Framing an old debate: Capitalism vs Socialism


The tensions and fear that surrounded the word, ‘Socialism’ no longer exist in today’s uni-polar geopolitics. But there was a time when they did. From the earth-shaking Russian revolution of 1917 to the unexpected collapse of the U.S.S.R. in 1989, the ideology of ‘Socialism’ provided a serious, credible and to the more excitable, almost inevitable, alternative to the most prized and dominant thesis of co-ordinating production, exchange, and distribution within a modern nation: Capitalism. As stated in the Communist Manifesto, the “spectre of Communism was hanging over Europe”. Even the Indian Communists thus did not celebrate 1947 as much as they did 1917.

The last century saw an extended period of de-colonization, wherein great civilizations of India, Africa, and China shook off centuries of subservience and colonial rule. Colonialism had accompanied and supported capitalism (e.g. destruction of hand-made Muslin industry in Bengal, forced opium trade in China), and most nationalists were socialists and/or “indigenistas” who sought alternative economic models within scripture, popular mythology, and ethnic lexicons (e.g. Gandhi’s Ram Rajya). In India, Soviet Socialism was the inspiration behind the Planning Commission, installation of production quotas and licences (“Licence Raj”), and the nationalization of important banks such as the State Bank of India (erstwhile Imperial Bank).

However, by the 1980s and 1990s, the roaring fantasies of Socialism had begun to subside. In 1991, India dismantled Licence Raj, opened the financial sector to private players and shifted its policy from a planned-economy to a market-based economy. In the 1980s, China removed protectionist tariffs, restrictions on private farming, and foreign investment to the dismay of Maoist sentiments within its single party political system. In the West, leaders like Ronald Reagan and Margaret Thatcher began dismantling socialist controls on private industries and banks; broke the hold of unions and socialist parties and privatized major public industries. Capitalist coalitions like the World Trade Organization (erstwhile General Agreements of Trade and Tariff (GATT)), the International Monetary Fund (IMF), and the World Bank (WB) won out over socialist institutions like the Council for Mutual Assistance (COMECON). The implosion of the Soviet Union marked a possible “end of history” and triumph of free-market capitalism.


It is said that Capitalism grew within the industrial revolution of 19th century Britain and was exported to the world after 1850, through railway lines, telegraph messages, and cheaply produced cotton shirts. The application of scientific knowledge to industrial production, sanctioned by tight patent laws and well-defined “property rights”, led to an enormous, uncontrollable spurt in Britain’s national output. The factories of Manchester and the power-looms of Lancashire greatly furthered the division of labour and its machinery grew a large pool of factory workers. It is the unionization of these workers that led to democratic aspirations and solidarity for better wages. It was the force of the English working class that led to the hope that a “dictatorship of the proletariat” could be created, where it would be the working class and not the capitalist class who would own the property needed for production (factories, land, offices, technology, etc).

Not surprisingly, it was in England that Karl Marx wrote his (in)famous critique of Capitalism.

Socialism and Capitalism were not just different ways of organizing production and distribution, but also different political and ethical systems, with contrasting cultures and imaginations. Yet at the heart of this overtly modern debate, is an age-old question: can a certain citizen be allowed to accumulate property? Is bequest or inheritance a righteous way to accumulate property? What is the right way for people to use their property? Religions and traditional doctrines have also taken a deep interest in this question. The Bible declares that “it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of heaven” (Luke 18:25). Under Islamic law a variety of taxes such as ‘zakat’, ‘kharaj’, ‘jizya’, are necessary to uphold a moral order. The Arthashastra lists tax-rates for industrial and agricultural income without which the King will not be able to provide security and protection.

There exists a complex history of how Socialist ideas developed alongside Capitalism. And there is an even more complex history of how proto-socialist and proto-capitalist ideas developed in Judeo-Christian heritage and Indian, African, and Chinese traditions. There is thus no fixed “Capitalist” and “Socialist” economic model to explain to students. Yet it is possible to revisit this old debate, through one central axis: the axis of property.

“Property” has many connotations in popular usage. For the purpose of clarity, we can consider property to be those commodities or things that are scarce and not those that are available in plenty. Oxygen in the atmosphere is currently, not a scarce or limited thing, and so everyone can avail of it without entering into conflict with another. Hence, Oxygen is not scarce, but plenty. However, a television is a scarce thing in India as we do not have enough televisions for all the people. Thus, televisions are scarce and are considered property. Apart from televisions, consumer products such as washing machines, phones, and cars are all scarce and thus property. Money, bank credit, machines, land, raw materials are also forms of property.

Under Socialism, all property is socialized or nationalized, and is thus owned not by any one individual or group, but by all. Every manager of a factory and every CEO of an office would thus be only a caretaker and not considered owner. All newly produced goods and all inheritances belong to all and their just and moral distribution is co-ordinated by a central authority. In this command economy, producers do not own their products. All gifts, inheritances and profit belong to the state, who may redistribute them to the poor and the weak who are not as productive. The bureaucracy becomes instrumental in the allocation of work, distribution of income, and management of land and capital.

Under Capitalism, all property is individualized, and is thus necessarily owned by someone. No property can be owned by more than one person, and no property is owned by no-one. The rules are simple: no-one tramples or uses another’s property without permission. What people do with their property is up to them, and they alone are responsible for what they do with it. They may hand it to their children (bequest), enter into a trade with the property of others, or invest it into a venture (stocks and bonds) and keep the resulting profit or interest. There is no centralizing authority, and production and distribution of the economy occurs with only voluntary exchanges of people’s property. The capitalists operate as a decentralized bureaucracy that allocates labour, incomes, and directs which national property will be used. Each capitalist is concerned with his own profit, but in pursuit of his own gain he manages to make the most of all property under his command.

A few clarifications. It is possible for great inequality and strife of property to exist under both systems. Under capitalism, it is possible that a few people own most of the property within a nation, while a large majority own nothing but the use of their own bodies or labour power. Under socialism, it is possible that the central authority may redistribute most property to one person and leave the rest with scraps. Indeed, China’s Communism and American Capitalism have led to similar levels of income inequality. However, this “pure” model of Capitalism and Socialism is only a simplification. Even the most theoretical conceptualizations of Socialism and Capitalism are not this “pure”. Most economic policies offer a mix of private, communal, and public ownership of property that is more or less morally defensible. Yet as a pedagogical tool, this “pure” model allows us to get to a point where we can ask insightful questions.

If the central authority is benign and pro-poor, then under Socialism certainly some crucial property (land, books, food, medicine) will be redistributed to the landless, the uneducated, the hungry, the diseased. On the other hand, if the central authority’s moral vision is questionable then it will surely take its people to disaster and catastrophe. If the central authority is able to gauge the needs of its people, it will allocate resources accordingly. If the central bureaucracy is unable to organize production and distribution efficiently, and/or misuses its command over property for personal gain. Only by a centralized “representative” of all people can one gauge what is morally just, and only under its bureaucracy can we produce and distribute property for the good of all: this is the premise of Socialism. “From each according to his ability, to each according to his need.”

If the sensibilities of property owners are morally just and rationally sane, then under Capitalism they will not misuse property and mutually beneficial exchanges of property will occur. If property owners are completely greedy and selfish, then it is quite possible that they will only look out to please themselves at the cost of others, and Capitalism will lead to inequality. If people know what is best for themselves and a decentralized network of property owners can efficiently manage production and distribution of income, Capitalism will work. If people are clueless about their own needs and if disaggregated decisions do not lead to harmonious results: Capitalism will fail. When people have their own property, and entitlement of any profit resulting from it, they tend to take care of that property and make full use of it: this is the premise of Capitalism.

pranjal-2 Many questions spring if we conceptualize the debate in this way. Can a single (or multiple) central authority determine what is morally just for all? Do capitalists meet workers on equal grounds on the presumably “impartial” market? Would it be morally defensible to be able to freely exchange any and all types of property (e.g. the flesh trade, abortion pills, beef, etc.)? What would be the kind of state (i.e., politics) necessary to establish the rules for Socialism and Capitalism? Can individually motivated decision-making lead to collectively beneficial ends? Are collective decisions by a central committee really representative of the people? Can we uphold either Capitalism or Socialism without incurring enormous costs or monitoring and oversight of property? Which notions of equality and in-equality operate underneath either economic system? What about property such as “personal knowledge” or “human capital” that cannot be separated from the body of a person, much like “labour-power”? What if the people collectively make a decision to return to Capitalism and revert to individual property rights?

And while this exposition remains normative and a-historical, it provides a pedagogical tool to prepare for a wider debate on the historical successes and failures of Capitalism and Socialism.

Ideas for the classroom

The author asks a lot of questions in the article. These questions can become points of discussion and debate in your classroom actively engaging the students. But these can be taken up only after a thorough understanding of Capitalism and Socialism. So how about a fun little game to begin the class? Introduce the ideas and basic difference between Capitalism and Socialism through the game of rock, paper, scissors or any other game of chance like a simple throw of the dice.

Bring a bag of toffees to distribute in class. Tell the students that one toffee is necessary for their survival. The game they are about to play therefore should be played with any ‘extra’ toffees that they may receive. When distributing the toffees make sure that you give some students more toffees than the others. Tell the students that this unequal distribution of toffees represents the inequality of Capitalism. Let the students form pairs. Each pair will play rock, paper, and scissors or throw dice by turns to see who gets the bigger number. Fix a short time for this game, say two or three minutes. Every time a student wins, he/she is entitled to a toffee from the opponent. After the two or three minutes, students have to count the toffees they are left with. In most situations the students who had the most number of toffees at the beginning of the game will still have the most number at the end of the game. Some who had very few toffees will end up with none. A few players with lesser number of toffees will end up with more. Tell your students this is how Capitalism works.

Play a second round of the game to explain Socialism. This time distribute equal number of toffees to the students. Let them play the game in the same manner. After the two or three minutes, let the students count the toffees they are left with. At the end of the game the students should have the same number of toffees that they started with or a little less than their partners. This is Socialism.

Note: This game is from a lesson plan for teaching Communism, Capitalism, and Socialism and is available at—communism-socialism-capitalism.html

The author is an undergraduate student of economics at Presidency University, Kolkata. He can be reached at