Government is necessary for the free enterprise system. Government exists on the national, state/ provincial, and local level. The role of government in a capitalist economy is to protect individuals from force and fraud and provide public goods and services, such as roads. The government does not attempt to intervene in any way to stabilize or control the economy.
Means and Management of Income
Governments make money through taxation. Taxes are levied on all types of income. Government then uses that tax revenue to pay for expenses. Government deficits result when the government spends more than it earns. This is not necessarily bad, as Forbes explains. Government surpluses result when the government spends less than it earns. Just as deficits are not always bad, government surpluses are not always good. In the free enterprise system, government spending policy is not influenced by the state of the economy.
Benefits to Society
Free enterprise needs government to exist. This is because capitalism, by nature, requires property laws that regulate ownership, one of the fundamental characteristics of this economic system. The only entity that can create and enforce uniform, enforceable property laws is a government.
Forms of Government Compatible with Free Enterprise
There are multiple types of government compatible with capitalism. Democracy works very well with capitalism, as has been seen in Singapore and the United States. Monarchy can also work well with the free enterprise system. Great Britain is an example of this. It should be noted that this is possible due to the fact that capitalism is not a political system, but solely an economic system.
Government is necessary for capitalism. In free enterprise, government does not intervene to protect certain industries or to stabilize the economy. Refer to “How the Free Enterprise System Works” to learn about similar topics.