Difference between capitalism and socialism

comparisons

The difference between capitalism and socialism is centered in the ownership of the means of production and in the resource allocation mechanism.

Although logically, the difference between capitalism and socialism goes far beyond these two factors, these are the main ones. These are the ownership of the means of production and the mechanism through which resources are allocated.

Capitalism proposes that the ownership of the means of production must be private and the best mechanism for the allocation of resources is the market. For its part, socialism proposes social or collective ownership of the means of production and the best mechanism for the allocation of resources is state planning. According to the economic dictionary of Economipedia, the definitions of each of them are:

  • Capitalism: It is an economic and social system based on the fact that the means of production must be privately owned, the market serves as a mechanism to allocate scarce resources efficiently and capital serves as a source to generate wealth.
  • Socialism: It is an economic and social system that focuses its ideological bases on the defense of collective property against the concept of private property of the means of production and distribution.

Of course, these differences are not the only ones, both economic systems have many more aspects in which they are different.

Main differences between capitalism and socialism

The main differences between capitalism and socialism can be collected in the following table:

Aspects Capitalism Socialism
OriginThirteenth centuryXIX century
Property of the
means of production
PrivateSocial
Allocation mechanismMarketState
Main factor
production
CapitalJob
Social classesAccording to economic powerThere is no classes
Intellectual founderAdam smithRobert Owen
Freedom of decisionThere is freedomLimited freedom
JobRightShould
Wealth distributionMeritocratic systemEgalitarian system
Defense of interestsIndividualCollective
objectiveMaximization of economic benefitMaximization of social welfare
Institutional frameworkDecentralizationCentralization

In the previous table we have a simplified scheme of the main aspects to be dealt with. Others have been ignored since the different variants of each of them can generate confusion. For example, not all types of socialism propose social or collective ownership of the means of production. Such is the case of Owen's utopian socialism which is in favor of private production.

The same is true in the matter of freedom. In socialism it proposes to free the people from capitalism, however socialism by transferring centralized powers to the State limits freedom of decision.

Another contentious issue could well be classes. In reality capitalism does not believe in classes, but admits that they could arise. In contrast, socialism believes in classes but proposes coexistence among them and even elimination in its purest aspect.

Origin of capitalism Socialist mode of production Origin of socialism

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