Capitalism and Socialism

The Industrial Revolution brought tremendous changes in human thinking, the living conditions of people and the world economy. Two significant effects of the Industrial Revolution were the rise of Capitalism and Socialism.

Capitalism and Socialism

Capitalism and Socialism


The Industrial Revolution gave rise to the theory of capitalism. Money is required for purchasing land, labour and machinery which are important means of production. When money is invested to generate more money, it is known as capital. The people who own capital are known as capitalists.

The economic and political system in a country where trade and industries are controlled by private owners for earning profit is known as capitalism. The capitalists provide money for purchasing machines, tools, implements and raw materials. To earn a profit is the main motive of the capitalists.


Socialism was one of the important effects of the Industrial Revolution. Adam Smith in his work, ‘Wealth of Nations’ stressed that the state should not interfere in the nation’s economy. Socialism developed as a reaction against the theory propounded by Adam Smith. Socialism is an economic system in which the means of production are not controlled by individuals but by the state or by a community of people. Socialism believes in the fair distribution of wealth among the people. Socialism is based on three principles:

  • It is opposed to private capitalism.
  • Socialism reflects the voice of all workers and the working classes.
  • It aims at equal distribution of wealth.

Factors Leading to the Rise of Capitalism and Socialism

Factors Leading to the Rise of Capitalism

Increase in Population:

The Industrial Revolution increased national wealth and improved the purchasing power of people. An increase in income led to the improvement in health care facilities which led to an increase in the population of the country. People moved from rural to urban areas in search of job opportunities. The rural population rose sharply as new sources of food became available and death rates declined because of the decreasing number of wars and epidemic diseases like the plague

Growth of Towns:

Many new cities and manufacturing sectors came to be located close to the coalfields and supplied fuel to the factories. Factories came to be located near the source of raw materials. This further led to the rise of capitalism.

Mass Production:

In factories, machines helped in producing and manufacturing goods on a large scale. People living in the rural areas shifted to towns in search of employment. Mass production enabled the capitalists to amass huge wealth and gave rise to capitalism.

Disappearance of Small Farmers:

Many small farmers shifted to new industrial towns. Because their lands were appropriated by the big landlords, they were forced to seek employment in factories. The availability of abundant labour for factories helped in the development of the Industrial Revolution.

Causes Leading to the Rise of Socialism

Reaction against Capitalism:

Socialism developed as a reaction against capitalism. The Industrial Revolution divided society into capitalists and socialists. The capitalists exploited the labourers by forcing them to work for longer hours and by paying them extremely low wages. This made rich people richer and poor people poorer. The socialists fought for the rights of the workers.

Trade Union Movement:

The trade union developed after the Industrial Revolution to fight for the rights of the workers. Systematic protests by the members of the Trade Union forced the British government to recognise the basic rights of workers.

The Chartist Movement:

The condition of workers in Britain between 1836 and 1848 deteriorated. The workers wanted social and political freedom. Their leaders put forward their demands before the Parliament in the form of a charter. This movement came to be known as ‘The Chartist Movement’.

Impact of Capitalism and Socialism

Impact of Capitalism

The impact of capitalism was as follows:

Loss of Traditional Jobs:

The movement of people from villages to urban cities resulted in the loss of traditional jobs. Women who were engaged in spinning lost their livelihood as weaving became highly mechanised. Skilled labourers also lost jobs as machines replaced them.


The workers in a factory lived an extremely hard life. They were paid the minimum wages. Women and children were also employed in large numbers as they could be employed for very low wages. Soon people began to criticise this system of exploitation.


The workers were paid low wages, and they lived in enclosed overcrowded spaces. This resulted in the spread of various diseases. Although the economy of Britain developed at a fast pace, vast inequalities existed between the rich and the poor.

Longer Hours of Work:

The workers were exploited by the industrialists. They were supposed to work for longer hours. The workers were expected to work for about 12−14 hours per day.

Impact of Socialism

  • The Russian Revolution in 1917 aimed at the establishment of socialism in the state. Russia became a socialist country in 1917. Lenin and Trotsky were the chief architects of the Russian Revolution.
  • China became a communist nation on 1 October 1949 under the leadership of Mao Tse Tung.
  • Many socialist parties emerged in India too. In 1934, the Socialist Party was established under the leadership of Narendra Dev, A. Patwardhan, Jayaprakash Narayan and Dr Rammanohar Lohiya.
  • Currently, socialism implies that governments should work for the upliftment of the working and depressed classes in society and should aim at promoting a just and welfare state.
  • India has adopted the word, ‘Socialist’ in the Preamble of the Constitution and aims at the welfare of undeveloped and underdeveloped sections of society.

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