Abstract 5 -DbSaC

What are the Differences Between Socialism and Capitalism?

The critical question for all economics is – How does one organize society so that it maximizes the benefit of society and the individual? That question has led to multiple forms of proposed practices for national economies. Two of those forms of government are studied here. First, we have capitalism that was used in the founding of this nation and second, we have socialism that has crept in over the last hundred ears.
Both are examined. The socialist is centrist and believes that the state has the right to make laws that enables the state to control the individual and provide equal sharing among the citizens. The capitalist is libertarian and decentralized. The individual can own property and live his life as he pleases as long as he does no harm to others.
The United States adheres to Aristotle’s philosophy of government. It assumes that the individual has freedom and reason and that all power that resides in the state comes from the people. The state is allowed a limited amount of control over the citizen in return for providing national and personal safety.
This nation was founded as a Libertarian society that enables and supported the principles of capitalism. The socialists on the other hand, believe that the Constitution is a fluid document. They decided to call it fluid when they ran into constitutional constraints. Socialists believe that the government is all-powerful over the individual. The state is supreme over an individual’s rights. This is the exact opposite of what the founders of this nation thought and built upon.
The Libertarian ethic is hardwired into the American character. Let us see why.
Libertarians believe in the law. They understand there can be no freedom unless there is law and it is enforced. Accordingly, they believe in the Constitution. Further, they believe that there should be limits on government as specified by the Constitution. Americans believe in the Constitution and the three branches of government. This means that the legislative branch makes the laws, the executive branch executes the laws, and then the judicial branch determines whether the laws are constitutional. That is consistent with the Constitution. Libertarians presume that all men are free and ought to be free to live as they choose. First, all Americans are capitalists since they own property. Libertarians believe in owning property, the ability to use that property and wealth for investment, the ability of the individual to own the factors of production and determine what is produced and how the production is used. They know that they have to pay taxes but anything beyond taxes is for their use not the state’s.
Socialists today find that Marx can be used as a lever to replace capitalism. Marx used three theoretical philosophies to describe his belief in socialism. He believed that the goal of socialism was to replace capitalism and private property. First, he used materialism to demonstrate that socialism could in fact accomplish something positive for the individual citizen. In the 175 years since Marx and Engels were writing, capitalism has changed drastically. Capitalist nations such as the United States now have labor laws that outlaw most of the practices that Marx and Engels did not like – such as child labor. We now have services that did not exist in the 1840s such as medical plans, retirement plans, job security, worker compensation and labor laws. One should note that our manufacturing communist competitor, China, has none of these. This gives China a clear competitive advantage of lower costs.
This book discusses the economic principles associated with private property in relation to capitalism and private ownership and socialism with public ownership. An example can be used to explain the difference. Consider a person digging a well in the desert where he creates property (water) from scarcity. He is a capitalist. The state using force to make the owner provide water to everyone without compensation is socialism.
The book discusses three different types of socialism that evolved from Karl Marx Theory. First, one has Russian Socialism, which is congruent with Marxism and is characterized by the state ownership of the means of production. It is inherently defective since pricing is not used to determine what should be produced, what equipment should be used for the production, how the equipment is to be used, how much should be produced and what price should be charged. It is doomed to fail since no centralized government system can optimally make all these decisions. Only a private property owner can optimize the constantly changing production environment. He must make decisions based on price and cost and how price and cost affect his profits.
Russian Socialism follows the Marx philosophy very closely. The state owns the factors of production and makes all decisions related to it. When there are profits, it distributes them. It failed. The Russian system requires production overseers that are chosen politically. Therefore, individuals optimize their political skills and not their production skills since that is what is rewarded.
German Social Democratic Socialism – is the name that the German Republic uses for their economic system. The Germans watched Russian socialism fail. They understood the Marxian Socialism and decided not to use it because the factors of production ownership by the government is fundamentally flawed and doomed to failure. The German system allows private ownership and private control of production, which eliminates the Russian problem. However, the government controls the earnings via legislation and taxes. The state determines how much of the earnings go into capital production, dividends for the owner, new capital and taxes to be distributed to the nonproducing members of the state.
Conservative socialism – is used in Europe, principally France and Italy. In this form of socialism, the former aristocratic nobility in the nation can be used as influence agents to affect the economy. They influence the parliament to make changes to socialism from being too rapid. That is where the term “conservatism” comes from. In fact, they are trying to maintain the old capitalist system. They use price controls on products (the supply side) and behavior controls (the demand side) on purchasing decisions. They enforce the behavior pattern that only certain types of products meeting government standards and are allowed to be sold. This is a holdover of feudalism of Europe. It is not seen in the United States. .
As a summary, in capitalism, the owner owns the factors of production, makes the decisions to produce, which equipment to buy, which production to run, which investment to make and how to distribute profits.
In German socialism, the owner makes all decisions to produce, which equipment to buy or sell but that the state determines how much of the profits should be kept or distributed. In conservative socialism, the state legislates restrictions on sales and supply in order to slow the conversion from a capitalist system to a socialist system.


The critical question for all economics is – How does one organize society so that it maximizes the benefit of society and the individual? That question has led to multiple forms of proposed practices for national economies. Two of those forms of government are capitalism and socialism. Capitalism was used in the founding of this nation and second, socialism is based on the theory of Karl Marx who published Das Capital in 1867. The period between 1850 and 1910 was very rough on workers. There were not benefits and owners took advantage of labor.
Capitalism requires private ownership by the individual. As such, the individual makes all decisions related to the factors of production, which would include plant, equipment and people. The individual, as owner, makes all decisions related to what equipment to buy, how to use it, how often it is used and what price to place on the finished goods.
In contrast, socialism has the state providing all the ownership. As such, the state makes all decisions related to the factors of production, which would include plant, equipment and people. The state itself is the owner so they must make all the decisions with respect to production and pricing.
This book studies both systems. A Taxonomy will be used that consists of classifying the systems by (1) the means of production, (2) capital formation, (3) political motivation, (4) the differences of the power required to control factors of production, (5) wasteful effects of socializing (state ownership) the means of production.
The above taxonomy is used to analyze (1) Russian socialism, (2) German social democratic socialism and (3) Conservative socialism. The conservative socialism is used in Italy and France. The Democratic Party in the United States – Bernie Sanders, is promoting a form of German social democratic socialism. The taxonomy is filled in for each form of socialism. The result is three matrices – one for each socialistic system. These matrices are provided for the reader in the book so that he can do quickly with references between systems if you so desired.
Capitalism is the form of production that is used in the United States. The founding fathers were all Libertarians in their philosophy. It is only recently that libertarianism has come back into the political spectrum for Americans. The overriding push the Democratic Party has made since 1913 has been progressivism, which is a socialistic system by another name. With this last election, the tide may be going out.
The founding fathers were Libertarian. Libertarians believe in freedom for the individual… This book reviews Libertarian tenants, practices and beliefs. The book reviews the Libertarian roots, belief in the dignity of the individual, foundational concepts of libertarianism, the rights that Libertarians believe that they have and the dignity of the individual which is strongly believed by Libertarians… In addition, government is looked at from the viewpoint of libertarianism. Specifically, special interest laws, government waivers, over criminalization and over regulations. We investigate the philosophy of why governments get too big and the constitutional limits of government.

Karl Marx’s book, Das Kapital, established the philosophical basis for socialism. We briefly review the history and the theory behind socialism as presented by Karl Marx… The term theory as used here refers to philosophy, capitalism, politics, and socialism/ communism. The reader upon completion should have a decent feel for the terms and the differences.
Finally, communism and socialism in the current times are reviewed subject to the recent turmoil after the election of Donald Trump. In particular, the basis for and what it looks like are evaluated using the yardstick of a proletarian revolution.
Russian socialism is actually implementation of Karl Marx’s the philosophy. . In this form of socialism, the state owns all factors of production, distributes all profits, and makes all decisions with respect to production… Accordingly, the managers and decision-makers in the system are effectively politicians. After a period, this showed dramatically in several areas – equipment was worn out by overproduction, equipment was used for private production rather than state production and final equipment was not disposed when it was no longer economical to use. The net result of this was a society where there was a drop in the rate of an investment; there were wastes in production and relative impoverishment of the entire economy.
When Germany united West and East Germany, it was soon found out that, the East Germans were not self-motivated nor self-starting. They had become used to having the jobs assigned to them and not making decisions about production. Accordingly, it took much longer to integrate the people / workers into Western Germany than was initially anticipated.
German social democratic socialism solved one of the big problems of Russian socialism. They allow individuals or private ownership of all factors of production… The state had to approve the amount of capital that was used for production and it took full control of the distribution of profits… However, the individual owned the factors of production and makes all decisions related is to what price is placed on the manufactured goods.
The socialism of conservatism appears in Italy and France. The conservatism idea is that the nobility of these nations do not want to lose capitalism and will do anything in their power to slow socialism down. Accordingly, what they do is affect the demand and the supply side of all production. The demand side is affected by setting the prices and quantities on items. The supply-side is affected by the state saying you can only buy certain products when at the time you know the product can be cheaper and better. This philosophy in turn leads to inferior products; reduction of production, and relative impoverishment of the society.
In conclusion, socialism has some very fundamental flaws. When the state gets involved, inefficiencies occur. These inefficiencies and arbitrary decisions cause production to fail, cost to go up,