Islamic Economic System Capitalism And Socialism Essay

Socialism Vs. Capitalism is one of the highly debated topics in group discussion. These are two economic systems which are prevalent in or adopted by different countries of the world. Capitalism is the ancient political system, whose origin dates back to 1400 AD in Europe. On the contrary, Socialism, which is evolved from 1800 AD and its place of origin is France.

A capitalist economy is featured with the free market and less government intervention in the economy, wherein top most priority is given to capital. As opposed to a socialist economy, refers to the organization of society, which is characterized by the abolition of class relations and thus give more importance to people.

So, here we have presented you all the differences between capitalism and socialism, which can help you to decide which system is best.

Content: Capitalism Vs Socialism

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Conclusion

Comparison Chart

Basis for ComparisonCapitalismSocialism
MeaningCapitalism refers to the economic system prevalent in the country, where there is private or corporate ownership on the trade and industry.The economic structure in which the government has ownership and control over the economic activities of the country is known as Socialism.
BasisPrinciple of Individual RightsPrinciple of Equality
AdvocatesInnovation and individual goalsEquality and fairness in society
Means of ProductionPrivately ownedSocially owned
PricesDetermined by the market forcesDetermined by the Government
CompetitionVery HighNo competition exists between firms
Degree of distinction in the class of peopleHighLow
WealthEach individual works for the creation of his own wealthEqually shared by all the people of the country
ReligionFreedom to follow any religionFreedom to follow any religion but it encourages secularism
EfficiencyMuchLess
Government InterferenceNo or marginalGovernment decides everything

Definition of Capitalism

Capitalism is defined as an economic system in which the means of production, trade, and industry are owned and controlled by the private individuals or corporations for profit. Also known as the free market economy or laissez-faire economy.

Under this political system, there is minimal government interference, in the financial affairs. The key elements of a capitalistic economy are private property, capital accumulation, profit motive and highly competitive market. The salient features of capitalism are as under:

  • The factors of production are under private ownership. They can use them in a manner they think fit. Although government can put some restriction for public welfare.
  • There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity of his choice.
  • The gap between haves and have-nots are wider due to unequal distribution of income.
  • Consumer sovereignty exists in the economy i.e. producers produce those goods only that are wanted by the customers.
  • Extreme competition exists in the market between firms which uses tools like advertisement and discounts to call customer attention.
  • The profit motive is the key component; that encourages people to work hard and earn wealth.

Definition of Socialism

Socialist Economy or Socialism is defined as an economy in which the resources are owned, managed and regulated by the State. The central idea of this kind of economy is that all the people have similar rights and in this way, each and every person can reap the fruits of planned production.

As the resources are allocated, in the direction of the centralized authority, that is why it is also termed as a Command Economy or Centrally Planned Economy. Under this system, the role of market forces is negligible in deciding the allocation of factors of production and the price of the product. Public Welfare is the fundamental objective of production and distribution of product and service. The salient features of Socialism are as under:

  • In socialistic economy, collective ownership exists in the means of production that is why the resources are aimed to utilize for attaining socioeconomic goals.
  • Central Planning Authority exists for setting the socioeconomic objectives in the economy. Moreover, the decisions belonging to the objectives are also taken by the authority only.
  • There is an equal distribution of income to bridge the gap between rich and poor.
  • People have the right to work, but they cannot go for the occupation of their choice as the occupation is determined only by the authority.
  • As there is planned production, consumer sovereignty has no place.
  • The market forces do not determine the price of the commodities due to lack of competition and absence of profit motive.

Key Differences Between Capitalism and Socialism

The following are the major differences between capitalism and socialism

  1. The economic system, in which the trade and industry are owned and controlled by private individuals is known as Capitalism. Socialism, on the other hand, is also an economic system, where the economic activities are owned and regulated by the state itself.
  2. The basis of capitalism is the principal of individual rights, whereas socialism is based on the principle of equality.
  3. Capitalism encourages innovation and individual goals while Socialism promotes equality and fairness among society.
  4. In the socialist economy, the resources are state-owned but in the case of the capitalist economy, the means of production are privately owned.
  5. In capitalism the prices are determined by the market forces and therefore, the firms can exercise monopoly power, by charging higher prices. Conversely, in Socialism government decides the rates of any article which leads to shortages or surfeit.
  6. In Capitalism the competition between firms is very close whereas in Socialism there is no or marginal competition because the government controls the market.
  7. In Capitalism, there is a large gap between rich class and poor class because of unequal distribution of wealth as opposed to socialism where there is no such gap because of equal distribution of income.
  8. In Capitalism, every individual works for his own capital accumulation, but in Socialism, the wealth is shared by all the people equally.
  9. In Capitalism every person has the right to freedom of religion which also exists in Socialism, but Socialism gives more emphasis on secularism.
  10. In Capitalism, the efficiency is higher as compared to Socialism because of the profit incentive that encourages the firm to produce such products that are highly demanded by the customers while in a socialist economy there is a lack of motivation to earn money, which leads to inefficiency.
  11. In Capitalism, there is no or marginal government interference which is just opposite in the case of Socialism.

Conclusion

As we all know that every coin has two aspects, one is good and the other is bad and same is the case with the two economic systems. It is very difficult to say which system is better than the other. Capitalism leads to the development of the economy of the country along with the creation of wealth but it advocates distinction between the haves and have-nots.

Socialism fills the gap between rich and poor, and makes everything available to all the persons, but at the same time it wipes out the encouragement to work hard, due to which the country Gross Domestic Product falls down and everyone turns out to be poor.

In my opinion, the combination of the two economies is the best i.e. mixed economy that accepts the merits of both. It can help the country to grow and prosper along with less gap between haves and have-nots. There will be a public-private partnership in the economy and administered price exist.

Filed Under: Education

Comparison between Capitalism Socialism and Islamic Economics

Capitalism is the kind of economic system in which resources, be they monetary or otherwise are owned privately. Socialism is a system through which good are either public or state owned. Islamic economics is based on the reorganization of the economic system to ensure that all individuals enjoy quality rights and they are treated fairly regardless of the resources available

Capitalism economics is based on the belief competition will bring out the best in people, socialism believes cooperation if the key for people to live in harmony and co-exist while Islamic economics is about welfare achievement of all human beings and not dealing in self interest.

Because of the conditions that exist in today’s world, many people regard Islamic economics as some kind of ‘capitalism’. However, this is far from the truth. Islam is actually a class on its own and it is likened to modern ideologies, it is the same as socialism.

Differences between these economic systems

The main different between these economics is how wealth is earned and distributed. In capitalism, everyone is supposed to work towards earning their own wealth while in socialism and Islamic economics they work for wealth which is distributed to everyone equally. The main drive in capitalism economics is that a group of individuals or an individual owns resources. For instance if a business is run by an individual or group of individuals, then resources are traded by the decisions they make only.

The role of the government is ensuring that all individuals get a playing field that is leveled through introduction of laws. However, in the capitalist economy, the government is not allowed to interfere with the dealings of the individual except in ensuring the laws are followed.

In capitalist economies, everyone also owns their own labor and it can be sold at a fee to employers. What this means is that people are free to get jobs then decide what the cost of their labor is going to be in terms of wages. If the employer feels the wage is too high and does not match up to the worker’s qualification, they can decide not to hire them and instead choose someone else. Consequently, in capitalist economies, work is a matter of demand and supply.

Under socialism and Islamic economics though, resources are owned by all people and this means they all get to say how they should be used. Everyone aims to work for the good of others and people are able to get what they require when they need it. Socialism believes that capitalism favors the rich unfairly leading to concentration of power and resources to a few while the rest suffer.

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