Capitalism versus Socialism

• The economic system known as capitalism developed gradually over centuries, originating during the late Middle Ages.

• During the 19th century societal changes due to industrialization led some people believe that capitalism caused certain problems, such as the abuse of workers.

• These critics of capitalism responded by developing a new economic system called socialism

Capitalism• Definition:

economic system in which the factors of production are privately owned & money is invested to make a profit

Capitalism• Adam Smith: wrote

The Wealth of Nations

• Believed in Laissez-faire economics – gov’t should NOT interfere in a free market

Capitalism• 3 Natural Laws of Economics:1. Law of Self-Interest: People work for

their own good2. Law of Competition: Competition

forces people to make a better product

3. Law of Supply & Demand: Enough goods would be produced at the lowest possible price to meet demand

Socialism• Definition: economic system in

which the factors of production are owned by the public and operate for the welfare of all

Socialism• Grew out of a

concern for social justice

• Government should control key industries to end poverty and promote equality

• Individuals & businesses own property & means of production (private)

• The community or state owns property & the means of production (public)

Socialism

Capitalism

• Progress results when individuals follow their own self-interest

• Progress results when a community of producers cooperate for the good of all

Socialism

Capitalism

• Businesses follow their own self-interest by competing for consumer’s money

• Socialists believe that capitalism takes advantage of the worker

Socialism

Capitalism

• Dominos Pizza

• Papa John's Pizza

• Pizza Hut Pizza

Pizza Anyone?

Not lovin’ it

• Each business tries to produce goods or services that are better & less expensive than those of competitors

• The community or state must act to protect workers and consumers

Socialism

Capitalism

• Consumers compete to buy the best goods at the lowest prices

• Socialists believe that capitalism creates an unequal distribution of wealth

Socialism

Capitalism

• The Ultimate Price?

The Ultimate Price?

U.S. Distribution of Wealth 2013

• Consumer competition shapes the market by affecting what businesses are able to sell

• Rather than competition, goods should be distributed according to each person’s need

Socialism

Capitalism

• Gov’t SHOULD NOT interfere in the economy because competition creates efficiency in business

• Gov’t SHOULD control & regulate the economy to protect workers & consumers

Socialism

Capitalism

Marxism – Radical Socialism

• According to Karl Marx the economy is a major force for change

• Change generally occurs through class struggle

• The “HAVES” v. the “HAVE-NOTS”

Marxism – Radical Socialism

• Throughout history the “HAVES”:• Control politics &

government• Create & control

culture

Marxism – Radical Socialism

• As a result of this influence on society the “HAVES” have historically kept their position on top of the social structure

Marxism – Radical Socialism

• Said the large proletariat would revolt, seize factories/mills from the capitalists, & produce what society needs

Time Period

The “Haves”

The “Have-Nots”

EgyptPharaohs,

priests, royal families, etc.

IndiaUpper castes:

priests & rulers

Slaves, peasants

Lower castes:

servants & slaves

Time Period

The “Haves”

The “Have-Nots”

MiddleAges

Peasants, serfs

Age of Industr

y

Middle Class (Bourgeoisie)

Factory Owners

Nobles,landowners

Factory workers

(Proletariat)

Communism (in theory)• Pure Socialism in Marx’s Vision =

Communism• ALL “HAVES” & NO “HAVE-NOTS”• Classless

society with NO gov’t

• All goods & services shared equally

In the American System?• Business can require workers to

work for unlimited hours• Businesses compete with each

other for customers• Hiring practices permit

discrimination• Huge variety of products

available• Individuals can start a business

In the American System?• Individuals can own a business• People can improve material

wellbeing through hard work• Prices vary with availability and

demand• Production of too many goods

results in discount stores • Some people do not have health

care

In the American System?• Unregulated monopolies• Wages vary according to the

availability of that type of worker• Workers laid off if demand drops

or business fails• 40 hour work week • Bankruptcy laws

In the American System?• Child labor laws• Government protection of bank

deposits• Higher tax rates for wealthier

people • Government inspection of

meat/restaurants•

In the American System?• Medicare• Minimum wage• Old age/retirement payments by

the gov’t• Over-time pay• Public libraries, parks, & schools

In the American System?• Workman’s compensation for

injury on the job• Workplace safety inspection• No private ownership of the

means of production• Equal pay for equal work