The Differences Between Capitalism and Socialism


A socialist economic system treats all members as equal and nobody is given special consideration. On the other hand, a capitalist economic system is one that allows members to do what they want in terms of acquiring and controlling resources. However, their activities must respect the laws of their countries. Karl Marx criticized capitalism for creating class differences in society (Capitalism 2010). The following differences are evident in capitalist and socialist economic systems.

First, a capitalist economic system gives members the freedom to conduct business activities depending on their abilities. However, it promotes consumerism and makes people spend money without intending to do so (Capitalism 2010). Those that have a lot of capital can invest in multi-billion projects. Alternatively, those that have limited financial abilities explore local small-scale investments that have few returns (Buckster 2008). A socialist economic system gives all members equal opportunities to invest their resources in various activities.

Karl Marx argued that socialism ensures the state controls resources that are used for production purposes (Socialism 2010). This means that all minerals, lands, water bodies, and forests belong to the state and nobody has the power of exploiting them without seeking its approval. A capitalist economic system allows its members to own property by buying, inheriting, or hiring. It is necessary to explain that capitalists control resources depending on their financial abilities.

Adam Smith argues that capitalist economic systems depend on markets to control the prices of their goods and services (Capitalism 2010). This means that the value of currencies cannot be predicted because of inevitable changes in market trends. Therefore, investors must study market trends keenly to ensure they have current and relevant ideas to plan their activities (Lanz and Sharpe 2008). Socialist economic systems allow the state to determine the prices of goods and services, and this means that they may remain in a fixed position for a long time.

Moreover, capitalist economic systems require minimal state participation in production (business) activities because they believe that free markets enable investors to be efficient. These systems require investors to develop strategies that will promote their goods and services in local and international markets (Buckster 2008). Socialist systems require the state to take a center stage in managing social, political, and economic issues that affect society. Socialist economic systems have a lot of inefficiencies like corruption and lack of accountability.

Profits generated from capitalist economic systems are used to expand business operations and the development of this fuel. However, a socialist economic system aims at producing goods and services to meet the needs of the community (Socialism 2010). Therefore, there is no competition in business activities and this hinders economic development.


The differences between capitalist and socialist economic systems are in the ways individuals obtain and use resources. In addition, performance is a key issue in capitalist systems, while socialists place a lot of emphasis on the availability of goods and services for the community. Capitalism focuses on satisfying the needs of individuals while socialism aims at promoting the welfare of the community.


Buckster, A. (2008). Capitalism, Socialism, and Democracy. New York: Harper Perennial Modern Classics. Capitalism. Current issues: Macmillan social science library. Opposing viewpoints in context. (2010). Web.

Lanz, T. and Sharpe, J. (2008). Beyond Capitalism and Socialism: A New Statement of an Old Ideal. Oklahoma: HIS Press. Socialism. Opposing viewpoints online collection. Opposing viewpoints in context. (2010). Web.

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