There are many economic and social philosophies, and every society, no matter how modern or simplistic, adheres to some sort of governing ideology. Free market capitalism and socialism are just two of those governing philosophies. The biggest difference between the two being the extent of involvement the government has in the economy. Here’s a brief analysis.
What is Free Market Capitalism?
Capitalism is defined as an economic system that is based on private individuals and organizations rather than the government. The cost of services and goods, distribution and production are driven by competition in a free market. Free market capitalism allows business to move forward without government intervention based on the idea that supply and demand, competition and the free market will correct any problems that arise. It is much more of an individual based system, where products and services are produced as cheaply as possible to maximize profits. Within this system, efficiency tends to trump equality, and consumers tend to look for the best quality for the lowest prices.
What is Socialism?
Socialism is based on collective or social ownership of the production and distribution of goods and services. The government has partial or full regulation of the production of goods and services, or central planning. It focuses on community instead of individuals. By eliminating an unrestricted market economy, socialism distributes wealth more evenly and seeks to create an egalitarian society. It allows for either worker cooperatives to own and operate production or for individuals to own enterprises and property with government controls in place. The goal is for everyone to have the same opportunities to reach certain economic goals.
What You Need to Know
The biggest and most obvious differences are who the system focuses on, the distribution of wealth and the involvement of government. Here are some of the key takeaways from the comparison of free market capitalism and socialism.
- Many people blame capitalism for creating the huge wealth gap between the relatively few haves and the large number of have nots.
- A lot of free market capitalism’s proponents compare socialism to communism; although, socialism doesn’t advocate violence being used for instituting change like communism does. It wants democratic processes to prevail.
- In the US, democratic socialism is gaining the attention of millennials who are interested in free colleges, free health care, eliminating capitalist classes and a more even distribution of wealth.
- Most Americans see these systems as opposite, however, there are those who find merits in both and prefer a blend of the two. There is a growing number of Americans who want to see socialist reforms within the capitalist system.
Capitalism is similar to a typical US bank, where they make profits and hold on to those profits. Socialism is more like a credit union, where the money that is profited goes to the union members. Both institutions get the job done, but profits are allocated differently. Every society has its governing principles. They may not always be perfect, as we as humans are rife with imperfections, but there are strengths and weaknesses to them all. Free market capitalism and socialism are no different.