Which is superior: capitalism or socialism?

Throughout history, the economic ideologies of both capitalism and socialism have dominated the economic, and, indeed, the political sphere. Some argue that capitalist economies are inherently superior, while others propagate the idea that socialist economic collectivism is the hallmark of a successful society. Although some socialists argue that socialism is simply a theoretical ideology, and that it has never truly be implemented in practice, the debate between the two would therefore be a zero sum game. This is because the argument could go back and forth ad infinitum, because capitalists could say that a pure form of capitalism has never been tested in the real world, which would in turn be rebuffed by socialists, and so on and so forth. It is important to realise, before beginning debate, that there are capitalist and socialist elements in every economy, and so arguing that a pure form of each will never be found, although true, is pointless. I, myself, am in favour of the capitalist system, due to a number of reasons, chiefly the idea of a reward for labour.

In capitalism, the idea of labour is firmly attached to the prospect of reward. Contrastingly, the reward system detaches from labour in socialism. It is an intrinsic fact of human nature that people will be at their most productive, when offered a reward, and the socialist ideology denies people this reward. Over time, when people realise that they are not gaining a comparative advantage over their fellow employees, despite working harder than them, they will lose the incentive to keep working at their most productive capacity. The idea of artificially maintaining people’s standard of living, when those people have not worked as hard as they need to, is fundamentally flawed, and will eventually erode any element of substantial productivity out of an economy. When we juxtapose this with capitalism, there is a stark difference. People have an incentive to work in order to gain a comparative advantage over their counterparts, resulting in a substantial increase in productivity, which increases output and therefore results in the positive multiplier effect, growing an economy. This capitalist system is the reason why the USA has grown astronomically over the past century, with other Marxist socialist states such as the Soviet Union falling in their wake.

It is my firm belief that the markets alone allocate resources far better than a government scheme ever could. As such, I see the capitalist alternative as far better than the socialist one. In socialism, markets are not efficient in the slightest, and will not react to small shifts in supply and demand. The efficient market hypothesis simply cannot be proved true when the state owns all the goods in any one economy. In addition, it is obvious that state-regulated prices mean that not everyone will get the goods that they want, as production will not increase for a highly sought after item until much further down the line. This leads to a highly inefficient allocation of resources. By contrast, the capitalist system means that prices move in reaction to any small thing, immediately allocating the resources required to whatever good is in demand at the time. This is a far more efficient system than the socialist alternative, where you never know how long it will take before you can get the good that you want.

A key point often stated by proponents of socialism is that socialism results in a far more equal, fair society. They also state that socialism has a far greater regard for the environment, and other ethical issues, than the capitalist system. However, I would counter this by asking the question: what could be more fair than a society where one reaps rewards proportional to his or her labour? If the people of a particular state would want environmentally friendly alternatives, they would thus turn to the company with the most environmentally friendly means of production, and the revenue of this company would increase. Is it not fair that the company with the least environmentally damaging policies reaps far more rewards than companies with less environmentally damaging policies? This shifting of revenue towards the company will also persuade its competitors to invest in more environmentally friendly means of production, thereby making the whole sector more “green”. This environmental example can be applied to any scenario where the consumers do not like the ways which companies are carrying out their business. For example, if people do not like companies using sweatshops, then they would boycott that company, forcing the company and other similar companies to revert to a more ethical form of production.

Of course, in this piece, I am not arguing that capitalism is wholly perfect. I also agree that a successful society needs elements of both capitalism and socialism to succeed. However, all I am doing in this piece is simply arguing as to why capitalism is by far the superior economic ideology to socialism.



By Shrey Srivastava

A finance and economics enthusiast, and someone who wants to share his views with the world.


  1. Hey Shrey, great points :-). At the end of this article you said that we need both socialism and capitalism to succeed, I agree, but didn’t you say in another article that socialism would not work at all?


  2. “It is my firm belief that the markets alone allocate resources far better than a government scheme ever could.”

    Great points Shrey but what about healthcare, transport, energy, water, law and order etc.? They’re examples of the government allocating resources more efficiently than the market has. What about government regulations, prohibitions or consumption taxes on literally anything? They are all examples of the market misallocating resources so require government intervention to create positive externalities.

    You say that we need elements of socialism, but if the market ALWAYS allocates resources better why do we need government at all? You seemed to have contradicted yourself.

    Otherwise, good article!


  3. This is certainly coming from a well-informed position. I would agree that workers are far more stimulated to work if there is a reward. But I would play devil’s advocate here (for the sake of a good challenge): if you to take this same reasoning into another sphere in society (say the family), the picture is one of parents bribing their children to succeed. The only concern with this is – what happens there is isn’t a reward? This kind of mentality leads people to a state of economic expectation. People become jaded in their requests for greater and greater rights. The prolatariate is after the buguiasee again! You have claimed that the government shouldn’t control the market, but instead it is being controlled by uninformed or semi-indoctrinated consumers? It seems to me that more of the college experience is to indoctrinate with the right methods (while providing the facts and data), and less about letting people chose where they want to stand indepentantly of what their mentors think.


  4. What do you mean that Socialism has never been tried? We have the USSR, China (pre-1980), Cuba, North Korea, Vietnam, Cambodia, and most recently, Valenzuela. (This last case went from an exporter of food to a starving country after Chavez drove all of the farmers out and replaced them with socialist squatters). Each time we see that it leads to fewer people working, less productivity, and corruption by those in power since people end up needing to pay bribes to get anything done and because you concentrate large amounts of money in a few hands.

    The fundamental reason this always occurs is that Socialism is based on an evil ideal – that it is OK to take wealth from someone who earned it and give it to someone who has not. It becomes a game of seeing how much you can get for the least amount of effort by taking from others.

    Capitalism is based on an altruistic ideal – that you produce things that others need and in return they produce things that you need. Each individual uses his/her unique skills to do things for others. The more people you help, the more wealth you acquire. It causes even the most selfish and lazy person to at least get up and do a minimum amount for others so that they can meet their minimal needs.


  5. Dear Shrey,

    I think your mistake (and the mistake of so many others, like some of the previous commenters here) is to confuse “socialism” with corporatism, of which there are actually many different forms, running from corporatism based on state structures to corporatism based on private corporations. I offer this San Jose University / Department of Economics link as a start to encourage you to rethink about what socialist and capitalist economies and societies are, and to see that there is an alternative way of categorising the different forms of society and economy:

    Many of the problems that “socialist”, especially Communist, countries of the past have had are really problems of state-based corporatist economies and societies. Some if not most problems the US has in wasting taxpayer dollars are also problems of corporatism of a different kind: in the US example, problems that arise because private corporations have come to dominate certain markets, to the extent that they drive out competitors or gobble them up (in effect turning a competitive market into a supplier oligopoly, duopoly or monopoly), and then start to dictate to consumers including governments and other companies what they should or not should not buy.

    Read this article on the domination of the US media by 6 companies as an example:

    Is this so very different from Communism and fascism of the past?


  6. Great post, I am very impressed. I’ve read through some of your blog and I think you have a lot of potential! I’m definitely going to follow and keep sharing your stuff and it would mean a lot if you did the same.

    In terms of this article, I totally agree that for an economy to run as efficiently as possible, it must have elements of socialism and capitalism.


Leave a comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: