Capitalism and Socialism: What Is Better?


Winston Churchill once said, “If you are a liberal [sympathetic to socialism] by the age of 20, you have no heart, but if you are not a conservative [sympathetic to capitalism] by the age of 40, you have no brains” (Lehmann, 2008). Throughout history, there have been two central forms of social organization: collectivism and individualism, with collectivism taking various forms which include: socialism, fascism, Nazism, welfare-statism, and communism, while individualism involves capitalism (Thompson, 1993). Capitalism is centered on private investment and ownership of property, whereby, production process, distribution, and wealth exchange lie on the private sector, without any intervention of the government; moreover, individuals are given total freedom as long as they do not abuse such freedom (Lehmann, 2008). Socialism, on the other hand, is “a theory or system of social organization in which the means of production and distribution of goods are owned collectively or by a centralized government” (Lehmann, 2008).

Historically, societies that have achieved the supreme amount of economic achievement over the years and centuries have been the countries that embraced capitalism, for example, the United States, Japan, South Korea, and Australia (Lehmann, 2008). Nevertheless, “there is a smattering of socialism mixed into these countries’ economic systems, for example, in the Social security, Medicare, and which represent about 20 percent of the system overall” (Lehmann, 2008). The capitalists widely believe that “wealth in the hands of bright, successful, hard-working people will be the incentive to produce newer and better products and services, because of the expectation of the monetary rewards they will benefit from;” they believe in the “trickle-down” prosperity theory as opposed to the “trickle up” poverty theory allegedly supported by the socialists (Lehmann, 2008).

On its part, socialism is very popular among the masses who, for various reasons, have not had the financial accomplishment that others have gained as a result of their labor like in the capitalist system (Lehmann, 2008). According to Lehmann (2008), the socialists argue that “wealth concentrated in the hands of the wealthy capitalists produce a society of a few rich people and many poor people with the tendency for the rich to take advantage of the less fortunate and as a result of this, greed will eventually be the downfall of the capitalist system,” while the capitalists widely believe that distribution of wealth to the private sector will enhance incentives due to free-market mechanism and motivation of people to be more innovative in the pursuit of monetary reward.

Rawls’ two principles of justice

Rawls begins by stating that, “Justice is the first virtue of social institutions, as truth is of systems of thought” (Rawls, 2005, p. 3). In addition, justice is based on legitimacy such that the reasoning one has on what is socially acceptable is indeed in agreement with the notion of the society, but is not subject to influences of coercion. “Therefore, in a just society, the liberties of equal citizenship are taken as established; the rights secured by justice are not subject to political bargaining or the calculus of social interests, and that, the only thing that permits people compliance in an invalid theory is the lack of a better one; analogously, an injustice is acceptable only when it is necessary to avoid an even greater injustice” (Rawls, 2005, p. 4). Further, Rawls (2005, p. 3), asserts that, “although the society is a cooperative venture for mutual advantage, it is typically marked by a conflict as well as by an identity of interests; there is an identity of interests since persons are not indifferent as to how the greater benefits produced by their collaboration are distributed, for, to pursue their ends, they each prefer a larger to a lesser share.”

A set of principles is therefore required in choosing among the various social arrangements which determine the available division of advantages and for underwriting an agreement on the proper distributive shares. Social justice is therefore embedded in these principles, creating a society that is well-coordinated as far as the assignment of rights and duties is concerned. There are two principles proposed by Rawls: 1) “each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others,” 2) “social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone’s advantage, and (b) attached to positions and offices open to all” (Rawls, 2005, p. 60). From their formulation, the principles assume that the social structure can be divided into two or more separate parts, with the first principle applying to one social structure and the second to the other, and they differentiate between those aspects of the social system that define and secure the equal liberties of citizenship and those that specify and create social and economic inequalities (Rawls, 2005, p. 61).

Is socialism possible in the modern world?

For many years China had been viewed as one of the diehards of the socialist system; however, in contemporary times, the country has changed, thanks to Mao’s activism (Lotta, 2006). Basically, “socialism is the doctrine that man has no right to exist for his own sake, that his life and his work do not belong to him, but belong to society, that the only justification of his existence is his service to society, and that society may dispose of him in any way it pleases for the sake of whatever it deems to be its own tribal, collective good” (Ayn Rant Institute, n.d).

According to Ayn Rant Institute (n.d), the “goals of socialism have been: the eradication of poverty, the attainment of broad-spectrum prosperity, progress, peace, and human brotherhood.” But from analysis, the general picture depicts that these values and principles have not been achieved. According to Perry (1995), “Socialist is a big lie which promised prosperity, equality, and security, but it delivered poverty, misery, and tyranny; equity was achieved only in the sense that everyone was equal in his or her misery.” Moreover, socialism does not work because “it is not consistent with the fundamental principles of human behavior, and that the failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives” (Perry, 1995).

In a capitalist economy, market mechanisms provide an essential incentive to drive the economic activities as price controls, profits, and ownership rights are under the influence of individuals rather than the state; this is a contrast to the socialist economy. Therefore, a centralized economy (socialism) that involves direct ownership of the production process by the state tends to eliminate the incentives for economic activity mainly because the state will have direct control on the prices, thus denying the market forces from coming into play.

Marxist admitted that many ‘socialist’ countries around the world were failing, but according to him, the reason for failure is not that “socialism is deficient, but that the socialist economies are not practicing ‘pure’ socialism” (Perry, 1995). Furthermore, “when resources are publicly owned, there are no incentives in place to promote wise stewardship, and while private property creates incentives for preservation and the responsible use of property, public property encourages irresponsibility and waste; if everyone owns an asset, people act as if no one owns it, and when no one owns it, no one really takes care of it, hence public ownership encourages neglect and mismanagement” (Perry, 1995).

Can capitalism be improved?

According to Gates (2008), capitalism had improved the lives of billions of people, but at the same time, it had left out billions more. To him, these people “have great needs but they can’t express those needs in ways that matter to markets, hence they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives” (Gates, 2008). Therefore, the governments and the corporations have an exceptional role in helping these people, for example, “the corporations have the skills to make technological innovations work for the poor” (Gates, 2008). To realize most of those skills, “there is a need for creative capitalism, which is an attempt of stretching the reach of the market forces so that companies can benefit from work that makes people better off” (Gates, 2008). Therefore, the vital question that creative capitalism needs to answer is “how creative the society can effectively spread the benefits of capitalism and the huge improvements in quality of life it can provide to people who have been left out?” (Gates, 2008).


Rawls’s two principles of justice largely center and favor the socialist state of the economy. But the argument has been criticized as lacking some basis. For example, according to (IVR encyclopedia, n. d), Rawls’s distinction between the institution and interpersonal justice is unjustified. Robert Nozick (cited in IVR encyclopedia) argues that “once individual’s rights are taken seriously, in particular property rights, there will be no space for Rawlsian conception of institutional justice.”

Therefore, much debate and argument about the two concepts, need to realize extend the larger society has embraced capitalism, and therefore, capitalism state of economics rules the world. The most appropriate act and development are to better the capitalist economy to serve the disadvantages, through creative capitalism.


  1. Ayn Rand Institute. (N.d). Socialism: The destroyers of the modern world. Journal for the New Intellectuals. Web.
  2. Gates, B. (2008). Making Capitalism More Creative. Time Article with CNN.
  3. IVR encyclopedia. (N.d). John Rawls: Some main lines of Criticism. Web.
  4. Lehmann, C. W. (2008). Capitalism vs. Socialism: Which one is better? PBForum, Newspaper article. South Florida Sun-Sentinel. (Online).
  5. Lotta, R. (2006). Socialism Is Much Better Than Capitalism, and Communism Will Be A Far Better World.
  6. Perry, M. J. (1995). Why Socialism Failed. The Freeman Ideas on Liberty article, Vol. 45, No. 6. Web.
  7. Rawls, A. (2005). A theory of justice. Harvard University Press. Web.
  8. Thompson, B. (1993). Socialism vs. Capitalism: Which is the moral system? Ashland University.