What is socialism and capitalism?

Definition of Capitalism: Capitalism is defined as an economic system in which the means of production, trade, and industry are owned and controlled by the private individuals or corporations for profit. Also known as the free market economy or laissez-faire economy,

Under this political system, there is minimal government interference, in the financial affairs. The key elements of a capitalistic economy are private property, capital accumulation, profit motive and highly competitive market. The salient features of capitalism are as under:

·    The factors of production are under private ownership. They can use them in a manner they think fit. Although government can put some restriction for public welfare.

·    There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity of his choice.

·    The gap between haves and have-mats are wider due to unequal distribution of income.

·    Consumer sovereignty exists in the economy i.e. producers produce these goods only that are wanted by the customers.

·    Extreme competition exists in the market between firms which uses tools like advertisement and discounts to call customer attention.

·    The profit motive is the key component; that encourages people to work hard and earn wealth.

Definition of Socialism: Socialist Economy or Socialism is defined as an economy in which the resources are owned, managed and regulated by the State. The central idea of this kind of economy is that all the people have similar rights and in this way, each and every person can reap the fruits of planned production.

As the resources are allocated, in the direction of the centralized authority, that is why it is also termed as a Command Economy or Centrally Planned Economy. Under this system, the role of market forces is negligible in deciding the allocation of factors of production and the price of the product. Public Welfare is the fundamental objective of production and distribution of product and service. The salient features of Socialism are as under:

(i) In socialistic economy, collective ownership exists in the means of production that is why the resources are aimed to utilize for attaining socioeconomic goals.

(ii) Central Planning Authority exists for setting the socioeconomic objectives in the economy. Moreover, the decisions belonging to the objectives are also taken by the authority only.

(iii) There is an equal distribution of income to bridge the gap between rich and poor.

(iv) People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by the authority.

(v) As there is planned production, consumer sovereignty has no place.

(vi) The market forces do not determine the price of the commodities due to lack of competition and absence of profit motive.