A Comparison Between Socialism And Capitalism Economics

The political and economic world has always been dependent on each other, not one can survive without the other and the world cannot function without both. Countries have been competing in finding the best economic and political combination that brings their countries into the power they need to lead the world. First Europe has always conquered the world history by strong military power based, the power of the church and lack of freedoms for the people, as things developed and the two world wars ended, the political world as we know it ended as well; Europe is no longer in charge of the world, as new ideologies started to show, United States of America began developing into a world power, Russia adopted the communist approach of the world, and began collecting countries under their union.Capitalism evolved with Adam Smith and got adopted by the United States; Faced by the communist USSR (Union of Soviet Socialist Republics) led by Russia. During their cold war and the fight to show which political economic theory is better, capitalism won the first round, USSR was demolished, Capitalism invaded the world for the past 20 years, and to our surprise after believing for so long, that we finally reached the perfect political economy theory, Capitalism collapses in 2008 and showed the world how vulnerable this theory is, at the same time, theres certain economists who have always predicted the collapse of the financial system and the world economy, promoting the collapse of the political economic theories, and they are the Austrian economists lead by Fredrick Hayek and Robert Vin Misis.Although there have been a lot of scenarios for these political economies, a comparison and contrast of Socialism (communism), and the Free-Market system (Capitalism) will be the main focus of my study to find the best mix of theories that can provide the world with a stable, consistent and developing economic theory that will leave the world better off.Socialism according to Marxian system who is the founders of this theory is Socialism, a set of relations of production that will follow capitalism, contains some vestiges of capitalism. One of the chief characteristics of capitalism is that the means of production, capital, are not owned or controlled by the proletariat. The major change that occurs in the transition from capitalism to socialism is that the expropriators are expropriatedthe proletariat now owns the means of production. However, under socialism, a remaining vestige of capitalism is that economic activity is still basically organized through the use of incentive systems: rewards must still be given in order to induce people to labor. (Karl Marx, 1991)On the other hand capitalism that was found by Adam Smith its defined as capitalism is a social system based on private ownership of the means of production. It is characterized by the pursuit of material self-interest under freedom and it rests on a foundation of the cultural influence of reason. Based on its foundations and essential nature, capitalism is further characterized by saving and capital accumulation, exchange and money, financial self-interest and the profit motive the freedoms of economic competition and economic inequality, the price system, economic progress, and a harmony of material self-interest of all individuals who participate in it (George Reisman. 1998)The economic development stages were said by Marx to consist of two major groups which include the workers and owners of means of production, he provided a historical description of economic development whereby he pointed out the major stage, the first stage was slavery, then feudalism, then capitalism and finally communism, he viewed communism as a form of economic organization that would emerge from the ruins of capitalism, according to him workers were oppressed and alienated and a revolution would take place that would replace capitalism with the communist form of society. (Benedetto, 1996)However, Many theorists and policymakers in predominantly capitalist nations have emphasized capitalism’s ability to promote economic growth, as measured by Gross Domestic Product (GDP), capacity utilization or standard of living; This argument was central, for example, to Adam Smith’s advocacy of letting a free market control production and price, and allocate resources. Many theorists have noted that this increase in global GDP over time coincides with the emergence of the modern world capitalist system. (Capitalism, Robert E. Lucas Jr 2008)As for Labor value was also another principle of Karl Marx economics, labor value refers to the value of a product that is usually determined by the amount of labor utilized to produce the product. This means that he assumed that the value of products depended on the amount of labor used in the production of that product, he stated that the greater the productivity of labor then this means that less labor hours will be spent in producing the product and therefore the lower will be the value of the product. (Skousen, 2007)On the other hand, according to the capitalistic point of view of labor, they said: The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.The effects of the division of labour, in the general business of society, will be more easily understood by considering in what manner it operates in some particular manufactures….. The division of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour. The separation of different trades and employments from one another seems to have taken place in consequence of this advantage. This separation, too, is generally called furthest in those countries which enjoy the highest degree of industry and improvement; what is the work of one man in a rude state of society being generally that of several in an improved one. In every improved society, the farmer is generally nothing but a farmer; the manufacturer, nothing but a manufacturer. The labour, too, which is necessary to produce any one complete manufacture, is almost always divided among a great number of hands…. This great increase of the quantity of work which, in consequence of the division of labour, the same number of people are capable of performing, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many. (The Wealth of Nations, Adam, 1937)Regarding wages in the economy Marx pointed out that workers sold labor power to the owner of the production process, according to him the value of wages that prevailed were determined by the market forces which include the demand for labor by the capitalist and the supply of labor by workers, these forces determined the wage rates and given that the means of production were owned by only a few capitalist then workers were the majority and therefore labor supply was high. Wage rate in the economy however were sufficient to enable workers to reproduce labor power. (Skousen, 2007)As for the capitalist, they argued about the wage as The value of labor is determined on a foundation of its utility and scarcity, by demand and supply _ more specifically, by the competition of buyers for the limited supply not by any form of cost of production, least of all by any cost of production of labor (Capitalism, George Reisman. 1998)Karl Marx distinguished two forms of capital as constant and variable capital, according to him constant capital referred to non reproductive capital, constant capital refers to the capital value that does not undergo any changes in its value in the production process example machinery and raw materials, according to him interest and depreciation costs were transferred to the cost of products and therefore these form of capital does not add value to the product produced. (Karl Marx, 1991)The other form of capital according to him was variable capital, variable capital refers to the portion of capital that represented labor power, labor power produced value to the product that was equal to its value and also produced a surplus. Labor was the sole source of value of the product and this refers to the portion of capital that was spent in hiring of the workers. (Karl Marx, 1991)For the capitalists, There are two dimensions to the scarcity of capital and capital goods. In one respect, capital goods are simply as scarce as our labor and ability to produce consumers goods. The second dimension of the scarcity of capital refers to the fact that goods can be produced with varying amounts of capital per unit, that is, with varying degrees of capital intensiveness. (Capitalism, George Reisman. 1998)Marx also pointed out the importance of technology in the production process, technology and machinery were important ingredients in the production process, and technology increased the productivity of labor given that reducing the time taken by labourers to produce his exchange wage value, therefore capitalists aimed at reducing the time spent by labor in the production process by introducing machines in the production process. (Benedetto, 1996)The economic degree of capitalism and the degree of capital intensiveness in the economic system operate, as it were, as a kind of long-range radar net for technological progress with commutative long-run consequences for capital accumulation and the ability to implement technological advances, in that they determine which kinds of technologies can be picked up and implemented at any given time. (Capitalism, George Reisman. 1998)Methodology:Comparing and contrasting the two theories, showing their pros and cons, combining their pros, and coming up with a model that shows the best fit for a perfect economic theory. This theory will be proved by works of other scholarly, and by examples of countries that have taken this theory into action and now are leading the world economies.Capitalism VS Socialism: comparisonAs we have seen capitalism consisted of free market system with small government intervention in the market according to Adam Smith, labours are fit to work as much as possible to come up with the optimum production, wages are distributed according to the demand and supply of the labour itself, capital is accumulated and saved, and technology is crucial for economic growth and development which are based on GDP and living standards.On the other hand, socialism is a planned market economy, where the means of production lays in the hands of the government, labours are suppressed therefore they need to retaliate on the means of production owners through revolutions that would destroy the capitalism system and replace it with the communist system, moreover the socialists believed that the wages it was referred to as the value of a product that is usually determined by the amount of labor used to produce the product, capital was separated into two categories, constant and variable, where constant capital is the capital from machinery and raw materials that depreciated therefore cannot be included in the factors of production and the variable capital that is the labour capital, which is the sole power of valuing the products produced. Last but not least, one of the factors I am studying in this paper, is technology which according to Marx and Socialists in general, is a main source of economic development, as it facilitates the production process on the labour and is more productive and efficient, they also argued that it is the reason for the economic development in the capitalist systems.Capitalism SocialismPolitical and economical power accessible to all Economic and political power in the hand of the government