Economics 101: Capitalism vs. Socialism

There are many different ideas or systems of how an economy should be run. The two most common are capitalism and socialism. They are very different in how they view who runs the economy. Most economies have ideas from both systems, but tend to be more of one than the other.

Capitalism is the economic system based on private or corporate ownership of, production and distribution of goods. It has always existed to some extent in all civilizations but was written about formally by Adam Smith in his book "The Wealth of Nations" in 1776. Capitalists favor a system of free enterprise which means the government should not interfere in the economy - that the laws of supply and demand will make sure that the ecnomy runs most efficiently in meeting people's needs. Capitalism is characterized by competition in which there is rivalry in supplying or getting an economic service or good. Sellers compete with other sellers, and buyers with other buyers. The buyers seek the best possible deal in purchasing goods and the sellers look to make the best possible sale allowing them the most profit.

Socialism is an economic theory or idea that states that the government or the state should be in charge of economic planning, production and distribution of goods. This contrasts with capitalism where free markets predonimate and property is privately owned. Socielism tends to favor cooperation whereas capitalism is characterized by competition.

The theories of socialism first arose in the late eighteenth century in response to the Industrial Revolution where factory owners were becoming wealthy and the workers impoverished. Thus, workers wanted a greater share in the wealth that factories were making. Later a form of socialism called communism sprang up based on the writings of Karl Marx and Friedrich Engels. Communism advocates class struggle and revolution to establish a society of cooperation with strong government control. Communism predominated in the former Soviet Union and much of Eastern Europe at one time. Today it predominates in China and Cuba, but its influence has lessened.

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From time to time in human history, there occur events of seismic significance, when one orthodoxy is overthrown and another takes its place. Today, the scale of the global financial crisis demands that we re-evaluate the economic policy and philosophy that brought us to this point.

George Soros has said that "the salient feature of the current financial crisis is that it was not caused by some external shock. ... The crisis was generated by the system itself." He is right. The current crisis is the culmination of a 30-year domination of economic policy by a free-market ideology that has been variously called neo-liberalism, economic liberalism or economic fundamentalism. The central thrust of this ideology has been that government activity should be constrained, and ultimately replaced, by market forces. In the past year, we have seen how unchecked market forces have brought capitalism to the precipice.

Instead of distributing risk throughout the world, the global financial system has intensified it. Neo-liberal orthodoxy held that global financial markets would ultimately self-correct - the invisible hand of unfettered market forces finding their own equilibrium. But as economist Joseph Stiglitz has caustically observed: "The reason that the invisible hand often seems invisible is that it is not there."

Just as it fell to Franklin Roosevelt to rebuild American capitalism after the Depression, and to the American Democrats, strongly influenced by John Maynard Keynes, to rebuild postwar domestic demand, to engineer the Marshall Plan to rebuild Europe and to set in place the Bretton Woods system to govern international economic engagement, so it falls to a new generation to reflect on and rebuild our national and international economic systems.

If centrist governments are to save capitalism, they must face three challenges. First is to use the agency of the state to reconstitute properly regulated markets and to rebuild domestic and global demand. With the demise of neo-liberalism, the role of the state has once more been recognized as fundamental. The state has been the primary actor in responding to three clear areas of the current crisis: in rescuing the private financial system from collapse; in providing direct stimulus to the real economy because of the collapse in private demand; and in the design of a national and global regulatory regime in which government has ultimate responsibility to determine and enforce the rules of the system.

The second challenge for social democrats is not to throw the baby out with the bathwater. As the global financial crisis unfolds and the hard impact on jobs is felt by families across the world, the pressure will be great to retreat to some model of an all-providing state and to abandon altogether the cause of open, competitive markets both at home and abroad. Protectionism has already begun to make itself felt, albeit in softer and more subtle forms than the crudity of the Smoot-Hawley Tariff Act of 1930. Soft or hard, protectionism is a surefire way of turning recession into depression, as it exacerbates the collapse in global demand. Social democracy's continuing philosophical claim to political legitimacy is its capacity to balance the private and the public, profit and wages, the market and the state. That philosophy once again speaks with clarity and cogency to the challenges of our time.

A further challenge for governments in dealing with the current crisis is its almost unprecedented global dimensions. Governments must craft consistent global financial regulations to prevent a race to the bottom, where capital leaks out to the areas of the global economy with the weakest regulation. We must establish stronger global disclosure standards for systemically important financial institutions. We must also build stronger supervisory frameworks to provide incentives for more responsible corporate conduct, including executive remuneration.

The world has turned to co-ordinated governmental action through the Group of 20: to help provide immediate liquidity to the global financial system; to co-ordinate sufficient fiscal stimulus to respond to the growth gap arising from the global recession; to redesign global regulatory rules for the future; to reform the existing global public institutions - especially the International Monetary Fund - to provide them with the powers and resources necessary for the demands of the 21st century.

The IMF's governance arrangements must be reformed. It is only reasonable that, if we expect fast-growing developing economies such as that of China to make a greater contribution to multilateral institutions such as the IMF, they should also gain a stronger decision-making voice in these forums.

The longer-term challenge for governments is to address the imbalances that have helped to destabilize the global economy in the past decade: in particular, the imbalances between large surplus economies such as that of China, Japan and the oil-exporting nations, and large debtor nations such as America.

The magnitude of the crisis and its impact across the world means that minor tweakings of long-established orthodoxies will not do. Two unassailable truths have already been established: that financial markets are not always self-correcting or self-regulating, and that government can never abdicate responsibility for maintaining economic stability.

For governments, it is critical that we get it right - not just to save the system of open markets from self-destruction, but also to rebuild confidence in properly regulated markets, so as to prevent extreme reactions from the far left or the far right taking hold.

Governments must get it right because the stakes are so high: There are the economic and social costs of long-term unemployment; poverty once again expanding its grim reach across the developing world; and the impact on long-term power structures within the existing international political and strategic order. Success is not optional. Too much now rides on our ability to prevail.

Finally - someone who can describe what's going on/happening that I can understand.

The poster is correct. I don't know why you insist on living in a dream world. I used to respect your comments but I see you really don't understand how supply and emand and/or government really works.

You think everything is a joke. Well, are you going to be laughing when taxes are so high you have a choice to eat or pay taxes?

Are you going to laugh when the country is broke (whopps - that has already happened) and they can't even guarantee FDIC backing for any money you have in the back or IRAs?

Are you going to laugh when other countries commit terrorist attacks on our country; i.e., N. Korea, Iran, etc.?

Are you going to laugh when this country finally crosses into fascism whereas you will seriously have no rights?

Keep laughing BB. The joke will be on you sooner or later, as the country slowly goes down the tubes unless you start boning up on the reality happening right under your nose and start fighting against it.

he is not even President yet and his campaign and followers are practicing big-time intimidation. That reporter in Florida had the guts to ask Biden a hard question, the campaign says no soup for you! Cancelled the rest of the scheduled interviews. Said they would not be given access in an Obama administration. A maxed-out contributor to Obama's campaign ordered a background check on Joe the Plumber...just an average American who asked Obama a hard question. People have been threatened when they say anything negative about him. What are these people going to do if they get REAL power? Food for thought.

Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods, and the creation of an egalitarian society.

So it's okay to consistently call Obama a socialist and not Palin? Do you even look this stuff up or is that just you being Mavericky?

An economics professor at Texas Tech University , Lubbock , TX said he had never failed a single student before but had, once, failed an entire class. The majority of that class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged, everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too, so they studied little. The second Test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for anyone else.

All failed to their great surprise and the professor told them that socialism would ultimately fail because the harder to succeed the greater the reward but when a government takes all the reward away, no one will try or succeed.

if you're going to make a statement gt don't beat around the bush. Just come right out and say it.

1. Any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.

2. a: A system of society or group living in which there is no private property. b: A system or condition of society in which the means of production are owned and controlled by the state

3. A stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done.

Notice that socialism is predicated on the concept of collective/governmental ownership of private property. Here are a couple of links for you. Looks like Obama is pretty much into private ownership. The list below is of title to various economic stimulus plans. They pretty much seem to be centered around free enterprise concepts. Now show me your links where Obama has indicated abolishing private ownership and replacing it with government collective ownership, if you don't mind.

�I believe that America's free market has been the engine of America's great progress. It's created a prosperity that is the envy of the world. It's led to a standard of living unmatched in history. And it has provided great rewards to the innovators and risk-takers who have made America a beacon for science, and technology, and discovery. We are all in this together. From CEOs to shareholders, from financiers to factory workers, we all have a stake in each other's success because the more Americans prosper, the more America prospers.�� Barack Obama, New York, NY, September 17, 2007

Provide $10 billion in Relief for State and Local Governments Hardest-Hit by the Housing Crisis to Prevent Cuts in Vital Services

(and I don't want to see socialism), what do you think the Bush administration has done? Buying interests in banks, etc.

I also know quite a few wealthy folks and some who are just well-to-do. All grieve their losses in the stock market and they are all RABID REPUBLICANS who supported John McCain. They HATE Obama. They "get it." They hate him because they believe he is going to raise their taxes so he can lower taxes on the working class. All of them have been part of the working class. The wealthiest one is a widow who married her money. They aren't afraid of "Robin Hood," they're afraid of having to give back some of the windfall Bush gave them with his tax cuts.

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