Difference Between Socialism and Capitalism

Changes in the world economy, especially after the Industrial Revolution, have created different economic systems of how an economy should be run. Capitalism and socialism are the most common ones and have some similar and different characteristics. (Yakut, 2005)

Firstly capitalism, socialism, and an economic system should be defined in order to explain similarities and differences between capitalist and socialist economic systems.

People have unlimited wants. However, resources are limited. In other words, wants exceed resources. Thus, in order to deal with the scarcity, it is necessary for an economy to be planned. In planning an economy, there are three questions that must be answered. (Erdem, 2006)

o "Which goods and services will be produced,

o How goods and services will be produced,

o For whom goods and services will be produced."

These three questions are the fundamental questions of all economies. All economic systems, including capitalism and socialism, stem from different answers to these three questions. (Erdem, 2006)

Capitalism and socialism are the two opposite economic systems. Capitalism is an economic system in which all of the means of production (including land, labor, capital and the entrepreneurship) are owned and traded by individuals and companies to make profit. On the other hand, socialism is an economic system that supports the state ownership and administration of the means of production. (Salihoğlu, 1997)

First difference between capitalist and socialist economic systems is ownership. In capitalist economic systems, private ownership, which is the right to own the means of production, is emphasized. However, in socialist economic systems, the government decides what to produce, how to produce and how much to produce. In other words, in socialist economic systems, state ownership is more important than private ownership because in socialist economies, private ownership is regarded as...