Effects of capitalism and socialism - Essay Example

The system of socialism does not have the objective of accumulation of capital as followed by profit driven entities. The methods of accounting for a system of socialism does not follow financial calculations but is recorded on the basis of physical quantities, labor and time. Capitalism on the other hand is a system of economy where the means of production are owned by the corporate houses and the private businesses. The management of the ownership structure in a capitalist system is based on the production of goods and services for earning of profits.

In a system of capitalism, the prices of goods and services are based on the market forces like competition, customer base, etc. The motives of capitalism are based on the accumulation of capital by the ownership structure. The methods of accounting in a capitalist structure in based on financial calculations. Effects: socialism and capitalism The systems of socialism and capitalism in the economy are different from the management of ownership of these two structures. The motives of socialism and capitalism also vary from each other.

Due to this, the effects of socialism and capitalism are different from one another. The system of socialism is aimed at production of goods and services solely for the economic conditions of demand. . The system of socialism has an effect on the labor wages and rights of the workers. The wages of labor are not reduced below a certain level in socialist economy. The minimum labor wages are sufficient to earn the livelihood in a socialist economy. However, due to absence of competition in the market, the employment level in the market is nor too high.

There are a lot of people in the economy who are unemployed. Due to equitable distribution of goods and services in the structure of socialism, the demand of goods and services do not exceed the supply by much. Thus there is very little scope of inflation in a socialist economy. Also the production of goods and services are much lower in order to only meet the minimum demand of the population. Thus the GDP growth rates of the economy are much lower. On the other hand, the capitalism structure is driven by the profit motives.

The system of capitalism includes the market forces of competition, labor wages, prices of goods and services for the growth of economy. The ultimate objective of the owners in a capitalist economy is the accumulation of business capital (Jones, 2010). The increase in competition of the market forces leads to increase in the production capacities. The increase in the production capacities and the requirement of labor for increased production gives rise to the employment level in the economy. Thus the availability of more jobs raises the bargaining power of the employers for which the labor wage rates decline in a capitalist economy.

However, the rise in liquidity in the economy and shortage of employment among a few sections of the population gives rise to disparity of the