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Capitalism v Socialism and “Invisible Hand”
Capitalism is an economic system where resources are owned by individuals and factors of production controlled by private entities. The economic resources relate to finance, industries and assets while the factors of production are land, labor and capital. In capitalism, these are in the control of individuals instead of being in the hands of the government (Fulcher 2). While the state can control its own resources, the private control of resources is the main feature of capitalism. In an economy, capitalism seeks to ensure that there is an enabling environment for the private enterprises to thrive by growing their estates (Fulcher 37). The task of providing the environment is left to the state as the private entities seek expansion and profit making.
Socialism is the economic system where economic resources are owned and controlled in a cooperative manner. The main characteristics that define socialism are social control and social ownership where every person has a stake in the economic units of the economy (Newman 9). In this system, economic resources are owned by communities and social units where each has a stake in the production of the economic goods and services. The output is therefore shared among the social units that contribute to the economy. The economy is managed cooperatively where every person being part of the ownership and control of the economy (Newman 14). Therefore, the economic factors of production are owned and managed cooperatively.
Out of the two types of economic systems, capitalism is the system that relates most with Adam Smith’s theory of “invisible hand”. The “invisible hand” works only with the capitalistic economies and systems that apply the capitalism ideology. This is because the “invisible hand” concept focuses on the unintended benefits of individualism (Basu 18). The Adam Smith’s “invisible hand” theory is a metaphor theory which means that explains the benefits and economy gains accrued when individuals are left to take action. The theory posits that an economy will do better if there are no state restrictions to public benefits (Basu 19). This is the same view by capitalism where the state does not restrict public benefits.
Therefore, the “invisible hand” theory works with capitalism because the two argue against government protectionism. The theory also works with capitalism because they seek to prevent government regulation in the economy. While capitalism thrives when the government is not protecting state enterprises of industries, the invisible theory recommends that the government withdraws all the regulations (Basu 46). Actually, the theory of “invisible hand” was provided by Adam Smith as a metaphor for arguing against government regulation and protectionism (Basu 46). By arguing against state regulation, the “invisible hand” theory envisioned the environment that is provided in the capitalism economic systems. Therefore, the “invisible hand” works only with capitalism.
Between capitalism and socialism, capitalism provides citizens with the most happiness. This is because capitalism gives private citizens a change to own economic resources in an economy (Fulcher 37). This means that they have the autonomy to own, control and utilize them in the process of production. By participating in economic processes, citizens are at liberty to increase their economic value and expand their enterprises (Roman and Loebl 19) In addition, capitalism hands the autonomy of controlling the factors of production to citizens, which would not be possible in the socialist economies. Moreover, capitalism allows the benefits of individual actions to accrue to citizens as envisioned by Adam Smith’s “invisible hand” theory.
Works Cited
Basu, Kaushik. Beyond the Invisible Hand: Groundwork for a New Economics. Princeton, NJ: Princeton University Press, 2010, Print
Fulcher, James. Capitalism A Very Short Introduction. Oxford: Oxford University Press, 2004, Print
Newman, Michael. Socialism: A Very Short Introduction, Oxford University Press, 2005
Roman, Stephen and Loebl, Eugen. Alternative to Communism and Capitalism. New Delhi: Abhinav Publications, 2013, Print