Island Dave's View

The following is an excerpt from a paper I penned for this quarter's Political Economy course. Arguments welcome!

Capitalism versus Socialism:
A Quick Comparison of Economic Priorities

In any society, three basic queries must be answered in order to operate a functional economy. Which goods will produced, how they will be produced, and who will obtain the goods are the simple questions for which simple answers are not always readily available. Capitalist societies tend to favor "market-driven" responses, while socialists value "common good" answers. The differences between the two schools of economics are stark, leading to polarizing discourse concerning an optimal economic system.

Capitalism would address the questions above by assuming that market forces are the most logical and effective means for operating a society's economy. Goods demanded by the market will invariably cause producers to make such goods available for purchase. Whether necessary staples or extravagant excesses, if there is a demand, asserts the capitalist theory, production of said goods will be inevitable. Government has no direct say in goods production, and instead is relegated to the role of referee in any transaction. Even then, true free-market capitalists disfavor any hierarchical interference in revenue flow and market reaction. To a die-hard capitalist, the market must be allowed to correct and balance itself at points of equilibrium which are dictated by the natural ebb and flow of barter and negotiation.

Socialists, on the other hand, assume that economic forces in the market place have an inherent imbalance which favors wealthy capitalists over workers. Market forces, they would assert, tend to push equilibrium to points which favor profit over fairness, and which allow the few to dominate the many. In a socialistic economy, goods are produced to satisfy the needs of the people, but do so in the interest of a common good. Government has a large role in determining which goods will be produced in the economy, allowing the system to operate greatly independent of strict market forces. Instead, a common government overseer, working as and for all constituents, allocates production to goods which meet the needs of the many, and do so in such a way as to fairly share the fruits of labor. While personal desires can affect what is produced, it must generally be directed in an official top-down fashion rather than in a reactionary market-driven manner.

Capitalists produce goods in any manner directed by individuals producing the goods. Generally speaking, this means the capital holders direct production rather than the "hands-on" workers. Producers are free to determine efficiency and negotiate trade values for such goods, eliminating any need to oversee the entire marketplace. Capitalists believe that market forces always push production methods into the most efficient means possible. Without such freedom, capitalists assert, a market is restricted and unable to respond to forces which should be considered when determining how to produce goods.

Socialist economies see tight governmental control of production methods. Though market forces are thus unable to directly affect means and manner of production, socialists would argue that government control assures that all methods are fair, timely, and reasonable for society. Fairness is the primary concern for a socialist economy, and production methods would be set to maximize output and provide necessary goods to society. The absence of market forces allows production to avoid the inevitable boom/bust cycle so easily observed in capitalist nations. The all-in-one production method assures that no part of the system will fail unless the entire system fails.

In a capitalist economy, rationing methods typically involve cash transactions of some flavor. The same market forces which push producers to produce certain goods, and which determine how such producers will produce the goods, will also establish a natural means for rationing goods. Ability to pay for products is a key determinant in allocating scarce resources to a demanding public. Free-market valuation assures that those with greater ability to purchase, and/or a greater desire to do so, are able to affect market responses appropriately. A dynamic capitalist market rarely stagnates in terms of price or supply, and as such, capitalism relies heavily on market forces, such as price pressures, to establish a hierarchy of demanding individuals to allocate resources.

Socialism, in an opposing context, provides that fairness should be instituted in the market place to override the chaotic and unfair distribution of resources. Socialist economies rely on government control of distribution rather than by establishing dynamic, individual asset-driven protocols for transactions. Forces in the market, under socialism, have no direct affect on who receives goods, but instead, are under the direct supervision of the government. Socialism depends on tight control to allocate supply, and emphasizes marketplace fairness rather than entrepreneurialism. Receiving goods in a socialist economy depends solely on government allocation rather than ability and desire to pay.
Clearly, these two schools of economic system oppose each other in most every fashion. True capitalism is market-driven, reactionary, and encourages marketplace competition for production and allocation of resources. For example, booming technological industries provide monetary incentive for additional investment in the newest, most efficient technologies. The distribution of capital to accomplish this must be balanced with a belief that the ultimate value of such an effort is greater than the initial investment.

Socialism supports government dictation of production, and relies on all workers to contribute to a common good, for which they will receive a fair and just return on their labor. Instead of reacting to a booming technological market as a capitalist would, socialist economies would direct technological innovation in a manner which seeks to provide needed goods to the populace rather than offer potential profit to the business owner.

Inherent in capitalism is the power of the capitalist over the laborer. While many employers operate fairly, profit is a primary concern and will certainly affect which goods are produced, how they are produced, and which buyers are able to purchase. Laborers have no direct say in these decisions, and are generally at the mercy of the business owner in affecting production. Socialism provides tight control over production allocation and methods, and disperses resources under a mantra of fairness for all workers. Socialism stifles entrepreneurialism, favoring instead efforts made toward common goals. Laborers are contributing to a common good, are a natural an integral part of the government, and thus, have an inherent say in all production decisions. Capitalism depends on individual motivation to exceed expectations and push market profits to drive revenue and provide incentive for additional effort. Socialism allows the people's government to assign production priorities in a communal manner, and to do so for the greater common good and for a balanced, predictable, and less dynamic economy.

On the whole, society depends on the strange bedfellows of capitalism and socialism forming a "mixed capitalism" in order to provide the most balanced, motivating, and just economy. A strict capitalist market does encourage market responses which most closely mirror demand, but in so doing, often provide goods which offer tremendous, sometimes irreparable harm to society. Socialism, on the other hand, encourages common labor in return for reasonable reward, but does so at the cost of individual motivation and the entrepreneurial spirit which has launched many market advances. Society must see a combination of the two systems, one which provides incentive for high achievement and responds appropriately to market forces, but which also reduces the inherent imbalance of wealth and distribution in a free-market economy.