Contemporary Economic Systems

Comparing economic systems: capitalism,
communism and socialism

By UShistory.org, adapted by Newsela staff on 02.07.17
Word Count 799
Level 980L
"The Bolshevik," painted by Boris Kustodiev in 1920, depicts a communist marcher in the Soviet Union.
Economic systems provide needs for citizens by answering several questions:
What resources, such as oil reserves or rich farmland, does the country have? What can be
produced from them? How should goods and services be produced from the available resources?
How are goods and services distributed among those who live there?
Different economic systems around the world answer these questions in different ways.
The Necessary Resources
The resources of an economic system are called factors of production. These are things like land,
workers and money that countries have and then use to make a profit. Countries need them to
produce goods and services. Resources can be separated into four groups:
Land: This includes all natural resources, such as soil, water, air and minerals.
Labor: This is the work of the people who produce goods and services.
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Capital: This is money, factories, heavy machinery or anything used to produce goods.
Management: This is the people who organize and direct the other three groups.
Before the mid-1800s, much of the Western world (Europe and the Americas) followed a course
where individuals owned private property, businesses and the profits that came from good
investments. This is called capitalism.
Then in 1848, Karl Marx and Friedrich Engels turned the world upside down with their book
"Communist Manifesto." Marx and Engels pointed out the unequal wealth of capitalism. They
predicted a worldwide fight against capitalism. They thought those with less money would demand
wealth be distributed evenly among all people.
Characteristics Of Capitalism
Capitalism is based on private ownership and individual economic freedom. This means most
factories and businesses are owned by private individuals, not the government. Private owners
make decisions about what and when to produce and how much products should cost, not the
government.
Other characteristics of capitalism include the following:
Free competition: Capitalism says that people should compete freely. There should not be
interference from the government or others. This means the government cannot help one business
have an advantage over another. Instead, the business or person with the best product and
production will be the most profitable. Prices will be kept as low as possible because of the people
buying the products. They will seek the best choice for the least amount of money.
Supply and demand: Prices are determined by how many products there are and how many people
want them. When supplies increase, prices tend to drop. If prices drop, demand usually increases
until supplies run out. Prices will rise again when demand also rises. Supply and demand work in a
cycle to keep prices from getting too high or too low.
Karl Marx And Communism
Karl Marx, the 19th-century father of communism, was outraged by the growing gap between the
rich and the poor. He thought capitalism made rich people richer by taking advantage of workers,
who would eventually rise against the rich because they were so unfairly treated. Marx thought
communism would eventually replace capitalism. Communism is meant to correct the problems
caused by capitalism.
The most important principle of communism is that no private ownership of property should be
allowed. Marx believed that private ownership encouraged greed and motivated people to take out
their competition, no matter what the results. Communism says property should be shared, and
the people should ultimately control the economy. The government's job should be to exercise
control in the name of the people, at least during the move from capitalism to communism. The
goals of communism are to do away with the gap between the rich and poor and to have an equal
economy for everyone.
How Socialism Differs

Socialism, like communism, calls for putting the major means of production in the hands of the
people, either directly or through the government. Socialism also believes that wealth and income
should be shared more equally among people. Some socialists have the same beliefs as
communists, but others believe socialism should be somewhere between capitalism and
communism. In Europe, these socialists are called social Democrats. Bernie Sanders, the senator
from Vermont who ran for president, has similar views as social Democrats.
Socialism differs from communism in that it does not believe workers will overthrow capitalists
suddenly and violently. Socialism also does not believe that all private property should be
eliminated. Its main goal is to narrow, not totally do away with, the gap between the rich and the
poor. Socialism believes the government should redistribute wealth by taxing the rich to make
society fairer.
There is no purely capitalist or communist economy in the world today. For example, the capitalist
United States has a Social Security system that provides money to people when they retire. The
United States also has a government-owned postal service. Communist China now allows its
citizens to keep some of the profits they earn.

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Comparing economic systems: capitalism,

communism and socialism

Economic systems provide needs for citizens by answering several questions:

The Necessary Resources

This article is available at 5 reading levels at https://newsela.com.

Other characteristics of capitalism include the following:

Karl Marx And Communism

How Socialism Differs

This article is available at 5 reading levels at https://newsela.com.

This article is available at 5 reading levels at https://newsela.com.

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