In economics, capitalism and socialism are opposing trains of thought that many either misunderstand or sometimes confuse. It can be difficult, with the different economic and political structures, to understand them or differentiate between each one. In the center of the argument about capitalism and socialism is the role of government and economic equality. For example, socialists believe economic equality is bad while socialism is based on a free market. There are also many differences in the systems that naysayers have described as shortcomings.
Joseph A. Schumpeter’s book, “Capitalism, Socialism, and Democracy” reveals many shortcomings in both political ideas. Schumpeter explains the inherent flaw in capitalism lies in prices (45). Producers must compete with other producers that result in driving down prices in order to keep business going; there is often a loss of quality in the good when this happens. The lowered quality comes at the cost of the consumer, setting a lower standard for the population (47). If a business continues to drive prices down there is increasingly little money to pay employees to work, creating a poor work environment or sometimes eliminating jobs entirely (49). Competition is the lifeblood of capitalism, rewarding those who make lucrative decisions and punishing those who do not. It benefits from both parties. Those who protest capitalism find its most inherent flaw lies within its ability to gain from the poor, as well as the rich (78). Eszter Bartha’s book, “Alienating Labor: Workers on the Road to Socialism and Capitalism in East Germany and Hungary” states that socialism’s flaw is in the human’s desire to get something for nothing (22). Socialism promises prosperity for all, equality, and a sense of security but because of human greed delivers only despair and poverty. As the Soviet’s saw, taking all incentives away and making them meaningless only proves that humans will work to create their own incentives, eventually, caving socialism in on itself (68). The lack of pricing mechanisms was also thought to disallow socialist societies to set pricing quotas, rendering them ineffective in their own marketplace or any other (72).
Despite their many differences, there are ways that capitalism and socialism overlap. Each economic structure is built upon ownership, according to Schumpeter (14). Capitalism is built on private ownership, where an individual is free to make their own choices, own goods, and fail or triumph at their own hands. Socialism is based on social ownership. Everything is owned by the state; everybody is employed by the state. Everything is also supposed to be distributed equally. What is mine is yours and vice versa. Though there is no incentive, the unspoken motive is that we are all working for one another, even though none of this is in our control (15). The same idea could be vaguely associated with capitalism, since capitalism’s system is based on the idea that the economy can benefit not only from the victory of the rich but the downfall of the poor. Capitalism as the rich while socialism has the state, and each party benefits no matter what the rest of the population decides for themselves.
Initially, capitalism and socialism seem very different. One offers a free market where individuals can make decisions for themselves, create their own business, or work for somebody else. The other is rune solely by the state. People work for each other but also for themselves; it is all for the good of the country. While these seem completely different, capitalism and socialism also show similarities. The centers of their economic structures are based around ownership. Though the ownership is slightly different, the similarity remains. The fact that both of these systems are flawed also remains.
Bartha, Eszter. Alienating Labour: Workers on the Road from Socialism to Capitalism in East Germany and Hungary. Oxford: Berghahn Books, 2013. Print.
Schumpeter, Joseph A. Capitalism, Socialism, and Democracy. London: Routledge, 2013. Print.