Comparative Political and Economic Systems

13b. Comparing Economic Systems

Karl Marx, co-author of the <i>Communist Manifesto</i>
Karl Marx, German philosopher, economist, and revolutionary, laid the ideological groundwork for modern socialism and communism.

Karl Marx and Friedrich Engels turned the world upside down.

Until the publication of their 1848 Communist Manifesto, much of the western world followed a course where individuals owned private property, business enterprises, and the profits that resulted from wise investments. Marx and Engels pointed out the uneven distribution of wealth in the capitalist world and predicted a worldwide popular uprising to distribute wealth evenly. Ever since, nations have wrestled with which direction to turn their economies.


  • Capitalism is based on private ownership of the means of production and on individual economic freedom. Most of the means of production, such as factories and businesses, are owned by private individuals and not by the government. Private owners make decisions about what and when to produce and how much products should cost. Other characteristics of capitalism include the following:
  • Free competition. The basic rule of capitalism is that people should compete freely without interference from government or any other outside force. Capitalism assumes that the most deserving person will usually win. In theory, prices will be kept as low as possible because consumers will seek the best product for the least amount of money.
    Does capitalism allow for government interference?
    Image from Capitalism Magazine ( Used with permission.
    The antitrust lawsuit against Microsoft is one way that the government has tried to promote competition. Supporters of Microsoft say that forcing Microsoft to allow companies to bundle arch-rival Netscape's web browser with Microsoft Windows is not unlike making Coca-Cola include a can of Pepsi in each six-pack it sells.
  • Supply and demand. In a capitalist system prices are determined by how many products there are and how many people want them. When supplies increase, prices tend to drop. If prices drop, demand usually increases until supplies run out. Then prices will rise once more, but only as long as demand is high. These laws of supply and demand work in a cycle to control prices and keep them from getting too high or too low.


Karl Marx, the 19th century father of communism, was outraged by the growing gap between rich and poor. He saw capitalism as an outmoded economic system that exploited workers, which would eventually rise against the rich because the poor were so unfairly treated. Marx thought that the economic system of communism would replace capitalism. Communism is based on principles meant to correct the problems caused by capitalism.

The most important principle of communism is that no private ownership of property should be allowed. Marx believed that private ownership encouraged greed and motivated people to knock out the competition, no matter what the consequences. Property should be shared, and the people should ultimately control the economy. The government should exercise the control in the name of the people, at least in the transition between capitalism and communism. The goals are to eliminate the gap between the rich and poor and bring about economic equality.


Socialism, like communism, calls for putting the major means of production in the hands of the people, either directly or through the government. Socialism also believes that wealth and income should be shared more equally among people. Socialists differ from communists in that they do not believe that the workers will overthrow capitalists suddenly and violently. Nor do they believe that all private property should be eliminated. Their main goal is to narrow, not totally eliminate, the gap between the rich and the poor. The government, they say, has a responsibility to redistribute wealth to make society more fair and just.

There is no purely capitalist or communist economy in the world today. The capitalist United States has a Social Security system and a government-owned postal service. Communist China now allows its citizens to keep some of the profits they earn. These categories are models designed to shed greater light on differing economic systems.

On the Web
The Marx/Engels Internet Archive
Who were Karl Marx and Friedrich Engels? How did they articulate the foundations of one of the most important ideologies of the last century? Explore this exhaustive but well-organized archive of their letters, writings, and images (maintained by to understand not only the theories, but the personalities behind the hammer and sickle.
The Wealth of Nations
Eager to know how capitalism got off the ground? Scroll through the text of Adam Smith's classic work on free-market economics, An Inquiry into the Nature and Causes of the Wealth of Nations. Although his language is from 1776, the modern capitalist system is firmly entrenched in his ideals.
The Chairman Smiles
Attention: all aspiring propagandists! This fascinating website by the International Institute of Social History provides images of many propaganda posters from China, Cuba, and the former Soviet Union. Stalin, Castro, Guevara, Mao — all the familiar faces from the history of communism are here, smiling confidently and silently urging you to join their respective revolutions.
International Socialist Organization
Should working people run things for the good of the majority? To answer that, take a long look at the tenets of the International Socialist Organization and see what it takes to restore the production and distribution of wealth to the working class. Also, find out who they endorse (and why) for the 2000 presidential elections.
The Center for the Moral Defense of Capitalism
Although socialists and communists would scoff at the idea, the Center for the Moral Defense of Capitalism argues that laissez-faire capitalism is the only truly moral socio-economic system. Read their essays, weigh the philosophical evidence, and decide if the free market does indeed operate on the moral ideal of individual freedom.
The New York Stock Exchange
See capitalism in action at the New York Stock Exchange. At their official website, you can get stock quotes, find out about who has a seat on the Exchange, and feel the excitement of what it's like to be on the trading floor. This extensive website offers a glimpse into the inner workings of the stock market, with pictures and explanations of how money can work to make even more money.
Ron Wise's World Paper Money Homepage
Not all money is green. This comprehensive website run by an avid collector of banknotes from around the world provides high-quality scanned samples of notes from nearly all of the world's currencies. Check out currency from CuraÇao or Mongolian money, as well as information on watermarks, holograms, and fibers that make cash across the globe hard to counterfeit.
The Great Pokémon Crash of 2000
What happened to the value of Pokémon cards in 2000 after the company released so many cards for the Christmas season? This site teaches the law of supply and demand using the popular trading cards as an example. Pikachus and Squirtles are used to demonstrate the concepts of equilibrium and inflation that drive the basic theories of economics.

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