Economic Theory: Socialism, Communism and Capitalism

We Pause Now...for a brief discussion, one brought about by the frequent confusion about these three economic systems.  We realize there are pros and cons to each, which others have addressed, but we don't intend to advocate one over another.  At this point we simply wish to clarify what, in reality, each one is. 

AND...We want to discuss some economic issues (elsewhere on this website), and the differences between these three are rather important to these other discussions.  So let's open our dictionary:

Socialism: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods. 

Important notes:

First, socialism does NOT inevitably lead to communism, and it is possible for both socialism and capitalism to coexist in the same country (as it does in some European countries, such as Norway).  Yes, Karl Marx saw socialism as an enabling step toward communism, but socialism has always been an economic system that can exists by it's self without progressing any further.  In fact, advocates of socialism can be very opposed to communism.

Second, socialism social welfare; they are NOT the same.  Why not?  Because social welfare in and of itself does not involve government ownership of anything.  Social welfare involves government funding, not government ownership.

There are some situations where social welfare is provided by true socialism, such as socialized medicine, which exists in England (where all medical professionals work for the government, all medical facilities are owned by the government, etc.) but NOT in the United States.  All of our social welfare programs are simply funding programs similar to funding for highway development and maintenance. 

Third, the main argument against socialism is that it can become inefficient.  Lacking competition, it can fail to provide the best goods and services.

Communism:   1. a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state. 2. (with a capital "C") a system of social organization in which all economic and social activity is controlled by a totalitarian state dominated by a single and self-perpetuating political party.

Important notes: 

First, while they are somewhat the same, these two definitions have a major difference--one is egalitarian (everyone is equal) and one is totalitarian (there's a dictatorship). And just so you know, there has been one primary example of the egalitarian form of communism, and that is on kibbutzes (kibbutzim) in Israel.  The communism in Cuba and in the former USSR are examples of the totalitarian form, and since it was started in the USSR by Joseph Stalin, that version is often referred to as Stalinism.

Second, although we think it is highly likely that they don't know it, many folks in democratic countries vehemently oppose communism, because they focus primarily on the totalitarian communist countries.  They do NOT want to be governed by a dictator.  They may not even know that communism need not be totalitarian, that Marx saw the "dictatorship of the proletariat" as an essentially democratic, egalitarian form of governance, one that was to replace the "dictatorship of the bourgeoisie," economic power in the hands of the capitalist owners.

Third, of course, capitalists (see) below also strongly oppose communism, but they are more concerned with the economic aspects, since it would put them out of business and take away their wealth.

Finally, there are individuals who see value in communism, but envision it occurring in a democratic context, much like the kibbutzim that were established in Israel.

Capitalism: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market economy

Free Market: an economic system that allows supply and demand to regulate prices, wages, etc, rather than government policy.  Kind of Darwinian in the sense the the fittest survive, as determined by competition for demand.  The free market relies on totally free supply and demand, and it begins to fail when demand becomes inflexible (we can't do without a commodity).  This is one criticism of capitalism--the free market doesn't always work; an example would be gasoline, where the level of dependency is so high, demand doesn't fluctuate that much--not very flexible--when prices rise.

Winner Take All: This is a second criticism of capitalism.  It's the basis for the creation of monopolies and the source of wealth disparity (rich getter richer, while those on the lower end of the socio-economic scale remain the same and maybe even decline).

In conclusion: So, looking at these three definitions, you can see that, in reality, they are different from each other.  The one similarity that does stand out is the ownership of property and the means of production that applies to a different degree to socialism and communism.  It is probably because of this similarity that many folks tend to conflate the two (socialism and communism), that is, think of them as identical, when they're actually quite different.

Political vs. Economic aspects of Communism:

As noted above, it is also very important to distinguish between "communism," the economic and social theory, and "Communism," the totalitarian application of communism (with a small "c"), a distinction that often sails over the heads of many opposed to communism.

Socialism vs. Social Welfare:

SOCIALISM and SOCIAL WELFARE are NOT the same. Social Welfare is simply a funding system, while socialism is an ownership system (the means of production are owned by the general public).  It is not the case that social welfare in and of itself involves government ownership of anything. 

There are some exceptions, such as socialized medicine, which exists in England (where all medical professionals work for the government, all medical facilities are owned by the government, etc.) but NOT in the United States.  All of our social welfare programs are simply funding programs not unlike funding for highway development and maintenance. 

For example, Medicare funds medial services, tests, and durable medical good.  That's not socialism.  If it was, then everyone involved in medicine would work for the government, and all medical facilities would belong to the government.  In the U.S., they don't.

Yes, there are those who argue that the "spirit" of socialism and social welfare are the same, that they both are efforts to provide for the social well-being of the public.  But we don't entirely agree.  Socialism is an attempt to remedy the problems with capitalism (mainly the creation of an "ownership" class that can come to function as an aristocracy), but social welfare has to do with providing for those who are unable to pay for goods and services they need for survival.  So, we see some overlap but not nearly enough to consider socialism and social welfare to be the same.