Wouldn't it be great if money grew on trees?
Everyone could buy what they need. There would never be conflict.
Sadly, that's just not reality.
In a world with limited resources, societies have developed beliefs like communism and capitalism that structure how the economy should be run.
What is communism?
Communism is an economic ideology by Karl Marx in which all property is publicly owned and people are paid according to their economic needs.
In a communist society:
the means of production (like land, resources, and factories) are publicly owned
wealth is shared according to need
the needs of society are more important than individual freedom
everyone is equal, and there is no government or private property
What is capitalism?
Capitalism is an economic ideology in which property is privately owned and trade is controlled by competition.
In a capitalist society:
the means of production are privately owned
the economy is driven by supply and demand
individual freedom is more important than society's needs as a whole
class distinctions categorize people by their economic position in society
Communism vs. Capitalism: The Key Differences
1. Key Principles Underlying Each System
Capitalism is founded upon individual rights, emphasizing personal liberty and autonomy. Conversely, communism emphasizes community rights, prioritizing society over individual interests.
2. Class Distinctions and Egalitarianism
Capitalism perpetuates class distinction by encouraging wealth accumulation that widens disparities between rich and poor, while communism advocates for an egalitarian society where resources are distributed evenly among all members.
3. Systems of Government
Capitalist economies typically adopt democratic forms of governance that ensure individual liberty with minimal government interference, while communist economies often feature authoritarian governments with extensive control over all aspects of society by the state.
4. Government Interference
Capitalism encourages limited government intervention in economic affairs, leaving market forces to dictate production and pricing decisions. Conversely, communism requires intensive state control of trade and industry in its country.
5. Distribution of Wealth
Under capitalism, individuals work for themselves to gain wealth. In communism, wealth distribution occurs according to an individual's needs and abilities for more equitable resource distribution.
6. Procurement of Factors of Production
Capitalist economies entrust ownership of production factors (land, labor, and capital) to private individuals or enterprises; conversely, in communist economies, these resources are owned and administered by the state.
7. Individual and Social Priorities
Capitalism prioritizes individual freedom and profit-driven innovation and development; communism, on the other hand, emphasizes community welfare over personal gain.
8. Market Competition
Capitalist economies foster free and competitive markets that foster innovation and economic development. Comparatively, communist countries with state-controlled markets lack this competition that spurs innovation and could hinder the future success of their nation.
9. Business Ownership
Under a capitalist system, individuals have the freedom to own and run businesses; under communism, however, all productive enterprises are owned and controlled by the state.
10. Geographic Distribution.
Capitalism has historically been more prevalent in Western nations, while communism has gained more ground among Eastern states.
Communism vs. Capitalism: Pros and Cons
everyone's basic needs are met
no class divisions
equal access to jobs, healthcare, and other social services
lack of economic growth due to lack of competition
less personal autonomy and freedom
potential for corruption
economic innovation is incentivized
unrestricted economic and political freedom
higher standard of living
inequality of opportunity and outcome
society is divided by class
less economic stability due to "boom and bust cycles"
Communism, capitalism, or both?
Capitalism and communism are both economic ideologies, or visions for how the economy should run. In reality, economies are a mix of policies that reflect elements of capitalism and communism.
A mixed economy may:
protect private property but allow the government to step in for the collective good
have some industries that are publicly owned because they're considered essential
Communism and capitalism today
North Korea, Laos, Cuba, China, and Vietnam are the only official communist governments, however none of them meet the true definition of communism.
Singapore, New Zealand, Australia, Switzerland, and Ireland are some of the most capitalist countries.
Capitalism is the most influential economic system worldwide.
Communism vs. Capitalism: The Impact on Society
Economic Development and Innovation
Capitalism's emphasis on individual incentives and market competition has long been recognized for driving economic development and innovation. The profit motive encourages entrepreneurs to develop new products and services, furthering technological and industrial advancement. Conversely, communism's state-controlled markets and lack of individual incentives may stifle innovation and slow economic development.
Income Inequality and Social Mobility
Capitalism often results in significant income disparity, with wealth becoming concentrated among a select few and thus hindering social mobility and perpetuating poverty as the rich get wealthier while the poor become poorer. Communism attempts to address this by redistribution of wealth more equitably but it may come at the cost of individual freedom and economic growth.
Education and Healthcare
In capitalist societies, access to quality services often depends on one's ability to pay, leading to income inequality and limited opportunities for those less privileged. Conversely, communist societies typically provide universal access to education and healthcare that ensures all citizens have equal chances to thrive and prosper.
Capitalism's emphasis on profit and growth can often have detrimental environmental consequences, with businesses prioritizing short-term profits over long-term sustainability. Communist economies, with their emphasis on collective welfare and priority of environmental concerns over individual gains, may offer more effective environmental protection. Many historical examples show these nations' disdain for environmental sustainability due to pressure to industrialize quickly on an international stage.
Which of the following policies reflect a capitalist ideology? Select all that apply.
Welcome to Money Island!
The economy is based mostly on agriculture, manufacturing, and energy. The island is dotted with vineyards that have been passed down from generation to generation, and wine is their biggest export.
As part of its economic policy to promote growth and reduce unemployment, the government has shares in private corporations across a number of industries. The government has also set workers' minimum wage at $25 per hour.
Is this an example of communism, capitalism, or a mixed economy?