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Difference between Capitalism and Socialism

Tulika Tandon

Capitalism is a type of economic system where the means of production are owned by private individuals. Socialism on the other hand is a system where the means of production like money and other forms of capital are owned to some extent by the public. Take a look below to know the difference between capitalism and socialism. Also understand the concept of the two terms that are used so frequently in the Indian Economic System.


In a capitalist system the economy is substantially run by individuals who own and operate private companies. 

All the decisions over the use of resources are made by the individuals who own those companies.

Under capitalism, companies live by the motivation for profit. 

The quantity of goods and services produced is based on a system of supply and demand. In the purest form of capitalism free market or laissez-faire capitalism, the individuals are unrestrained in participating in the economy.


Socialism is itself a variety of economic systems in which means of production are owned equally by everyone in society. In various socialist economies, a democratically elected government owns and controls major businesses and industries. 

In socialism each person in society gets a share of the economy’s collective production based on how much they have contributed to generating it.

Difference between Capitalism and Socialism:

Take a look at the differences below based on the criteria




Assets Ownership

Means of production is owned by private individuals

Means of production is owned by government or cooperatives


The income is determined by free market forces

Income in such types of economy are equally distributed among all based on needs

Consumer Prices

Prices are determined by demand and supply/ market

Prices are decided and set by the government


Free market competition encourages efficiency and innovation

Government-owned businesses have less incentive for efficiency and innovation

Health Services

Healthcare services are provided by private sector

Healthcare provided free or subsidized by the government


Limited taxes based on individual income

High taxes necessary to pay for public services

These were the differences between Capitalism and Socialism based on various categories. 

Also Read| What is the difference between CBI and CID?

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