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Capitalism is an economic system that is characterized by the private ownership of the factors of production, particularly in the industrial sector. This capitalistic ownership gives entrepreneurs the capability to efficiently run their businesses and the motivation to maximize profit. The creation of goods and services is founded on the law of supply and demand in the general market (market economy) and not central planning as witnessed in the command or planned economy (Gwartney et al., 2018). Some examples of capitalistic countries include Singapore, Australia, New Zealand, the United Kingdom, Switzerland, Denmark, Canada, Ireland, Taiwan, United States.

Socialism, on the other hand, is an economic and political system where the factors of production such as raw materials, tools, farms, and factories, are collectively owned by the state and the community (public ownership). In a pure socialist economy, all decisions pertaining to manufacturing and supply are drawn up by the state and people depend on the state for everything – from food to healthcare. The government also regulates the production and pricing of various goods in the market (Gwartney et al., 2018). Examples of socialistic countries include Cuba, China, Soviet Union, North Korea, Angola, and Venezuela. (Kenton, 2020)

Next, discuss why capitalism and socialism are currently being spotlighted in U.S. politics giving the pros and cons of each organizational structure. Be sure to be specific and give supporting facts, not just opinions.

 At the moment, we have two opposing views. A section of Americans believes in capitalism (big business) while others believe in socialism (big government). According to a study by Pew Research Center, 65% of Americans had an optimistic perspective about capitalism, and a third were cynical about it. 55% of Americans were pessimistic about socialism while 42% approved of it. The research findings from the survey indicate that Republicans viewed capitalism and socialism as a winner-take-all situation. 68% of the vast majority of Republicans viewed capitalism positively and socialism negatively. Nonetheless, 38% of Democrats and their supporters view both capitalism and socialism positively (Pew Research Center, 2019).


 Pros: As a market-driven economy, the government does not intervene in the market. This means that market forces are left to shape society and life. Capitalism increases competition among companies thus lowering the cost of goods but increasing the quality.

Capitalism values private performance compared to other economies, lowers tax rates, encourages technological progress, citizens are allowed to accumulate wealth, and the government does not interfere with the marketplace and encourages productive use of capital.

Cons: Capitalism may widen the gap between income and wealth leading to insufficient welfare since it does not care about minimum wages. Capitalism may also give rise to private monopolies which may exploit workers, an increment of prices of property, and increase rates of unemployment during financial crises. Moreover, focus on efficiency is prioritized over equality, but this is no concern to the capitalist system. Proponents of capitalism argue that inequality is the driving force behind innovation and economic development. But because the state does directly employ the workforce, the rate of unemployment can increase during times of economic recession.


 Pros: Socialists believe that collective ownership of resources and central planning promotes the common good and social welfare rather than selfish goals. This lowers poverty to a minimum and encourages philanthropy instead of self-centeredness. Socialism also lowers taxes and encourages equality. Socialism provides equal distribution of goods and services and rather, a more equitable society.

Cons: The major concern of the socialist model is associated with the equitable redistribution of wealth and resources from the rich to the poor to create an even playing field for all. This calls for the intervention of the state in the labour market. In a socialist economy, regulations governing the labour market i.e., maximum working week and high minimum wages, may lead to unemployment, poor labour relations, and a reduced labour force leading to a reduction in economic growth.

Finally, address the question: Does capitalism create wealth inequality and is this necessarily a bad outcome?

 Inequality is an element of capitalism since individuals are driven by the motivation to make profits. Firms in a capitalistic society pay their workers based on skill and effort, thus some earn higher wages than others. This results in wage inequality due to competition among individuals in that economy. Therefore, one can say that capitalism creates wealth inequality. This is not necessarily a bad outcome because everyone is rewarded based on their effort and skills. It promotes healthy competition in the country in terms of skills and expertise.


Gwartney, J.A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.).

Pew Research Center, (2019),Businesses,andTheEconomy-FINAL.pdf


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Prior to beginning work on this discussion,
  • Read Chapters 1 and 2 of Macroeconomics: Private and Public Choice.
  • Read Chapter 7 of Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics.



For this discussion,
  • Define capitalism and socialism and provide examples of countries for both structures.
  • Next, discuss why capitalism and socialism are currently being spotlighted in U.S. politics giving the pros and cons of each organizational structure. Be sure to be specific and give supporting facts, not just opinions.
  • Finally, address the question: Does capitalism create wealth inequality and is this necessarily a bad outcome?

Your initial response should be a minimum of 200 words. Graduate school students learn to assess the perspectives of several scholars. Support your response with at least one scholarly and/or credible resource in addition to the text.

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