The mechanization of manufacturing processes gave rise to what we know as the Industrial Revolution, which gave rise to two important economic systems and competing currents of thought: capitalism and socialism. Get to know everything related to these much-discussed models!
capitalism and socialism
The terms capitalism and socialism are used to describe economic and political doctrines, as well as two specific schools of economic thought, one of the fundamental differences between the two being the extent of government interference within an economy.
The capitalist economic model is based on free market conditions for obtaining wealth and the production of goods and services is based on the supply and demand of the general market, which is known as a market economy.
On the other hand, the socialist economic model proposes the production of goods and services, but this is partially or totally regulated by the government, which is known as central planning. This type of structure is called a command economy.
Most countries are mixed economies, falling somewhere on the spectrum between pure capitalism and pure socialism.
The capitalism
In a capitalist economy, property and business are private and controlled by individuals. The production and prices of goods and services are established by the amount of demand they generate and the difficulty of producing them.
Theoretically, this dynamic drives companies to manufacture the best items for the lowest possible price in order to position themselves according to customer taste and therefore in the market.
Capitalism's main idea is to promote constant innovation among the owners of companies and factories, to make better articles, optimizing processes and reducing costs. This allows the consumer to have many options when buying: products of different prices and quality.
This emphasis on efficiency takes precedence over equality, generally the equitable distribution of goods and services among all members of a society is of little importance within a capitalist system.
The economic theories that support capitalism affirm that certain inequalities are what foster innovation, which translates into progress in economic matters. In a capitalist economy, the state does not directly employ the workforce.
To illustrate a little what capitalism means, we bring you this simple example: José, Sophia and Victorina invest 100.000 dollars each in the creation of a company that intends to offer an innovative product for cyclists.
Once the company is established and after discounting the costs of production and distribution, in the first year it obtains a profit of one million dollars, an amount that is divided among the three partners.
Sophia re-invests her part of those profits in the same company to finance the development of a second line of products, Victorina uses her part to help another emerging company in the food sector and José decides to invest in a property. This is basically capitalism, producing and making a profit, which you can reinvest.
types of capitalism
Throughout history there are many types of capitalism that have been developed, of which some are still in force:
- Mercantilism.
- Free market or laissez faire
- Social market economy.
- corporate capitalism.
- Mixed economy.
history of capitalism
Although the development of capitalism as a system dates back to the XNUMXth century, antecedents of some capitalist ideas and institutions existed in the ancient world and were also present during the late European Middle Ages. The development of capitalism was spearheaded by the growth of the English textile industry during the XNUMXth, XNUMXth, and XNUMXth centuries.
The main characteristic of this stage, with respect to the systems of the previous ones, was that the accumulated capital was used to expand the productive capacity and was not invested in companies and economically unproductive works, such as monuments and temples.
This situation was encouraged by several historical facts, for example, the ethic fostered by the Protestant Reformation of the XNUMXth century, which diminished the traditional disdain for acquisitive effort and encouraged hard work and frugality. In addition, economic inequality was justified with the idea that the rich were more virtuous than the poor.
Another contributing factor was the increased supply of precious metals from Europe and the resulting price inflation. Wages did not rise as fast as prices in this period and the main beneficiaries of inflation were the capitalists.
The first capitalists between 1500 and 1750 enjoyed the benefits of the rise of strong national states during the mercantilist era.
The national power policies implemented by these states provided the basic social conditions for the development of the economy and the change from public to private initiative. Some of these policies were: uniform monetary systems and legal codes.
From the eighteenth century in England, the attention of the capitalist system shifted from trade to industry, so the capital accumulated in the preceding decades was invested in the application of technical knowledge during the well-known Industrial Revolution.
The ideology of capitalism at that time was synthesized and expressed in the work: The Wealth of Nations, by the writer and economist Adam Smith published in 1776. In the text he recommended leaving economic decisions to the free play of market forces that served as regulators.
After the French Revolution and the Napoleonic Wars had swept the remnants of feudalism into oblivion, Smith's ideas were increasingly put into practice. The policies of XNUMXth century liberalism included free trade, sound money (the gold standard), balanced budgets, and minimal levels of aid to the poor.
The growth of industrial capitalism and the development of the factory system in the XNUMXth century also created a vast new class of industrial workers whose generally miserable conditions gave rise to the socialist philosophy, which sought the overthrow of capitalism.
World War I produced some setbacks in the development of capitalism, as international markets shrank, the gold standard was abandoned in favor of managed national currencies, banking hegemony shifted from Europe to the United States, and trade barriers proliferated.
The Great Depression of the 1930s ended the policy of noninterference by the state in economic affairs in many nations and for a time created sympathy for socialism among many middle-class intellectuals, writers, artists, professionals, and the common citizen. especially in Western Europe.
After World War II, in the decades that followed, the economies of the major capitalist countries evolved and performed well, restoring some of the confidence in the capitalist system that had been lost in the 1930s.
However, starting in the 2000s, growing inequality and economic irregularity within nations and internationally once again raised some doubts about the long-term viability of the capitalist system. After the financial crises that intensified towards the first decade of the XNUMXs in different countries, especially in the American continent, there was a renewed interest in socialism.
Many people, especially the groups hardest hit by the economic crisis, had a positive view of socialism, giving their support to this system. However, to date they have not proven to be the promoters of equality, justice and equity that socialism theoretically exposes.
socialism
In a socialist economy, the state owns and controls the main productive sectors. There are also certain socialist economic models, where cooperatives are the owners and main managers of the means of production. A cooperative is a company owned and operated by the employees.
Other socialist economic models allow individual ownership of the business, but tend to pay higher taxes and are subject to a greater degree of government controls. Theoretically, the main concern of the socialist model is an equitable distribution of wealth, aimed at guaranteeing that all members of a society have the same opportunities to achieve certain economic results.
Therefore, to achieve this, the state intervenes in the labor market, being one of the main employers. Socialism, along with communism, is another great school of economic thought that opposes capitalism, but this does not imply that socialism and communism are the same.
types of socialism
There are some variants or branches of this current of thought, which were presented throughout the history of the world, among them we can find:
- utopian socialism.
- Scientific socialism.
- democratic socialism.
- Christian socialism.
- libertarian socialism.
history of socialism
Socialism is a model that upholds the political and economic theory that says the community, rather than individuals, should own and manage property and natural resources.
It is a term that throughout the history of the world has been applied to different economic and political systems, such as utopianism, Soviet communism and social democracy, certainly these systems are different in structure, but they have in common the aversion towards an economy market without restrictions.
In addition to firmly believing that the means of production, which allow obtaining money, should be public property, which in theory would lead to a better distribution of wealth and a more egalitarian society.
The intellectual origin of this economic and political system is quite old, going back to Hellenic society. In ancient Greece, reference was already made to a society of a collective type, in the distinguished work of Plato, Republic where he compiled what he considered his most brilliant ideas regarding his philosophy, around 360 BC.
Then around 1516, Thomas More, or as Thomas More is known in Spanish-speaking countries, inspired by Platonic ideals, wrote Utopia, whose real name is A truly golden little book, no less beneficial than entertaining, on the best state of a republic, and on the new island of Utopia.
In the work Moro recounts in detail the situations on an imaginary island where money does not exist and everything belongs to the community, so people live and work to receive everyone equally.
However, the socialist movement did not yet exist in the world in concrete form. At the end of the XNUMXth century, the first steam engine was invented, which gave rise to the famous Industrial Revolution. There is no need to stress the myriad of radical economic and social changes this brought to world societies, starting first with Britain.
Many factory owners began to get rich quickly, but as this happened, the workers became much poorer and their quality of life decreased by leaps and bounds, working very long hours, in dangerous and generally austere conditions.
In the face of growing poverty, socialism emerges as a trend that confronts rapidly expanding capitalism. It was presented as an option that thought about the working class and its well-being, emphasizing the possibility of a fair and equal society. While capitalism promotes and defends the free market and private property, socialism insists on public ownership of the means of production, a stark contrast between the two.
Among the first socialists we find Henri de Saint-Simon, who expounded and defended the principle that the state should fully control the production and distribution of a nation, in order to ensure the benefit of all members of society.
We can also mention Robert Owen and Charles Fourier, who defended a social model based on cooperation, proposing the existence of many collective communities and not in a figure that concentrated all power, these thinkers did not share the idea of a centralized state .
Robert Owen, who owned several textile companies in Scotland, started a project on American soil focused on an experimental community, where the ideals of self-sufficiency and cooperation were the norm and where ownership was public. It was a project that failed and caused the businessman to lose a considerable amount of his fortune.
On the other hand, based on the ideas of Charles Fourier, approximately forty mini communities dedicated to agriculture were founded in different parts of the United States, in 1930 the last one disappeared.
But it is undeniable that it was Karl Marx who was most influential in this trend, considering that previous socialist thinkers were unrealistic. This thinker who is considered the founder of scientific socialism, criticized the established order and defended the struggle between classes as a way to end the bourgeoisie and place the working class at the top.
He thought that the classes that controlled the means of production used their power to exploit the working class, therefore, he supported the theory of class struggle and the revolution of the proletariat, who would be the creators of the communist society. Ideas that he captured in his work The Communist Manifesto, in 1848.
Marx died in 1883, however, his ideas have influenced the thinking of many throughout history, taken up and expanded, for example, by figures such as Vladimir Lenin and Mao Zedong.
In history, other socialist forms and tendencies continued to develop, for example, Christian socialism formed around Christian beliefs, social democracy that claimed that the objectives of this current could be carried out through progressive political reform and not revolution, National Socialism which combined nationalism and left socialism in Nazi Germany, etc.
Differences between capitalism and socialism
As you can deduce from the above information, there are many differences between both systems, so below we point out some of the ones that we consider most relevant.
Even though scholars do not always agree on a single definition of capitalism, it can be defined as an economic system in which there is:
- Private property
- Their energy and interest is focused on producing profit and therefore wealth.
- People invest capital, either money or property, in a business to produce goods or services that can be sold in a market to consumers.
- Investors in the company are entitled to a portion of the profits made from sales after production and distribution costs have been deducted.
- Profits and profits are usually reinvested to improve and expand the business or acquire new ones.
- To provide their product or service, the owners hire workers to whom they pay wages.
- The cost of raw materials, the retail price they charge consumers, and the amount they pay in wages are determined by the law of supply and demand and by competition.
- When demand exceeds supply, prices tend to rise. When supply exceeds demand, prices tend to fall.
- There is competition, which occurs when several companies market similar products and services to the same buyers. This often leads to lower prices and higher quality, as companies try to get consumers to buy from them instead of their competitors.
- Wages tend to be set similarly, people who have talents, skills, education or training that companies need tend to earn more than people without comparable skills. Competition in the workforce helps determine how much people will be paid.
On the other hand, the socialist system ideally strives to control the economy to avoid the problems inherent to capitalism, characterized by:
- Being is an economic system in which there is government or state-managed ownership.
- One of its main objectives is the elimination of social classes, that is, everyone will belong to a category. However, experience indicates that this generally gives rise to the emergence of a privileged class, made up of the rulers and their immediate entourage.
- The government controls goods and production, with the idea of sharing labor and wealth equally among members of a society.
- Everything that is produced, including services, is considered a social product. Therefore, governments must control its ownership, production and distribution, it is considered an interventionist state.
- The socialist approach speaks of benefiting society and not the individual like capitalism, at least that is the theory.
Capitalism and socialism today
In the world, most modern economies are mixed economies, that is, they have some characteristics between capitalism and socialism, since the government regulates and owns some companies and industries.
In the purest form of a capitalist system private individuals are unrestricted and the economy operates without any government control. Individuals and companies can determine where to invest, what to manufacture and sell, and the prices of their merchandise and/or services. In a purely socialist system, all means of production are collective or state-owned.
Some countries incorporate both the private sector system of capitalism and the public sector enterprise of socialism to overcome the disadvantages of both systems.
In these economies, the government intervenes to prevent businessmen or any entity from having a privileged position or excessive economic power. Resources in these systems can be owned by both the state and individuals.
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