According to Andersen and Taylor (2013), The three major economic systems found in the world today are capitalism, socialism, and communism. These are not totally distinct, that is, many societies have a mix of these economic systems. Capitalism is an economic system based on the principles of market competition, private property, and the pursuit of profit. Within capitalist societies, stockholders own corporations — or a share of the corporation’s wealth. Under capitalism, owners keep a surplus of what is generated by the economy; this is their profit, which may be in the form of money, financial assets, and other commodities (p. 370).
Socialism is an economic institution characterized by state (government) ownership and management of the basic industries; that is, the means of production are the property of the state not of individuals. Modern socialism emerged from the writings of Karl Marx, who predicted that capitalism would give way to egalitarian, state-dominated socialism, followed by a transition to stateless, classless communism. Many European nations, for example, have strong elements of socialism that mix with the global forces of capitalism. Sweden supports an extensive array of state-run social services, such as health care, education, and social welfare programs, but Swedish industry is capitalist. Other world nations are more strongly socialist, although they are not immune from the penetrating influence of capitalism. The People’s Republic of China was formerly a strongly socialist society that is currently undergoing great transformation to capitalist principles, including state encouragement of a market-based economy, the introduction of privately owned industries, and increased engagement in the international capitalist economy (Andersen & Taylor, 2013, p. 371).
Communism is sometimes described as socialism in its purest form. In pure communism, industry is not the private property of owners. Instead, the state is the sole owner of the systems of production. Communist philosophy argues that capitalism is fundamentally unjust because powerful owners take more from laborers (and society) than they give and use their power to maintain the inequalities between the worker and owner classes. Communist theorists in the nineteenth century declared that capitalism would inevitably be overthrown as workers worldwide united against owners and the system that exploited them. Class divisions were supposed to be erased at that time, along with private property and all forms of inequality. History has not borne out these predictions (Andersen & Taylor, 2013, p. 371).
Andersen, M. L. & Taylor, H. F.(2013). Sociology: The essentials (7th ed.). Belmont, CA: Wadsworth.