abject poverty. Today’s poor in China remain poor by developed-country standards, but there is no denying that they are far better off than they were even two decades ago. Indeed, the rapid lifting of so many out of the worst state of poverty is likely the greatest change in human welfare in world history.

As the video below highlights, market reforms led to similar economic miracles in India, Chile, and South Korea:

Part 3: What about mixed economies?

Of course, most modern-day critics of capitalism are not advocating for complete government control over the economy. They don’t want the economic policies of the Soviet Union or early Communist China; instead, they point to nations with mixed economies to emulate, such as those featuring social democracy. So how do these policies affect incomes and opportunities?

Economist Lee Ohanian compares the labor market policies of Europe and the United States in his essay The Effect of Economic Freedom on Labor Market Efficiency and Performance . Compared to the United States, European nations have higher minimum wages, stricter rules that prevent the firing of workers, and high rates of unionization. These rules are intended to protect workers, but Ohanian finds that they discourage employment and result in lower compensation rates. His analysis indicates:

These findings have important implications for economic policy making. They indicate that policies that enhance the free and efficient operation of the labor market significantly expand opportunities and increase prosperity. Moreover, they suggest that economic policy reforms can substantially improve economic performance in countries with heavily regulated labor markets and high tax rates.

The video below highlights some of Ohanian’s key findings:

What about the effects of income redistribution and the taxes that pay for it? Supporters argue that these programs keep people out of poverty. Critics, however, argue that financing these systems comes with high costs both to taxpayers and to recipients.

In their essay Taxation, Individual Actions, and Economic Prosperity: A Review , Joshua Rauh and Gregory Kearney consider the effects of raising tax rates on high-income Americans to finance new government spending. They examine the effects of income and wealth taxes in Europe. They find that wealth taxes and high income tax rates discourage high-income filers from investing in a country, which ultimately reduces economic growth. Thus, calls in the United States to increase income and wealth taxes “come despite a body of evidence showing that the country is already one of the more progressive tax regimes in the world, that wealth confiscation results in worse outcomes for the broader economy.”

The long-term consequences of redistribution don’t fall just on taxpayers. Such transfer systems also create incentives for individuals to leave or stay out of the work force. In their contribution to the Human Prosperity Project , economist John Cogan and Daniel Heil consider the effects of Universal Basic Income (UBI) programs, which would provide a “no-strings-attached” cash benefit to families. They find that modern UBI proposals in the United States would either prove costly—requiring tax rates that would reduce incentives to work and invest—or would require steep phase-out provisions that punish recipients who try to re-enter the workforce. In either case, the result is that UBI programs are likely to reduce employment rates, ultimately depriving recipients of long-term economic opportunities.

Part 4: What about other aspects of human flourishing?

Human flourishing is more than material prosperity. For example, it requires a clean environment and access to good health care.

It might seem that socialist economies—where government controls the means of production—would have better environmental track records. Yet the evidence suggests the opposite. In his essay Environmental Markets vs. Environmental Socialism: Capturing Prosperity and Environmental Quality Economist , Terry Anderson summarizes the literature on economic systems’ effects on the environment. He points to research showing that countries with more economic freedom tend to have better environmental outcomes:

Seth Norton calculated the statistical relationship between various freedom indexes and environmental improvements. His results show that institutions—especially property rights and the rule of law—are key to human well-being and environmental quality. Dividing a sample of countries into groups with low, medium, and high economic freedom and similar categories for the rule of law, Norton showed that in all cases except water pollution, countries with low economic freedom are worse off than those in countries with moderate economic freedom, while in all cases those in countries with high economic freedom are better off than those in countries with medium economic freedom. A similar pattern is evident for the rule-of-law measures.

Anderson explains this surprising result with the adage that “no one washes a rental car.” In free-market societies, property rights give individuals incentive to protect and preserve the resources they own. In countries without these property rights provisions, no one has the right incentives, much like no one has the incentive to wash a rental car (except the rental car companies). The video below further explains why free markets and cleaner environments go hand and hand.

What about health care? Many developed nations that have generally free economies have still opted for government-run health care. The programs vary by country. Even in the United States, the government plays a large role in health care. Large government programs such as Medicare and Medicaid provide health care to low-income families, the disabled, and seniors. Nevertheless, relative to most developed nations, the United States relies far more heavily on the private sector and markets.

In his essay  The Costs of Regulation and Centralization in Health Care  Dr. Scott Atlas compares health care in the United States with that in other developed nations. The United States consistently ranks high across a variety of quality metrics. The system offers shorter wait times and faster access to life-saving drugs and medical equipment. The result is that the US system tends to deliver better medical outcomes than other developed nations. Watch this video to learn more:

Part 5: Conclusion

We’ve seen that whether we look at income statistics or environmental outcomes, economies with freer markets tend to have better outcomes. Nevertheless, there still may be unseen dimensions of economic systems that these statistics don’t address. Is there another way to determine which system is best for human flourishing?

Perhaps the best method is to observe where people choose to live when offered the choice. In his essay  Leaving Socialism Behind: A Lesson from German History ,  Russell Berman catalogues widespread immigration from East Germany to West Germany during the Cold War. Watch this video to learn its causes:

Citations and Additional Reading

• Why did liberal democracies succeed while communist nations failed in the twentieth century? Hoover Institution senior fellow Peter Berkowitz provides an answer in his essay  Capitalism, Socialism, and Freedom .
• In his essay  Socialism vs. The American Constitutional Structure: The Advantages of Decentralization and Federalism , John Yoo highlights the constitutional provisions that would make it difficult for the United States to adopt widescale socialist policies.
• Explore the other Human Prosperity Project essays  here .

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In Their Own Words: Behind Americans’ Views of ‘Socialism’ and ‘Capitalism’

Socialism’s critics say it weakens work ethic; those with positive views say it fosters equality.

For many Americans, “socialism” is a word that evokes a weakened work ethic, stifled innovation and excessive reliance on the government. For others, it represents a fairer, more generous society.

Critics of socialism point to Venezuela as an example of a country where it has failed. People with positive views of socialism cite different countries, such as Finland and Denmark, as places where it has succeeded.

Earlier this year , Pew Research Center found that 55% of Americans had a negative impression of “socialism,” while 42% expressed a positive view. About two-thirds (65%) said they had a positive view of “capitalism,” and a third viewed it negatively.

But what’s behind these opinions? To find out, we asked people to describe – in their own words – why they had positive or negative impressions of socialism and capitalism.

Some who view socialism negatively portray it as a serious threat to capitalism in the U.S., while others who view it positively say the opposite – that it builds upon and improves capitalism. And some who have a positive view of socialism express an explicit preference for a system that blends socialism and capitalism.

The survey found that Republicans, in particular, viewed socialism and capitalism in zero-sum terms. A large majority of Republicans and Republican-leaning independents (68%) had both a positive impression of capitalism and a negative view of socialism. However, Democrats and Democratic leaners were more likely to view both terms positively; a plurality (38%) had a positive impression of both socialism and capitalism.

While many of the open-ended impressions are revealing, a sizable share of people either did not share their views or articulated their reasons in simple terms, stating that socialism or capitalism is “good” or “bad,” or that one is better than the other. A quarter of those with a negative opinion of socialism – and 31% with a positive view – declined to offer a reason for their opinion.

But others mentioned history, the experiences of other nations, personal experiences or their own understandings of the terms in explaining the reasons behind their opinions of socialism and capitalism.

Socialism’s critics say it weakens work ethic; some point to Venezuela

Among the majority of Americans who have a negative impression of socialism, no single reason stands out. About one-in-five (19%) say that socialism undercuts people’s initiative and work ethic, making people too reliant on the government for support. As a 53-year-old man put it: “I believe in individual freedoms and choice. Socialism kills incentives for people to innovate and climb the ladder of success.”

About as many critics of socialism (18%) refer to how socialism has failed historically or in other countries, such as Venezuela or Russia. A comparable share of those with negative impressions of socialism (17%) say it is not consistent with democracy in the United States or is simply not right for the U.S.

Many with positive views of socialism say it fosters equality

About four-in-ten Americans (42%) have positive views of socialism. Among this group, the most frequently cited reason is that it will result in fairer, more generous society (31% say this). This includes 10% who specifically express a belief that it is important for the government to take care of its citizens or for fellow citizens to care for each other.

A smaller share of Americans who have a positive view of socialism say it would build upon and improve capitalism (20%). Some in this group say the U.S. already has socialism, in the form of government programs. Others specifically say they prefer a blend of socialism and capitalism. “A blend can ensure a thriving productive society for all,” said a 42-year-old woman.

Just 2% of those who have a positive view of socialism explicitly mention the phrase “democratic socialism” as the reason.

While some who express a negative view of socialism link it with countries like Venezuela, some of those with a positive view point to different countries – such as Denmark or Finland – as models. Among those with a positive impression, 6% say it has been a historical or comparative success, with most of these people citing how it has worked in European countries.

‘Capitalism’ viewed positively by about two-thirds of Americans

Among the 65% with a positive view of capitalism, many give reasons that contrast with criticisms of socialism. For example, while many who hold a negative view of socialism say it undermines initiative and makes people too dependent on government, nearly a quarter of those with a positive view of capitalism say it promotes individual opportunity (24% say this).

And while those with a positive view of socialism say it could bring increased equality, a common theme among critics of capitalism is that it has led to unequal distribution of wealth in this country.

Nearly a quarter of Americans who have a positive view of capitalism (24%) say they hold their views because the system provides opportunity for individual financial growth. A similar share (22%) expresses general positivity towards capitalism, saying that the system works.

One-in-five adults with positive views of capitalism associate the system with the foundation of America: They mention that capitalism has advanced America’s economic strength, that America was established under the idea of capitalism, or that capitalism is essential to maintaining freedom in the country.

Another 14% say that although they view capitalism positively overall, the system is not perfect. This includes 5% who say capitalism has caused economic inequality and corruption and 4% who express a desire to see more regulation or a mixed system with socialism.

“Capitalism is the worst way to set up a society, except for all the other ways,” said a 44-year-old man. “Free markets allow for more innovative solutions and for more people to succeed.”

When those who hold negative views of capitalism are asked why they hold this view, about a quarter (23%) say that capitalism creates an unfair economic structure, mentioning that the system only benefits a small number of people or that wealth in this country is distributed poorly.

A similar share (20%) says that capitalism has an exploitative and corrupt nature, often hurting either people or the environment.

A smaller share of Americans who have negative views of capitalism (8%) mention that corporations and wealthy people undermine the democratic process by having too much power in political matters. And 4% of those with a negative view say that capitalism can work, but to do so it needs better oversight and regulation.

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Communism and Capitalism Through the History Essay

Introduction, revolution of social darwinism.

During the modern history, there existed two main economic systems, namely: communism and capitalism. Their ideologies are intrinsically divergent and often unreceptive to each other. All over the hostilities defame and institutional propaganda has become extensive known creating worry and hatred between communist and capitalist.

Capitalism is defined as the economic system based on free trade where private sectors are allowed to do businesses with another individual or group of private citizens. In this system, the means of product and service production is mainly carried out and owned by the individuals instead of the government while communism also known as fascism is contrary to this where production and distribution of products is carried out by the state as non-profit organization.

The book “The Time Machine” is mainly a social appraisal of H.G. Wells who was a Victorian England predicted into a far future. The largest part of his life he remained a socialist with communist background and he argued in most of his books that capitalism was a major challenge to the post-modern future.

Fast development in technology, social life, education and other capitals had commenced the industrial Revolution in during 17 th and 18 th century. Additionally, he argued that by the late 19 th century of “The Time Traveler” the UK was most powerful with the economy whereas industrialists were enjoying their absolute wealth.

The capitalists during this era overworked men, women and even young children who were forced to work overtime with penny wages in dirty, smoke-filled industries. After observing all this as it took place, Wells decided to incorporate various scientific, natural and social ideologies in his arguments against capitalism and he majored on the citizens who were selective, discriminatory for their personal gain as they continued to exploit the poor and vulnerable members of the society (Wells 47 ).

First of all, Wells characterized capitalism as a revolution of social Darwinism. In this theory “Origin of Species”, the author Charles Darwin argued that nature allowed the reproduction of species that their characters fitted for best survival.

Therefore, social Darwinism was formulated by the British Philosopher Herbert Spencer whom regularly misrepresented this idea of natural fitness to validate 19th century social stratification among wealthy and unfortunate people. Wells contradicted with this philosopher where he argued that it did not imply that surviving species on an environment and the best but simply fit for their precise environment (Wells 83).

It is therefore concluded that evolution does not guide into perfectibility but to the maximum adaptability of a species. Communism was therefore aggravated mainly by the pessimistic impact of the industrial revolution on poor industrial employees. It was aimed at creating a social class of public common ownership where they believed that the society in general was more important than personal rights liberty and individual’s freedom.

On the other hand, as the communist fought hard against the capitalist, there were negative impacts that were associated with it where most dictators erupted as the results of communism for they were overall decision makers. For communism to work out, it relies on human nature where they need to be completely humane and ready to work for gaining of their neighbors (Wells 94).

Capitalism has the major economic system which takes control of the world economy and it has proved to be perfect enough comparing to the other economies such as socialism. It is characterized by its mode of production where prime resources such as capital and land are owned by the individuals.

Trade activities are fully controlled by the interaction between customers and sellers in the market and the owners here is free to make maximum profit from their resources. The main objective of a capitalist state is to secure concurrent high employment and stable prices (Wells 58).

During late 19 th century, wars uprising and economic despair has acted against capitalism. The great depression period has acted as the most challenging moment within the capitalism history where shares in the stock market depreciated at an alarming rate. Capitalism on its sides is referred to as the best economic friend for it freely allows for global competitive market and capitalist contributes a lot to the economy of a nation.

There are two types of capitalism which are commonly known, of which one of them is the proprietary capitalism. During this period of capitalism, there were only some corporations and no one could relate them to the modern society. The other form of capitalism is progressive capitalist economy.

In this type of capitalism, business outputs are present as inputs of the future. Even though capitalism has gone through transitional changes all over the years, capitalistic economy structure has remained to be most influential economy as well as the political structure in the world.

Finally, communism and capitalism has acted towards the economic development but several challenges have affected both economies. The communism has greatly affected it people where personal growth has been affected by national ideology of togetherness dragging back both economic and infrastructure development. On the other hand, capitalism has lead to emergence of life standards where it exists rich and the poor resulting to the exploitation of the vulnerable members of the society.

Wells, H. George. The Time Machine. Penguin Classics, 2007. Print.

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• Contribution of Empiricism and Rationalism to the Emergence of the Scientific Perspective in the Seventeenth and Eighteenth Centuries
• History of Empires in Past and Modern World
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Capitalism Vs Socialism Argumentative Essay Examples

Type of paper: Argumentative Essay

Topic: Social Issues , Politics , Sociology , Financial Crisis , Unemployment , Socialism , Capitalism , Liberalism

Published: 01/24/2020

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The two main political, social, and economic systems within the global arena are capitalism system and socialism system. Capitalism and socialism differ widely in various aspects such as equity, ownership, unemployment, efficiency, and economic systems. In addition, capitalism and socialism hold different views and perceptions on religion, way to change, philosophical drives, political movements, and key components amongst others (Nell 178). Whereas capitalism system takes very little concern on equity and instead encourages inequality for the purposes of production, socialism enhances redistribution of resources for the main aim of ensuring equality amongst the citizens. Under capitalism system, business organizations are largely owned by private individuals as well as shareholders. Therefore, creation of jobs is within the hands of the private sectors. As a result, it becomes difficult to check on unemployment rates especially during the extreme ends of recession and boom. On the other hand, socialism system is where majority of the production firms and operations are state-owned. As a result, job creation is a duty of the state, which has the capacity and capability of restoring unemployment during recession. It is argued that capitalism system enhances efficiency of production whereas socialism system always leads to inefficient production systems (Nell 178). Amazingly, whilst socialism system derives its motivation on planning for the purposes of defining the type and magnitude of investment, capitalism system will obtain the motivation to move on from investments, productions, as well as distribution channels and procedures. Politically, capitalism system practices classical liberalism, neo-liberalism, social liberalism, libertarianism, and social democracy (Nell 178). On a different perspective, the political systems found within socialism include democratic socialism, anarchism, communism, and syndicalism amongst others. Lastly, other than enhancing free market, capitalism also provides room for freedom of religion (Nell 178). Based on the above analysis, it is therefore clear that capitalism is better than socialism.

Nell, Edward. "Capitalism versus socialism." Markets, Unemployment and Economic Policy: Essays in honour of Geoff Harcourt, Volume Two 2 (2012): 178.

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Michael C. Jensen, 84, Who Helped Reshape Modern Capitalism, Dies

He heralded stock options and golden parachutes as a professor at Harvard Business School, influencing a generation of Wall Street executives.

By Michael S. Rosenwald

Michael C. Jensen, an economist and Harvard Business School professor whose evangelizing for stock options, golden parachutes and leveraged buyouts helped reshape modern capitalism and empower Wall Street’s greed-is-good era, died on April 2 at his home in Sarasota, Fla. He was 84.

The death was confirmed by his daughter Natalie Jensen-Noll. She did not specify a cause.

Even before he embarked on a peculiar late-career intellectual partnership with Werner Erhard, the controversial self-help guru who created est, Professor Jensen’s colleagues considered him among the most freethinking and divisive economists of his generation.

“Mike was a kind of born proselytizer,” Eugene F. Fama, a University of Chicago professor and Nobel laureate in economics who collaborated with Professor Jensen, said in an interview. “He was very sure of himself in terms of his ideas being correct and, you know, pathbreaking.”

They were also incendiary.

In his book “ The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite ” (2017), the journalist Duff McDonald called Professor Jensen an “instrument of intellectual violence” who “created a Frankenstein that no one knows how to kill.”

Professor Jensen began his academic career in the late 1960s, when a seismic shift in economic theory was underway. For decades, students studying management — especially at Harvard Business School — were taught that executives (and their companies) should have a social conscience.

Then, in 1970, the economist and free-market theorist Milton Friedman published his groundbreaking essay “A Friedman Doctrine — The Social Responsibility of Business Is to Increase Its Profits,” in The New York Times Magazine.

A business that “takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution,” Mr. Friedman wrote, is “preaching pure and unadulterated socialism.”

Professor Jensen, a free-market adherent himself, endorsed Mr. Friedman’s essay. But he detected a hole in the argument, which he explored in a seminal paper, “ Theory of Firm: Managerial Behavior, Agency Costs and Ownership Structure ,” written in 1976 with William H. Meckling while they were both professors at the University of Rochester.

The paper explored the misalignment of interests between managers and the companies’ owners, the stockholders, which they said made it impossible for firms to exist solely for increasing profits.

A chief executive, for example, might value hiring a chauffeur for an easier commute over reducing costs that eat into profits, or hire more employees for the status boost of running a bigger company, or reinvest profits into short-term, sure-thing projects rather than taking on riskier long-term ideas.

“This was the beginning of breaking open the black box of the firm,” Professor Jensen said in an interview published in the Journal of Applied Finance. “Obviously, firms don’t act, only individuals act, but firms have behavior, and this behavior is based on the system as a whole.”

To align the interests of both parties, Professor Jensen encouraged the use of stock options and equity as primary forms of compensation. He endorsed taking on debt to buy other companies because loan payments and reduced free cash flow would force executives to better manage costs. And he blessed golden parachutes — the large payments executives receive if they are forced to leave after a merger or the outright sale of a company.

“Think about the problem in the following way: Top-level managers and the board of directors act as stockholders’ agents in deals involving hundreds of millions of dollars,” he wrote in Harvard Business Review. “If the alternative providing the highest value to stockholders is sale to another company and the retirement of the current management team, stockholders do not want the managers to block a bid in fear of losing their own jobs.”

Executives walk away with their pockets comfortably lined with cash, the theory goes, but so do investors.

“He was clearly some kind of genius,” said Nicholas Lemann, the former dean of the Graduate School of Journalism at Columbia University, who interviewed Professor Jensen for his book “ Transaction Man: The Rise of the Deal and the Decline of the American Dream ” (2019). “I think he’s much more important in shaping the America we live in now than most people recognize.”

That shaping largely transpired at Harvard Business School, which Professor Jensen joined in 1985, at the height of President Ronald Reagan’s pro-business economic policies. Two years later, in Oliver Stone’s movie “Wall Street,” Michael Douglas portrayed a fictional corporate raider, Gordon Gekko, who declared: “ Greed, for lack of a better word, is good. Greed is right. Greed works.”

Professor Jensen taught his theories in a class he called “Coordination, Control and the Management of Organizations,” one of the most popular electives at the business school.

“Have no doubt about it, the most powerful man at HBS in the early 1990s was Michael Jensen,” Mr. McDonald wrote. “He was much more engaged with students, those students were all going to Wall Street, and Wall Street firms were all sending money back to HBS.”

Michael Cole Jensen was born on Nov. 30, 1939, in Rochester, Minn. His father, Harold, was a linotype operator at a newspaper and drove a taxi. His mother, Gertrude (Cole) Jensen, managed the home. The Jensens struggled financially; Michael’s father drank and gambled heavily.

“The idea that there might be some other way of life for anybody in the family seemed fanciful,” Mr. Lemann wrote. “Mike Jensen assumed that he would be a linotype operator, too.”

A teacher at the vocational high school Michael attended recommended him to a recruiter at Macalester College in St. Paul. He had no plans to attend college, but he asked the recruiter if the school had classes on the stock market.

“Yes, we do, the recruiter said,” Mr. Lemann wrote. “It’s called economics.”

He enrolled. After graduating in 1962, he paid his way through graduate school at the University of Chicago — the intellectual home of Mr. Friedman and other free-market theorists — by working the night shift in the press room of The Chicago Tribune. He earned an M.B.A. in finance and a doctorate in economics in 1968, then moved to New York State to join the University of Rochester.

His marriages to Dolores Dvorak and Toni Wolcott ended in divorce. In addition to his daughter Natalie, he is survived by another daughter, Stephanie Jensen; a sister, Gayle Marie Jensen; and four grandchildren. He had homes in both Sharon, Vt., and Sarasota.

Later in life, after Wall Street had been besieged by corporate stock option scandals and politicians derided excessive compensation packages, Professor Jensen acknowledged that his ideas had spiraled out of control.

He told The New Yorker in 2002 that basing compensation so heavily on options incentivized executives to lie about financial results. Stock options had become “managerial heroin,” he said; what the business world lacked was integrity.

Around 2012, with Mr. Erhard, he founded the Erhard-Jensen Ontological/Phenomenological Initiative . They offered weeklong seminars on leadership, which they taught in far-flung places, typically near beaches. The cost: $3,000 per person. Mr. Lemann attended one in Bermuda.

“I was involved in reorganizing the financial industry,” Professor Jensen said onstage, according to Mr. Lemann’s book. But by then, he said, the world of finance was “staggeringly bad,” adding “I’m sickened by it.”

Embracing integrity was, for Professor Jensen, a profound experience.

“The most wonderful things happen if you have integrity,” he said onstage. “I was incomplete as a human being. Was I successful? Sure I was successful. But I was incomplete.”

An earlier version of this obituary misstated the date of Professor Jensen’s death. He died on April 2, not April 4. It also misstated the name of a class he taught at Harvard Business School. It was “Coordination, Control and the Management of Organizations,” not “The Coordination and Control of Markets and Organizations.”

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