Capitalist vs. Socialist Economies: An Overview

Capitalism and socialism are economic systems that countries use to manage their economic resources and regulate their means of production.

In the United States, capitalism has always been the prevailing system. It is defined as an economic system where private individuals or businesses, rather than the government, own and control the factors of production: entrepreneurship, capital goods, natural resources and labor. Capitalism's success is dependent on a free market economy, driven by supply and demand.

With socialism, all legal production and distribution decisions are made by the government, with individuals dependent on the state for food, employment, healthcare and everything else. The government, rather than the free market, determines the amount of output, or supply and the pricing levels of these goods and services.

Communist countries, like China, North Korea, and Cuba, tend toward socialism, while Western European countries favor capitalist economies and try to chart a middle course. But, even at their extremes, both systems have their pros and cons.