I have observed that when Americans discuss the relative merits of socialism vs. capitalism, the chief debates that come up are
• What would happen if we remove the stimulus for innovation and productivity that a free market generates? This implies having a free market including individual ownership and control, and to varying degrees a laissez-faire government.
• Would it be possible to have a thriving society in which we would not have 20% of the population living in poverty and without adequate healthcare, housing or economic security?
Fundamentally, we characterize and differentiate capitalism from socialism by the way they handle production (industry), distribution, and exchange (trade) of wealth and goods. In capitalism, capital (or the "means of production") is owned, operated, and traded for the purpose of generating profits for private owners or shareholders. Capitalism emphasizes individual profit rather workers or society as a whole. Socialism emphasizes profit being distributed among the society or workforce to complement individual wages/salaries (“Capitalism vs Socialism - Difference and Comparison | Diffen”).
Capitalism grew out of mercantilism and the end of feudalism—in particular the growth of urban centers and allowing individual property rights. Up until the 12th century, less than 5% of the population of Europe lived in towns (Beattie). When it became possible for individuals to own land and tradespeople to earn real wages, this encouraged more people to move into towns where they could get money rather than subsistence in exchange for labor. Individuals (including both nobles and now tradespeople) were now able to purchase good on their own, leading to further growth of industry.
The industrial revolution lead to an explosion in this lifestyle. However, by the middle of the 18th century, capitalist and industrialized countries, such as the US and Dickensian England, began to see the negative effects of capitalism in poverty caused by unskilled laborers earning a poverty level subsistence and the aggrandizing wealth of the owners of the factories where they worked.
It was also at this time that monopolization became widespread. Eventually, incorporated entities became able to perform many of the actions of individuals such as being able buy and sell property, hold patents, sue and be sued, etc. (Peavler).
The philosophy, such as proposed by Adam Smith, came to be that an economy has a natural design. Left to its own devices -- and removed from politics, religion and all other pursuits -- it will regulate itself as long as no one throws a spoke in the wheel and everyone benefits. The government's only real role in capitalism became to maintain peace and order so the economy can work without interruption (Newman).
In its purest sense, a socialist economy communally controls the production, distribution and exchange of resources. This community control is implemented by the state through a central government acting on...