Difference Between Capitalism and Communism

Difference Between Capitalism and Communism

The debate between communism and capitalism is clear about the differences and similarities between these two systems of economics. This article aims to analyze and compare the differences between capitalism and communism. We will compare and contrast the similarities and differences between them. Stay tuned! Capitalism: What is it? The term “capitalism” refers to an […]

The debate between communism and capitalism is clear about the differences and similarities between these two systems of economics. This article aims to analyze and compare the differences between capitalism and communism. We will compare and contrast the similarities and differences between them. Stay tuned!

Capitalism: What is it?

The term “capitalism” refers to an economic system that promotes individual ownership over the tools of distribution, production, and exchange to generate profit. In this model, the determination of the production and the price of items and services is done through the market, i.e., supply and demand play an important role.

The most important characteristics of capitalism are rights for individuals as well as private property, accumulation of wealth and a market economy, open and competitive markets, self-interest, and little government intervention. In a capitalist system, the owners make the decisions and invest in the capital and financial market on the inputs to production. The economy’s competitiveness has determined the prices and distribution of merchandise within the economy.

Communism: What is it?

A type of socialism where the production methods, properties, resources, and other assets are controlled and owned by an egalitarian society, i.e., the whole community, is known as communism. This is founded on the notion of sharing ownership. The concept of communism was initially conceived in the works of German philosophers and sociologists Karl Marx and Friedrich Engels. The fundamental principle of communism is that capabilities and requirements will determine the contribution and proportion of each person.

In this government system governed by the state, everything is owned by the government, and everyone works towards a common purpose. Thus, the distinction between classes does not exist, as everyone is treated equally. Communism is a strategy to eliminate the distinction between the wealthy and the less fortunate and create economic equality.

Capitalism and Communism: Differences 

We will look at the areas where capitalism differs from communism, so keep reading to learn.

Capitalism is a system of economics that allows private people to have control of the industry and trade of the economy to make profits. Contrarily, communism is a political and economic system where the community owns and manages the country’s industries and trade. 

Every person’s share is dependent on their capabilities and requirements. Ultimately, capitalism is a system in which private individuals control all production methods in communism. It is the collective that owns and controls all methods of production.

Principle basis

While capitalism is founded on the notion that individual rights are protected, communism rests on the concept of rights for the community.

What do they offer

Capitalism fosters class discrimination and conflicts between classes, increasing the gap between the wealthy and the less fortunate. However, communism encourages a non-class society, meaning everyone is equal. Communism is opposed to division, which causes the difference between the wealthy and the poor to be small or nonexistent.

The system of government

The capitalist economy has an elected system of governance that grants citizens the freedom and right to voice their opinions. In contrast, the actions of a communist economic system are based on a totalitarian government system. This means that the citizens have little or no power. In communism, the government controls all aspects of the economy/country.

Interventions by the government

Due to the system of government in these two systems of economics, the capitalist system has a low level of government involvement. In contrast, communism has a high percentage of government involvement. In capitalism, private individuals are in charge of the economic sectors while the government controls rules and rules. In the communist system, the government is the owner and regulates everything. Communism is the most extreme form of the socialist economy.

Wealth distribution

In a capitalist system, the distribution of wealth depends on each individual’s efforts to accumulate and create wealth. However, communism’s wealth distribution is based on people’s needs and capabilities.

Factors affecting production

Capitalist economies give private people the right and freedom to own production elements (land and labor, capital). Contrarily, communism doesn’t allow individual ownership over these inputs. The state is the owner and holds everything.


Capitalism favors individual liberty, while communism offers more priority to society. While individual freedom is important in the capitalist system, social and community rights are essential under communism.

Individual rewards

Earnings and profits are contingent on an individual’s abilities, capability, and willingness to work under capitalism. However, communism doesn’t allow for profit; it forces workers to be a part of the fame of the government.

Financial incentives are present in capitalism. This means that individuals are motivated to put in more effort, be more inventive, and innovate to improve efficiency and remain competitive. However, communism cannot motivate people to put in more effort or be inventive since any extra effort comes with no reward to the worker. Wealth accumulation is not permitted in this instance.

Capital sources

In the capitalist system, people or private business owners invest money they can get through borrowing. They can reinvest it as part of their profits earned while they continue to earn a return on the investment. In communism, the state has all the necessary resources to begin a state-owned company. There isn’t a private investment; there is no private capital source.

The nature of the market

Capitalist economics is a free and competitive market where all players compete for customers’ loyalty. There is no competition in a communist market because the state completely controls production and market.


In the capitalist market, depreciation is allowed in the capitalist system. The concept of depreciation isn’t a thing.


In capitalism, workers have the right to choose their occupation, job, and employer. However, the state or government decides on the occupations of people, where they work, and the company they work for under communism.

Ownership of a business

Private individuals can establish their businesses under capitalism. They build up capital to set up an enterprise. Under communism, private citizens are not able to control their own business. The state/government controls the entire capacity of production, including communes.

Final Words

Both capitalism and communism are forms of social order linked to industries and trade in economics and also talk about what ownership means for property.

Each coin has good and bad sides, as in communism and capitalism. In capitalism, there is a distribution that’s not even a result of which the wealthy get richer while the poor get poorer. However, communism is a fair distribution of wealth, yet it doesn’t allow people to enjoy private property. Communism seeks to eliminate capitalism from the market when it was first introduced in response to the ills of capitalism.

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