Difference between Capitalism and Communism

Decision-making regarding production, trade, and industry lies in different hands under different conditions. There are generally two basic theories, namely Capitalism and Communism. Under Capitalism, decisions lie in the hands of private individuals with a motive of profit maximisation. Whereas under Communism, such decisions lie in the hands of central authority/government bodies, with a motive of social welfare.

What is Capitalism?

Capitalism is an economic theory where the means of production, trade, and industry are owned and controlled by private individuals with a major motive to earn profits. Under capitalism, demand and supply freely set prices in markets in a way that can serve the best interests of industry. Businesses on their own are free to determine at what price market offerings should be made, what products will be sold, or how much investment shall be made without any approvals or counter-inspection. Economic decisions under capitalism are decentralized. Capitalism has its lawyers and its critics both, however, nowadays economists prefer that capitalism is essential for any growth of the economy but due to its cons, the adoption of a mixed blend of capitalism and socialism is popular around the world. Examples of countries that follow capitalism are the United Kingdom, New Zealand, Hong Kong, Canada, etc.

Key takeaways from Capitalism:

• Capitalism refers to a Laissez-Faire Economy or a Free Market Economy, as there is no control and intervention of governmental bodies.
• Capitalism also promotes healthy competition in the market which gives freedom to choose consumers among several options available.
• Market mechanism determines the prices and economic decisions are taken in a decentralized manner.
• Businesses and consumers come together for their interests and lead to economic prosperity.

What is Communism?

Communism is a political and economic ideology that aims to create a central unit of governance that shall be responsible for all the decision-making, and the main objective is not profit-making rather their objective is to fulfil the needs of society at large. The business houses will not have the power to make business decisions and central decision-making will regulate and guide the market proceedings. Here the central unit established shall direct businesses and the private sector about the pricing, market offering, and salary structures. Low decision-making power is given to the private sector after a review of the framework of capitalism.

The ideology of communism advocates for the radical uprooting of the wealthy ruling class to set up a democratic free society with no class divisions and shared ownership of the means of production with equal allocation of resources. Karl Marx and Friedrich Engels were two of the most well-known upholders of communism in the nineteenth century.

Key takeaways from Communism:

• Under Communism, the authority to make decisions lies in the hands of central authority and/or governmental units.
• The basis of communism is social welfare and social development rather than profit maximisation.
• The preaching of communism was made by Karl Marx, he strongly supported the ideology of communism after the Industrial Revolution.
• Communism advocates the idea of a free society with no division among classes and common ownership of means of production.

Difference between Capitalism and Communism

Basis	Capitalism	Communism
Ideology	It is an economic system that promotes a free market along with private ownership of factors of production.	It opposes capitalism, and the decision-making authority is held by a central unit which represents society. Under communism, wage labour, commodity production, and the market are all abandoned.
Propounded by	Capitalism was coined by Adam Smith.	Communism was propounded by Karl Marx.
Ownership of Resources	Private ownership of economic resources and no government intervention.	All economic resources are held publicly and controlled by the government. Individuals are not encouraged to hold personal property or assets.
Planning Unit	The economy is planned as per the functioning of the free markets and there is no involvement of government bodies.	The economic decisions are taken by a central unit which represents society at large and takes decisions that promote social welfare.
Goal	The concept of the free market economy was coined for profit maximisation.	The goal is to create social welfare and profit is not the guiding principle.
Government Intervention	Limited government intervention, is limited to protect society from fraud and crime.	The government is the decision-making authority and without government intervention, the economy won’t function.
Competition	Foster free and competitive markets that foster innovation and economic development which provides better offerings to society.	State-controlled markets lack this competition that spurs innovation and could hinder the future success of their nation.
Example	Hong-Kong	China