If asked, most people would likely declare that they know fairly well what the terms in the title mean. In the heat of the election year political debates, these terms are often used without much thought about their meaning. It happened to me that my opinion was perceived by different people as me advocating for all three of these political concepts. It appears that some people see all the evils in one of these three political concepts, and every time when they disagree with some political view, they label it as capitalistic, socialistic or communist - depending on their bias.
A historic view
Capitalism as a political system gradually has grown up in Europe since medieval times but it was about the middle of the 19th century when many people realized that, despite all of the technological progress, they could not accept the injustices of the social order associated with it. The term "capitalism" was a natural for naming a system where capital and the people enriched by it - capitalists - flourished. "The Communist Manifesto," published in 1848 by Karl Marx and Friedrich Engels, is considered the pivotal moment in people starting to use the terms "capitalism," "socialism" and "communism" as descriptions of diverse political concepts. One should note that from the start, capitalism, as the existing political system, had a bad reputation, and socialism and communism as ideas of a better future were perceived as noble.
Later on, capitalism found its ideological defenders. On the economic side it would be the Austrian School of economic thought; on the philosophical end it would be the writings of Ayn Rand; and the followers of each. Correspondingly, in the 20th century, socialistic concepts were implemented in many countries, mostly with disappointing results. However, the original attitude that capitalism is bad and socialism is good still is lingering around, as all shortcomings of the capitalistic system are often interpreted as the evidence of its inalienable and deplorable faults, but all shortcomings of the socialistic system are interpreted as imperfections in implementations of an otherwise supreme political order.
Most people have only a vague understanding of the differences between communism and socialism and, incorrectly, these two terms are often used interchangeably. Marx and Engels in their critique of capitalism pointed out that ruthless competition and heartless pursuit of money are immoral as they create exploitation of the masses by the very few privileged ones. As an alternative, they envisioned a classless society, without hierarchy, without currency, without personal property, where people would work in harmony, resolve their problems in friendly discussions, produce enough goods and services, and where each would contribute according to his abilities and receive according to his needs. This community-centered form of social order is called communism.
In the classic view of communism, a communist society was the ultimate goal and destination for humankind. Followers of classic communism realized that it would be impossible to switch to communism directly from a capitalistic system they deemed immoral. They believed that society needed time for transition. During that transition, called socialism, the representatives of people should be in charge of the means of production, and guide the society toward communism. This was the essence of the very existence of the Union of Soviet Socialist Republics. They had their Communist Party of the Soviet Union, but the longer they were in power, the less they talked about transition to communism. In China, their communist party ended up leading the transition to capitalism.
Communism as a political system never was implemented anywhere. Cuba was flirting with it within the first few years after the revolution. China tried to move in that direction during the Cultural Revolution. North Korea might make some claims, too. But, in reality, all of these countries always have been socialistic countries. Communism as a political reality existed mostly in the minds of undereducated American politicians and commentators.
It has a tricky legal consequence, as the question 83 on the United States naturalization test is: "During the Cold War, what was the main concern of the United States?" The answer claimed as correct by the U.S. government bureaucrats is "Communism." If they understood the terms and knew history, they would know that communism never was nor should be any concern of the United States, but socialism is and was. Obviously, it creates a dilemma for citizenship applicants who are more knowledgeable than the U. S. Citizenship and Immigration Services officials.
With communism being a lofty idea, which one day might come to fruition but most likely never will - presently, capitalism and socialism are the two only practical political concepts competing for the hearts and minds of people in the U.S. and all over the world.
Socialism versus capitalism
Capitalism just happened. It emerged from a spontaneous technological progress and associated with it, social and political developments. Socialism is a human invention; it represents a human desire to take control of the social progress. It is no coincidence that many socialists call themselves "progressives." This approach is sometimes called a "scientific socialism" as it means that for the first time in the history of humankind, people take a systematic critical view of the existing political order and by collective action decide to change it. Socialists take a lot of pride and satisfaction from forming and implementing policies that change the world, presumably for the better. Marx said it the best: "The philosophers have only interpreted the world, in various ways; the point is to change it." Critics see this as hubris, as playing god, because humans and societies are part of nature; hence, we have no power to change the rules of nature and we never will know them well enough to play safely with the social order.
The socialistic system as established almost 100 years ago in the Soviet Union was intended as an egalitarian society run by people's representatives in the best interests of all. It does not sound too bad, and has some connotations to the American political system. The difference is in the freedoms of individuals. In socialism, by definition, the good of the society as a whole is collectively defined, and the representatives are given powers to implement it. Those powers imply suppression of the rights and aspirations of individuals who are perceived as not going along with what is believed as the good of the society at the time. In the Soviet Union, the right to own private property was one of these rights not recognized there. The freedom of expression was another one, as it was perceived as disturbing people's minds with obsolete and immoral capitalistic ideas. In capitalism, personal freedoms - in particular, protection of private property, freedom of enterprise and freedom of expression - are essential; people should be free in pursuing their economic interests. In the capitalistic system, the government's role should be solely in guaranteeing safety and equal freedoms for everyone. The concept is that the good of the society as a whole is achieved optimally if people are free from government coercion in pursuing their personal goals, be it economic, ideological, scientific, religious, philanthropic, or any other activity. Government should not be involved in any of these activities. This concept of the free market society (this is how capitalism was labeled before the term "capitalism" came into existence) to a great extent was adopted as the base of the political system in the Unites States at the time of its inception.
Critics point out that the free market system leads to wealth disparity, and then the supposed equality of individuals becomes a fiction, as wealthy people have abundant resources to coerce others, including the government apparatus supposed to protect equality. As a result, the social divide widens, as rich become richer and poor become poorer.
One can notice that in their pure ideological concepts, capitalism and socialism are exact opposites. In socialism, people make collective decisions as to what the directions of the social and economic progress should be, and then empower their representatives to implement them. In capitalism, the sum of the actions of free individuals is considered the best for the society as a whole, and the government should accommodate these private actions and should not have any ideological agenda as to what the directions of the social and economic progress should be. The previously mentioned Marx quote that "The philosophers have only interpreted the world, in various ways; the point is to change it" is interpreted by socialists as the moral imperative for the organized society to identify the desired direction of progress and forcefully implement adequate policies to achieve this goal. Supporters of capitalism believe that philosophers should not go beyond interpreting the world, and that the organized society should not establish any policies shaping the future, that the progress should be whatever happens as a sum of the uncoerced actions of individuals.
Mixing capitalism with socialism
I observed this first in Poland when it was a part of the Soviet Bloc. As the economy was disintegrating, the Polish government tried to implement here and there a little bit of the free market. It did not work because, as someone observed it then, it was as if the government were allowing some cars under certain conditions to follow the right-hand traffic rule, when all other cars were following the left-hand traffic rule. Capitalism and socialism are not compatible. It does not mean that people do not try tirelessly to prove it otherwise.
It started with Otto von Bismarck, the first chancellor of the united Germany, a conservative strongly opposing socialism but pragmatically acknowledging that "... those who are disabled from work by age and invalidity have a well-grounded claim to care from the state." Using his influence, he introduced health insurance for workers, disability insurance, and retirement and disability benefits as well. At the same time, by the end of the 19th century, the U.S. was reaching its pinnacle as the industrial power; the wealth was seen everywhere so the extreme poverty. Many among intellectual and political leaders saw this as a crisis and looked favorably on German-style government intervention. The wealth that capitalism created was taken as a given; the disproportions in the wealth distribution were perceived as unacceptable. Capitalism looked obsolete; the idea that society by organized collective actions can better itself sounded progressive and morally right.
The problem was that, at that time, the U.S. government, funded mostly by tariffs, did not have money for social programs. This was fixed by the 16th Amendment, introducing a federal income tax in 1913. Ideas of public health insurance or retirement plans did not get enough support then, but Americans agreed that alcoholism was a plague destroying the lives of many American families and therefore was detrimental to the well-being of the nation as a whole. Prohibition was voted in, with the eventual outcome known. It is less-known that at the same time, following the same line of thinking, Americans reached a consensus that unregulated immigration was not good for the nation mostly because it was bringing too many immigrants from Southern and Eastern Europe (Jews in particular) who were perceived as being of inferior stock. Consequently, the Immigration Act of 1924 created an elaborate immigration policy - in its essence, still in force today. Very few Americans recognize that our purely socialistic immigration law never will work because it is as that earlier mentioned left-hand traffic introduced to govern a section of the labor market in a country where the economy follows the right-hand traffic rules. Also, very few American political commentators see the unintended irony when some conservative politicians in the same breath declare support for the free market and our purely socialistic immigration policy.
Today, very few socialists advocate for nationalization of the means of production, as was done in the Soviet Union and many other countries. The mainstream thought is that privately run businesses are more efficient. However, the invisible hand of the free market is not trusted. People tend to believe that without government policies, the merciless chase of profit would bring back the ruthless exploitation of the weak and unprivileged. Proponents of the free market argue that the ever-growing net of regulations cramps businesses to the point that free enterprise is a fiction, as formally private businesses are becoming an extension of the government bureaucracy. In response, proponents of socialism point to the example of the Scandinavian countries, which have a very high standard of living and generous social programs, thanks to the very intrusive government regulations and high taxes imposed on the rich. This argument ignores that Scandinavian countries are small and homogeneous, with traditions of community rule. What works there does not apply in large, diversified societies. Also, one needs to notice that their socialized version of capitalism can prosper only because they tap into the innovation engine of the worldwide free market. It is meaningful that the most successful Swedish entrepreneur, Ingvar Kamprad, the founder of IKEA, left Sweden for 40 years to build his business. The history of IKEA tells, as well, that the art of avoiding regulations and taxes is now equally important in building the business as providing goods and services that the public wants to pay for. This is part of the experience of many American businesses today as they are moving their operations or legal headquarters to countries with more favorable tax laws. Of course, the question arises: Will we have in the future new businesses such as IKEA, Apple or Google if there will be nowhere to escape taxes and regulations, if there will be Sweden everywhere?