Capitalism vs. Socialism
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Capitalism and socialism are politico-economic systems that differ profoundly, both in terms of their political ideology and their mechanisms of economics. Capitalism as an economy is based on a democratic political ideology and produces a free market economy, where businesses are privately owned and operated for profit; in capitalism, all of the capital investments and decisions about production, distribution, and the prices of goods, services, and labor, are determined in the free market and affected by the forces of supply and demand (ôCapitalismö). Socialism as an economy is based on a collectivist type of political ideology and involves the running of businesses to benefit the common good of a vast majority of people rather than of a small upper class segment of society; it essentially argues for the interests of working class people at the expense of the interests and legitimate property rights of the wealthy classes (ôSocialismö). The manifold differences in the way these two types of economies work is the subject of this paper.Capitalism is an economic system employed by free societies, where political power and capital ownership are accessible to all (ôA Quick Comparison of Capitalism, Socialism and the "Just Third Way"). Although capitalism does not funnel wealth directly into the hands of the poor and needy, the capitalist economic system operates according to the trickle-down theory, which asserts that as the economy overall becomes r
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e market economy, free enterprise, or business operating according to supply and demand rather than under government control, profit is the driving force. In fact, profit is considered ôthe essence of capitalism,ö and the pursuit and realization of profit are absolutely essential to the entire capitalist concept (ôCapitalismö). Profit is simply the difference between the cost of making or obtaining a product and the money obtained from selling it (ôCapitalismö).
Although capitalism makes for a richer and freer society overall, it does not guarantee a certain income for every citizen, as the socialist societies do. For this it has been criticized by some as an ideology that only benefits the wealthy. Two great writers felt differently and eloquently expressed their perspectives. Adam Smith, in Wealth of Nations says:
By pursuing his own interest [an individual] frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good (ôCapitalismö).
Similarly, famous writer Ayn Rand, who was an outspoken advocate of the role of self-interest in capitalism, says in Capitalism: The Unknown Ideal:
AmericaÆs abundance wa
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Approximate Word count = 1289
Approximate Pages = 5 (250 words per page)
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