Capitalism vs Socialism Made Simple

Workers of the Kerch Factory by Aristarkh Lentulov

If you were to ask most people to explain the terms “capitalism” and “socialism,” they would most likely provide a caricatured explanation. They may say that capitalism is good insofar as it can make you rich like Bezos if you just work hard enough, or that capitalism makes it the case that if you do not succeed in life, then it is all your fault. When it comes to socialism, people may say that socialism is bad insofar as socialists do not want to work since they are lazy schmucks who want free stuff, or that socialists want to steal your property, or that socialist ideas will lead eventually to gulags and death camps. They may also invoke Venezuela as one of the prime examples of socialism’s failure and suggest that you move there if you hate capitalism so much. By and large, these are the sorts of banal exchanges that take place. Rarely, do people arrive at an intellectually precise understanding of these two terms, causing us to talk past each other in very unproductive ways. Before you have any further discourse, then, about capitalism and socialism, you have to foster a basic understanding of what the terms mean.

Capitalism:

Capitalism is an economic system defined by large amounts of people working for wages and a small number of people who privately own the means of production (i.e., the country’s resources). Other defining features of capitalism are class differences, private property, wages, profits, open markets, and voluntary exchange. There are various expressions of capitalism such as Laissez-Faire Capitalism, Welfare State Capitalism, and Corporate Capitalism. Proponents of capitalism would be people like Adam Smith and David Ricardo.

Socialism:

In contrast, socialism is an economic system defined by a political tradition of egalitarian principles, democratization of the economy, workplace democracy, and its aversion to power, wealth inequality, and private property. By private property, I mean a small number of people owning and controlling the means of production and the mass possession of concentrated wealth. There are various expressions of socialism as well, such as Marxism, Anarchism, Fabianism, and so forth. Some socialists are against the state, others are for it, and others believe the world should be held by all communally. Proponents of socialism would be people like Karl Marx and Eugene Debs.

What you will often discover is that, especially here in America, capitalism is viewed more favorably than socialism. Socialism’s odor is largely due to Americans having had anti-socialist propaganda poured into their heads for a very long time. “Even before the Cold War erupted,” wrote Richard Wolff, “capitalism’s defenders and admirers often demonized capitalism’s critics as dangerous, disloyal, foreign, and/or anti-American, anti-Christian, and so on.” So, really ever since 1945, Americans have been instructed to view socialism with anxiety, fear, and outright hatred. In turn, this has caused Americans to pay very little attention to socialist ideas, resulting in extreme ignorance. This ignorance injures not only our understanding of socialism, but of capitalism as well, insofar as to understand socialism you must understand capitalism, and vice versa. It would therefore be an exercise of prudence to avoid popular-level talking points. Seek to go above and beyond popular conversations and make a good-faith effort to understand the terms you are using. This may very well be the shortest article I have ever written, but I did say I would make it simple. So, now that you have a very basic understanding of capitalism and socialism, you can approach these traditions with the respect they deserve, and begin to converse with others in more fruitful and confident ways.