Updated November 10, 2022
Various isms (doctrine, causes, theories, ideologies) that have defined the modern world are social, political, economic, and philosophical ideologies. These theories have a great significance in understanding modern world history and contemporary politics. Because various political and economic like Marxism, communalism, Socialism and Capitalism are based on these theories or ideologies.
Every economic system has its significance, basically, they are distinguished on the basis of ownership and distribution of resources or means of production in the state. Today we will talk about two different economic systems that are capitalism and socialism. In capitalism means of production (farmland, industries, organization, and other resources) is owned or run for profit by individual not by the community as the whole while in socialism means of production, distribution, and exchange is owned and regulated by the state (community as a whole).
What Does Capitalism Mean?
It is an economic system based on the private ownership of the means of production and their operation for profit that means it is an economic system where businesses are run for profit by individuals, not by the community (state). Under capitalism, everybody is free to take up any line of production he wishes and is free to enter into any contract to earn a profit.
It is originated from England with the break down of serfdom and the feudal system. In the feudal system, the king of the state gave ownership of the large area of land to a barren or feudal lord. And the people who lived nearby that area practiced farming for the feudal lord. In return, the feudal lord gave them grains for their consumption and permission to settle on, which led to the development of free-market and capitalism.
Main Features of Capitalism
(i). Private ownership- In capitalism, means of production (farmland, factories, and other resources) is owned by an individual, not by the state.
(ii). Wage labor- In capitalism, the relationship between employee and employer is socioeconomic where workers sell their labor-power for a fixed amount of money.
(iii). Capital Generation- It is the most important feature of capitalistic economy. It is a process of acquiring additional capital stock which is used in productive process or in simple term ‘when profit from business is reinvested for more capital refers as capital accumulation’. It enables capitalist to increase their wealth and dominance in the society which leads to inequality in the state.
(iv). Competition- Capitalism creates free market trade which means one whose product is better will earn more and it creates cut-throat competition between firms.
What Does Socialism Mean?
It is an economic and political system based on the belief that all people are equal and the resources should be divide equally which means ownership of means of production should be social (community as a whole) not individual. Under socialism, the economic system is controlled and regulated by the government to ensure the welfare and equal opportunity to the people in a society. The idea of socialism is first introduced by Karl Marx and Fredric Engles in their book, ‘The Communist Manifesto’.
Main Features of Socialism
(i) Collective Ownership- Unlike capitalism, means of production are not owned by the individual. In socialism, a certain limit has been set for individuals to hold private property. In socialism, it is the state (government) who owns and regulates the means of production. Therefore, it is the government that utilizes these resources in the interest of social welfare.
(ii)Social, Political and Economic equality- Equality exists under socialism because there is an equal division of property and profit in the state. Therefore, there is no problem with the class struggle.
(iii) Economic Planning- Under socialism, the government fixes certain objectives. In order to achieve these objectives, the government adopts economic planning. All types of decisions regarding the central problems of an economy are taken in the economic plans. There is a Central Planning Authority, which plans for the economy.
(iv) No Competition- In a socialist economy, there is collective ownership over means of production and proportional distribution of profit which prevent competition in the market. Therefore, there is a lack of competition in Socialism.
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