Capitalism v Socialism and “Invisible Hand”

Capitalismv Socialism and “Invisible Hand”

Capitalismis an economic system where resources are owned by individuals andfactors of production controlled by private entities. The economicresources relate to finance, industries and assets while the factorsof production are land, labor and capital. In capitalism, these arein the control of individuals instead of being in the hands of thegovernment (Fulcher 2). While the state can control its ownresources, the private control of resources is the main feature ofcapitalism. In an economy, capitalism seeks to ensure that there isan enabling environment for the private enterprises to thrive bygrowing their estates (Fulcher 37). The task of providing theenvironment is left to the state as the private entities seekexpansion and profit making.

Socialismis the economic system where economic resources are owned andcontrolled in a cooperative manner. The main characteristics thatdefine socialism are social control and social ownership where everyperson has a stake in the economic units of the economy (Newman 9).In this system, economic resources are owned by communities andsocial units where each has a stake in the production of the economicgoods and services. The output is therefore shared among the socialunits that contribute to the economy. The economy is managedcooperatively where every person being part of the ownership andcontrol of the economy (Newman 14). Therefore, the economic factorsof production are owned and managed cooperatively.

Outof the two types of economic systems, capitalism is the system thatrelates most with Adam Smith’s theory of “invisible hand”. The“invisible hand” works only with the capitalistic economies andsystems that apply the capitalism ideology. This is because the“invisible hand” concept focuses on the unintended benefits ofindividualism (Basu 18). The Adam Smith’s “invisible hand”theory is a metaphor theory which means that explains the benefitsand economy gains accrued when individuals are left to take action.The theory posits that an economy will do better if there are nostate restrictions to public benefits (Basu 19). This is the sameview by capitalism where the state does not restrict public benefits.

Therefore,the “invisible hand” theory works with capitalism because the twoargue against government protectionism. The theory also works withcapitalism because they seek to prevent government regulation in theeconomy. While capitalism thrives when the government is notprotecting state enterprises of industries, the invisible theoryrecommends that the government withdraws all the regulations (Basu46). Actually, the theory of “invisible hand” was provided byAdam Smith as a metaphor for arguing against government regulationand protectionism (Basu 46). By arguing against state regulation, the“invisible hand” theory envisioned the environment that isprovided in the capitalism economic systems. Therefore, the“invisible hand” works only with capitalism.

Betweencapitalism and socialism, capitalism provides citizens with the mosthappiness. This is because capitalism gives private citizens a changeto own economic resources in an economy (Fulcher 37). This means thatthey have the autonomy to own, control and utilize them in theprocess of production. By participating in economic processes,citizens are at liberty to increase their economic value and expandtheir enterprises (Roman and Loebl 19) In addition, capitalism handsthe 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 tocitizens as envisioned by Adam Smith’s “invisible hand” theory.


Basu,Kaushik.&nbspBeyondthe Invisible Hand: Groundwork for a New Economics.Princeton,&nbspNJ:&nbspPrincetonUniversity Press, 2010, Print

Fulcher,James. CapitalismA Very Short Introduction.Oxford: Oxford University Press, 2004, Print

Newman,Michael.&nbspSocialism:A Very Short Introduction,Oxford University Press, 2005

Roman,Stephen and Loebl, Eugen. Alternativeto Communism and Capitalism. NewDelhi: Abhinav Publications, 2013, Print