Compare and Contrast between Socialism and Capitalism


Socialism has been regarded as kind of economy which relocates its means of production from individual ownership to state ownership and communal ownership.

A state that operates under socialism possesses all the means of production and also supervises them. This system has been believed to construct a different egalitarian system which is founded on the values of cooperation and solidarity. However, this further relies on another feature where human beings are viewed as capable of interacting and cooperating with one another (Newman 3).

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Capitalism on the other hand could be reffered as a system where means of production are employed and owned by individuals. This kind of economy develops under the right of an individual who decides freely where and how they want to produce (Hunt and Lautzenheiser 5). Therefore these are two diverse systems; the following essay illustrates the differences and similarities between these two systems.

Economy and Trade

Marxist economists described various ideas concerning socialism and capitalism using various illustrations. According to his famous accounts, capitalist was depicted as destructive, a kind of system that is prone to crisis and administered by logic of capital. It was mostly expressed on the basis of economic laws of motion also the desire to accumulate on the capital.

However, socialism denoted elimination or suppression of such logic and its fundamental drives and laws, hence created the likelihood of a rational, organized way of managing social and economic life. Marxist economists condemned capitalism because of instability and irrational outcomes of a system based on private markets and properties.

Marxist noted the devastating social and economic outcomes of capitalist organizations, economic anarchy; for instance, sales seldom matched actual or expected levels of production, and the overall amount of savings planned for investments, hence affecting business cycles. Other associated crises were ineffective outcomes and uneconomical expenditures which led to starvation, unemployment, and ecological deterioration.

There was social disintegration and fragmentation because of unequal distribution of power and wealth and promotion of privacy, social interests, and personal interests over public. It encouraged alienation for instance through commodity fetishism because conception of false needs was encouraged rather than satisfaction of true needs. This led to denial of genuine individual knowledge concerning themselves and also the society surrounding them (Ruccio and Amariglio 216-17).

In contrast, socialism because of eliminating the scope of private markets and properties and its institution of planning, it has been represented as a system that demonstrates basic rationality and stability. Therefore, the results were fairly different; economic coordination and balance which was supervised by a central planning board and analyzed by enterprises and ministries.

Furthermore, the system portrayed effective and socially beneficial expenditures which were based on coherent calculations and no profit making motive. The system created unification and social harmony because of establishment of relative equality and social and private interests which were then allowed to converge.

More importantly, it promoted self realization and true needs could be articulated and the nature of social interactions was transparent and immediate. Marxist economists has also noted the degree at which capitalism has been based on individual exploitation which involves extraction of surplus value while in socialism almost all surplus was appropriated communally or socially (Ruccio and Amariglio 216-17).

Property Rights

Socialism could be defined as transfer of titles of a particular property from those individuals who have invested scarcely to those who have contractually acquired them or for some different use. It could be regarded as a social system where the scarce resources or means of production which are utilized to produce consumption products are socialized or nationalized.

The concept of socialization of means of production has been practiced in a number of countries such as Soviet Union and afterwards by Soviet dominated nations of Eastern Europe and various countries all over the world. If private property becomes the means of production, then one encourages differences. By eradicating private ownership everybody’s ownership means of production is equated.

Every person becomes the co- owner of all the properties and this reflects every individual’s identical standing as a human being. The economic rationale of a scheme like that one is suggested to be more effective. In contrast, capitalism which concentrates on private ownership as the means of production seems to be very chaotic. It appears more of a wasteful system which is characterized by ruinous competition, duplicating efforts and lacks concerted, coordinated action.

Unless the communal ownership is substituted with private then it’s possible to eradicate that waste by executing a single, coordinated comprehensive production plan. The property regulations which are assumed under the socialization policy and those which comprise the general legal principles of nations such as Russia are distinguished by two complementary attributes. First, no one possesses socialized means of production but they are owned socially.

That means nobody or no group of people, or all of them together have the right to either obtain them or trade them and retain the receipts got from their sale confidentially. Their use is however determined by people not as the owners but as the caretakers of the things (Herman 19-22).

Secondly, no individual or groups of people or all of them together has the right to engage in personal investment and form new personal means of production.

They could neither invest through changing the existing, nonproductively already used resources into productive ones, by pooling resources with the rest of the people, by original saving, nor by a combination of those techniques. Investment could be done only by caretakers, not for private profit but for the benefit of the community. In an economy such as capitalism which is founded on private ownership, owners resolve what to do with the means of production.

However in socialized economy such owners never exist hence it cannot happen and the major problem is what to do with the means of production. The difference between socialized property economy and private one is the concept of whose will prevails if there are conflicts. In capitalism somebody must be there to control and others who do not control and therefore real difference exists among people.

In this case, the problem on whose opinion prevails is determined by original contract and appropriation. Similarly, in socialism real difference exists between noncontrollers and controllers under some occasions, the issue on whose opinion prevails is not resolved through previous contract or usership but through political means (Herman 19-22).

Therefore, capitalist differs from socialism by replacing public ownership with private ownership. Public ownership caused excessive depersonalization of the property.

Neither losses nor gains had exclusive and direct effects on a particular individual, responsibility normally was enormously low. To some extent private property still existed in socialism (Kornai 87). Nevertheless, it seems to be scarce hence it does not cover the means of production.

If the property could not be transferred to the state, communal properties like agricultural cooperatives or small businesses such as handicraft were introduced. This shows theoretically the membership is voluntary and such ownership was not affected legally. Hence collective ownership was regarded as an intermediary stage which would be replaced by the state ownership finally.

On the other hand, in capitalism under property right it is evident there was division of labor, making of profit and uneven distribution of wealth and massive involvement in economic exchanges. That was portrayed as the only means of maintaining an individual existence which signify a great need for steady rules and enforcement system. That is mainly essential for property rights, and their transfer and their protection.


Another disparity between socialism and capitalism is depicted on how coordination is accomplished. Rather than letting people do what they desire, capitalism organizes the actions by restraining people to respect the earlier user ownership.

Capitalist is distinguished by decentralist and unstructured coordination instead of centralized management and steering. This is clearly observed in disincentives and incentives which are not set politically. In such society, distribution of resources occurs through the market.

On the other hand, in socialism rather than allowing people do what they wish, it manages individual plans through superimposing on an individual’s plan or the plan of a group and that of varying individual or group in spite of prior ownership and other mutual exchange contracts (Herman 23). This depicts central planning where the state owns almost all production facilities.

The required inputs for production and preliminary products are determined then organized, political priorities are always considered. The consumer and producer demand are anticipated while correct exchange relations are resolved by the setting of the price. However, this is costly and huge task to be carried by the administration which tends to be more complicated and develops technologically according to the nation economy.


Capitalists system argues that the major role of the government is to safe guard its citizens from deception or various forms of corruption. They argue that force is the security of individual’s rights.

To achieve that, the government employs police force that is in charge of security at their homes and military group which guards any exterior attack while the court ensures that local disputes between the residents are cleared. In addition, they believe that stirring force could only lead to violation of rights; hence the government simply uses force in case one initiates it.

In this society, anyone could begin any type of business one desires. This is because the security of monopolies does not operate. The main law which is plainly decreed and everybody is supposed to observe is that members of the society should not violate an individual’s human rights (De Soto 68). Thus they give credibility to observing individual’s rights which is supreme and freedoms are also regarded as supreme.

On the other hand, socialism is a reverse; the government is centrally involved while the society manages communal properties such as cooperatives and industries. Even though, they own those properties through the government. In addition, the workers are in charge of means of production owned by the society and are invested for the well being of the whole economy but not just the wealthy individuals.

In this system, the government manages the overall means of production but the members have the duty of choosing the best setting for the production, the amount to produce and which product should be produced. Those produces should also be allocated fairly to ensure everybody is satisfied.

Some philosophers like Karl Marx claimed that there is possibility of capitalism being overshadowed because already there are some evident changes in capitalist societies which resemble socialism. They further suggested that they must look for a means to conquer capitalists’ resistance and their proposers to achieve socialism.

In socialism economy, there is equal allocation of resources within its members and focuses on providing basic needs to the members to ensure equality. To make sure every member in the society benefits, the government ensures it caters for those who are needy and cannot support themselves, this is achieved through community based programs and related organizations.

In addition, socialist societies are usually known because of their charitable social security systems. These include: free education, full employment, total coverage through pension system, subsidized housing, welfare for the sick, orphans and elderly and good public security depicted by low crime rates (Rudiger 14).

Social Welfare

For several decades the Soviet Union lived as an enormous national socialist government. The Kibbutzim and Mennonites abandoned the Soviet Union and settled in capitalist nations like Israel and United States.

The Amish live peacefully under capitalism since the community reaps together and sows together. Because they are not buying food and paying wages, there is fairly little taxable business taking place. Furthermore, the community could also work jointly to produce goods which could be sold to neighbors surrounding the community.

That enables the community to pay for things like property taxes (Gilpin 220). That indicates that the socialist society should own the means of production, but not the individuals within their society. Since socialism depends on production which belongs to the collective, then it’s very hard for a single socialist unit to exist in another socialist unit. Also in a case of a joint ownership, one of the parties must have more power over the property than the other.

It is impossible for two units to have sovereignty over similar property. As a result, socialist groups like Kibbutzim and Mennonites abandoned areas such as Eastern Europe and Russia in favor of Israel and United States. Socialist society depends on willing contribution of every member of that society. In case of the less productive members within the society, that is not regarded as a problem.

Nevertheless, if the most productive members in that society were able of being independent, that could be a problem. This is because if those members who are most productive depart from the collective, then the overall resources allocated to every member decreases. In case this repeatedly happens then socialism would collapse, since the only people who would remain are the less productive (Duck 2).

There must be something to maintain the most productive members in the socialist country; this ensures they do not leave. For instance, majority of productive Mennonites are kept within their society by the religion or the Jews in their Kibbutzim.

Patriotism might also maintain majority of productive members in a socialist country. Nonetheless, the tie of religion is stronger than that of patriotism. Because socialism cannot permit most of its members who are productive to depart from the collective, then it is very hard for capitalist to exist within socialism.

This is evident because socialist government always takes production from those people who are most productive and then reallocate it to the less productive people. If that was done against the desires of the people, subsequently they will harbor bitterness against socialist government. As a result, the tie of patriotism will grow weaker (Duck 2).

Government Role on Social Life

Critics argue that a government which is capable of providing everything is also powerful enough to take away everything. This happened to German National Socialists and Communist Russia. Nevertheless, government with socialist system does not withhold social welfare but the power it has over the economy of that nation leaves the citizens vulnerable to the dictators (Newman 39).

They argue that in a nation where Congress are not permitted to pass law which focuses on establishment of religion, then government social programs seems to be corrupt and mostly tend to be agnostic. As a result, such social programs seem to prohibit religion which is a free exercise or others encourage atheism.

There are many well documented government education programs which prohibit prayer and encourage atheism. Socialist governments appear to atheism. The morality of Atheist is only a manifestation of the light reflected by biblical morality. Without the guiding light from the bible, atheist morality is likely to go off course. Finally, it degrades to level where immoral behaviors such as genocide turn to be acceptable.

Critics further argue that socialism should not be allowed to exist in a government and socialist groups ought to support capitalism in their government since in capitalism they can freely exist. They believe that the framework of capitalism leads to efficient socialism, this is because it allows people to embrace socialism (Duck 2-3).

Prices Formation

In capitalist system, prices are not determined by the state but set by interplay between demand and supply in the free markets. Nevertheless, the state could affect the prices indirectly through subsidization, taxation, restrictions of imports and in case it manages the Central Bank, through monetary policy like money supply and interest rates. Therefore, in this system coordination of transactions through prices is a distinctive feature of capitalist system (Friedman 8-13).

On the other hand, in case of socialist economy channeling so much power on the prices it would require sufficient market structure; it would also challenge the structure and the state that formed such system while trying to allocate resources in the economy. In socialist economy price mechanisms were not fully eliminated, mostly it was incorporated in economic planning.

This led to unofficial or multiple official price systems. This altered price system which never reflects true scarcity levels and makes consumers and companies to be price inelastic, thus they do not react adequately to increase and decrease of prices because these are meaningless. Conversely, households in classical socialist economy work under constrain due to the hard budget because their funds are limited.

Thus they never respond to prices because the state controls the prices which become political relevance. As a result, the prices of services and basic goods like medical services, staple food, housing, childcare, are normally subsidized whilst the demand for luxury goods is controlled through setting high prices. As proposed by classical economic theory the consumers respond promptly, they buy extra of the subsidized goods compared to what they would purchase in market equilibrium.

Market Structure

In capitalist system, private enterprises of different sizes coexist and usually compete with those enterprises owned by the state and other forms like the cooperatives. The main feature of capitalist system appears to be free market exit and entry. Thus it’s not a static system however it operates under dynamic renewal.

On the other hand, in socialist economy the seller incurs total transaction cost, seeks information on how and where to find the product, adapts to the seller’s supply through forced substitution. Therefore, the buyer bears the outcomes of uncertainty. This is opposite of capitalist economy which can be regarded as buyer’s market. In the case of seller’s market as in socialism, it’s usually a stable condition where demand constantly exceeds supply (Rudiger 11).


According to the discussion above it is evident that these two systems are quite different with a few similarities. Majorly, the socialist economy is depicted by its communal ownership as the name suggests. The society properties are owned by everybody and there is no one entitled as the sole manager.

The property rights are generally communal and the members act as caretakers of the properties. On the other hand, capitalism is distinguished by the private ownership of property. Analyzing on the prices the two systems are really diverse, under socialism the consumers are in control of the market and they bear the overall cost of market uncertainties.

Moreover, they are supposed to seek where and how to use the means of production hence the name seller market. On the other hand, under capitalism it’s the reverse it’s called the buyer market since the government is in control of the means of production. One similarity is that both governments control the amount of money workers contributes thus the pension is under government management.

Works Cited

De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Random House, 2000

Duck, Samuel. “Comparing national socialism to capitalism, liberty, charity, and local socialism”, 2009. 20 April 2011 not _socialism. pdf.

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

Gilpin, Robert. Global Political Economy: Understanding the International Economic Order. Princeton: Princeton University Press, 2001.

Hans-Hermann, Hoppe. Theory of Socialism and Capitalism. Alabama: Ludwing von Mises Institute, 2007

Hunt, E. and Lautzenheiser, Mark. History of Economic Thought: A Critical Perspective. New York: M.E. Sharpe, 2011.

Kornai, Janos. The Socialist System: The Political Economy of Communism. Princeton: Princeton University Press, 1992.

Newman, Michael. Socialism: a very short introduction. New York: Oxford University Press, 2005

Ruccio, David and Amariglio, Jack. Postmodern moments in modern economics. Princeton: Princeton University Press, 2003

Rudiger, Frank. “North Korea: East Asian Socialism, Capitalism, or What?” University of Vienna, 2008. 20 April 2011 Events/ General_ Conference


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