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Difference between capitalism and socialism

Socialism vs. Capitalism is one of the very discussed topics in group discussion. These are two economic systems which are prevalent or adopted by different countries of the world. Capitalism the ancient political system, whose origin dates back to 1400 AD in Europe. On the contrary, the socialism, which evolved from 1800 AD and its place of origin France.

A capitalist economy characterized by the free market and fewer government interventions in the economy, where the highest priority is given to capital. Unlike a socialist economy, it refers to the organization of society, which is characterized by the abolition of class relations and therefore gives more importance to people.

So, here we have presented all the differences between capitalism and socialism, which can help you decide which system is the best.

Comparative chart

Basis for comparison Capitalism Socialism
Sense Capitalism refers to the prevailing economic system in the country, where there is private or corporate ownership over trade and industry. The economic structure in which the government has ownership and control over the country's economic activities known as socialism.
base Principle of individual rights Equality principle
Supporters Innovation and individual goals Equality and fairness in society
Means of production Private property Social property
Prices Determined by market forces Determined by the government
competition Very high No competition exists between businesses
Degree of distinction in the class of people tall Bass
Wealth Each individual works for the creation of their own wealth Equally shared by all the people of the country
Religion Freedom to follow any religion Freedom to follow any religion but encourages secularism
Efficiency Much Less
Government interference No or marginal The government decides everything

Definition of capitalism

Capitalism defined as an economic system in which the means of production, trade and industry are owned and controlled by private individuals or corporations for profit. Also known as a free market economy or laissez-faire economy.

Under this political system, there is minimal government interference in financial affairs. The key elements of a capitalist economy are private property, capital accumulation, the motive for profit and a highly competitive market. The salient features of capitalism are as below:

  • Production factors are privately owned. They can use it as they see fit. Although the government may place some restrictions on public welfare.
  • There is a freedom of enterprise, that is, every individual free to engage in the economic activity of his choice.
  • The gap between wealthy and non-wealthy people is wider due to the unequal distribution of income.
  • In the economic sphere, consumer sovereignty exists, that is, producers only produce those goods that are sought after by customers.
  • There is extreme competition in the market between companies that use tools such as advertising and discounts to attract customer attention.
  • The reason for profit is the key component; which encourages people to work hard and earn wealth.

Definition of socialism

Socialist economy or socialism defined as an economy in which resources are owned, managed and regulated by the state. The central idea of ??this type of economy is that all people have similar rights and in this way, each person can reap the benefits of planned production.

Since resources are allocated, in the direction of centralized authority, this is why it is also referred to as command economy or centrally planned economy. With this system, the role of market forces is negligible in deciding the allocation of production factors and the price of the product. Public welfare is the fundamental objective of the production and distribution of products and services. The salient features of socialism are the following:

  • In the socialist economy, collective ownership exists in the means of production and for this reason that resources are destined to be used to achieve socio-economic objectives.
  • Central planning authority exists to establish socioeconomic objectives in the economy. In addition, decisions regarding objectives are also taken by the authority.
  • There is a fair distribution of revenue to bridge the gap between rich and poor.
  • People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by authority.
  • Since planned production exists, consumer sovereignty has no space.
  • Market forces do not determine the price of raw materials due to the lack of competition and lack of profit motivation.

Key differences between capitalism and socialism

The following are the main differences between capitalism and socialism

  1. The economic system, in which trade and industry are owned and controlled by individuals, known as Capitalism. Socialism, on the other hand, also an economic system, in which economic activities are owned and regulated by the state itself.
  2. The basis of capitalism is the principle of individual rights, while socialism is based on the principle of equality.
  3. Capitalism encourages innovation and individual goals while socialism promotes equality and equity in society.
  4. In the socialist economy, resources are state-owned, but in the case of the capitalist economy, the means of production are privately owned.
  5. In capitalism, prices are determined by market forces and therefore firms can exercise monopoly power, by charging higher prices. On the contrary, in the government of socialism it decides the rates of any article that leads to deficiency or surfeit.
  6. In capitalism competition between companies is very close, while in socialism there is no marginal competition because the government controls the market.
  7. In capitalism, there is a large gap between rich and poor class because of the unequal distribution of wealth compared to socialism where there is no such gap because of the fair distribution of income.
  8. In capitalism, each individual works for their own accumulation of capital, but in socialism, the wealth shared by all people in the same way.
  9. In capitalism every person has the right to freedom of religion which also exists in socialism, but socialism gives more importance to secularism.
  10. In capitalism, higher efficiency than socialism due to profit incentives which encourages the company to produce such products which are highly demanded by customers while in a socialist economy there is a lack of motivation to earn money, which leads to inefficiency.
  11. In capitalism, there is no or marginal government interference that is exactly the opposite in the case of socialism.


As we all know, each currency has two aspects: one good and the other bad and the same is true for the two economic systems. very difficult to say which system is better than the other. Capitalism leads to the development of the country's economy together with the creation of wealth but supports the distinction between rich and poor.

Socialism bridges the gap between rich and poor and makes everything available to all people, but at the same time erases the encouragement to work hard, due to which the national gross domestic product falls and everyone is poor.

In my opinion, the combination of the two economies is the best that is the mixed economy which accepts the merits of both. It can help the country grow and thrive along with a smaller gap between those who have and those who don't. There will be a public-private partnership in the economy and the administered price exists.