Difference Between Capitalism and Socialism
The difference between capitalism and socialism is centered on the ownership of the means of production and 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 allocating resources is the market. For its part, socialism proposes social or collective ownership of the means of production and the best mechanism for allocating 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 |
|---|---|---|
| Origin | 13th century | XIX century |
| Ownership of the means of production | private | Social |
| Assignment Mechanism | Market | Condition |
| Main production factor | Capital | Job |
| Social classes | According to economic power | There is no classes |
| intellectual founder | adam smith | Robert Owen |
| freedom of decision | freedom exists | limited freedom |
| Job | Right | Have to |
| Wealth distribution | meritocratic system | egalitarian system |
| Defense of interests | Individual | collective |
| Target | Maximization of economic benefit | Maximization of social welfare |
| Institutional framework | Decentralization | Centralization |
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 one 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 that 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, by transferring centralized powers to the State, socialism limits freedom of decision.
Another contentious issue could well be classes. Capitalism doesn't really believe in classes, but it admits that they could arise. In contrast, socialism believes in classes but proposes coexistence between them and even elimination in its purest form.
