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Capitalism And Socialism Essay

1556 words - 6 pages

You buy a house. You choose your job. You shop for the groceries and toys that your income allows you. We take these basics of American life for granted, but these liberties are all because of capitalism. Capitalism is an economic system that enables consumers to determine which products will be sold, lets firms decide how to produce them, and allows markets to guide who gets them. IN the United States, oil is an example of an industry that is run by this principle. Life would be different, however, if the nation was socialist. Socialism is an economic theory that mandates that the governing body, rather than the consumers and firms, control some of the firms on behalf of the community. For example, in Norway and even in capitalist Mexico the oil industry is owned or controlled by the government. Capitalism and socialism are two very different systems in theory and in practice; the one enabling the consumers and the individual firms to turn market gears, and the other relying heavily on government involvement and interference.
It is important first to notice that capitalism’s defining characteristics imply some pros and cons. The premise that capitalism revolves around is that the invisible hand, or the markets, should control how the economy is run. Businesses make what the consumer wants. This system upholds the sanctity of private property ownership. Capitalism believes in laissez faire. The government stays out of businesses’ business, generally speaking. Profit is the main focus of firms. However, competition keeps firms in check. Competition is what drives businesses to produce cheaper or better quality products, as well as to advertise their product, so that consumers will buy. Unfortunately, this competition inherently provides that some firms must fail. Also, in a capitalist society, the gap between rich and poor is large (Reisman, 1996).
In addition, capitalism addresses the questions of what products to produce, how they will be produced, and who will receive the products. Firms will make the goods and services that consumers are willing and able to buy; therefore, consumers determine the products. This is an effective method, because in general people are rational; people respond to incentives; and optimal decisions are made at the margin (Hubbard, 2009). In turn, firms decide how the goods and services are produced. Entrepreneurship allows for common people to operate businesses. An individual can produce an idea, take the financial risk, and begin a business and start selling a good or service. A person’s drive to succeed and natural response to incentives encourage him or her to work. Businesses are guided by profits. Because natural monopolies do occur, a managed capitalistic economy like our own provides for appropriate regulatory methods, but generally the goods are produced by a firm or firms with minimal government interference. Prices for the products are set through competition of firms, by private enterprise, in which the...

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