Updated: Dec 22, 2020
Capitalism is often considered as an economic system in which private entities own and control the market. They control the demand and supply chain and therefore can set the prices they like.
Capitalism started in the 14th century when people with the money bought slaves to do their work. It wasn’t like they had the idea that this will grow like current capitalism.
If a company in one of the thousand companies in the market bring innovation in the conventional way of working, grows stronger. Now, as that company’s revenue is increasing it can bring more innovation, lower the cost of production and also can lower the price of the product. As other companies cannot make the same product at that price, the company can kill its competition and surely it will have the reward of monopoly. Capitalist says, this company deserves enjoying its monopoly by setting whatever prices they want for their product.
But to increase production, it may not be necessary that companies will only use high-tech machines, so, companies started exploiting their workers. In 1800, there were no strict labour rules, companies were treating labours like slaves. Rich people were becoming richer and poor, poorer. Class inequality can be easily seen.
In 1860, John Ruskin, a prominent social thinker and philanthropist wrote in his book ‘Unto This Last’ that capitalism is not only damaging the society by exploiting the labours but also nature. The employer should treat his workers as his own son and should be paid a fair price. He was against the wealth accumulation and said that wealth accumulation should be at least moral. Without the workers, the company’s owner cannot grow.
The father of modern economics and a philosopher Adam Smith wrote in his book ‘Wealth of Nations’ that when workers bid against each other for work their wages will drop but if their conflict is less availability of workers the wages will rise.
Overall capitalism is a broad view of economic system in which people can make or buy assets, build wealth, people can work for their self-interest, create supply & demand, produce & distribute, and can make monopoly through fair competition. Government has less role to play in a the capitalist economy.
In capitalist economy schools, universities, gardens, factories, transport, the market can be owned & controlled by private entities.
Socialism is direct opposite of capitalism. Socialism is an economic system in which the market is controlled by the government and ownership is not allowed at least for the sectors like education, electricity, food, gas, water, transport, health etc.
Socialism believes in the redistribution of wealth through taxation & other liberalities for reducing poverty. It tries to avoid monopoly and supports minimum wage & trade unions.
Current economies are simply a mixture of socialism & capitalism, and cannot work with either side. You can see, capitalism helped to build wealth (Capitalism gave rise to industrialization), brought innovation and also improved the lifestyle but created class inequality. On the other side, socialism increased stability in government and in turn the market, but it cannot bring employment without capitalization. There’s no concept like pure capitalism or pure socialism, only their perfect harmony can help the nation.