Role of Government in Capitalism

Free market capitalism is a system of economics that minimizes government intervention and maximizes the role of the market. A free market economy is based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation. Government regulations, trade barriers, and labor laws are generally thought to distort the market. In practice, no country or jurisdiction has a completely free market. How Much Government is needed in the free capitalism arena? Should we expand our faith in free market capitalism, or do we need government intervention in each and every aspect of business economy? The role of government just considered is to do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game. Railroads, Parks, Highways are an excellent example. A good society requires that its members agree on the general conditions that will govern relations among them. The basic roles of government in a free society is to provide a means whereby we can modify the rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules. According to Adam Smith, self-interest (not selfishness), property rights and division of labor are three important interrelated pillars of economic growth. Some of the market values include the below and the failure can happen if we miss any of the below qualities. * Discipline * Honesty and trustworthiness * Tolerance * Cooperation * Courtesy * Enterprise * Responsibility

Market failure occurs due to many reasons. Some of those reasons are: * Monopoly power * When producers do not fully bear total costs of products or are unable to capture all benefits of producing

References: http://books.cat-v.org/economics/capitalism-and-freedom/chapter_02 http://highered.mcgraw-hill.com/sites/dl/free/0073525006/928301/McAdams_10e_Chapter_1.pdf http://www.governmentisgood.com/articles.php?aid=13&print=1