In a free market economy, governments regulate certain aspects of the economy for the good of consumers, of workers, and even of business owners. Although the motto of pure capitalism is laissez-faire—“leave it alone!”—even Adam Smith (the foremost proponent of capitalism) recognized that government regulation was needed for capitalism to succeed among imperfect people.
How do governments acquire the authority to regulate the economy—or, for that matter, to make any laws telling people how to live their lives? The many theories about government and the source of its authority can be sorted into three general categories: strong people seize authority and use their strength to tell others what to do, people give authority to the government to ensure safe and productive lives, or governmental authority comes from God and is given by God to those who rule.
These three theories can be combined. For example, some might believe that strong people seize authority and become rulers (“caudillos”) but that people allow that to happen and have the power to prevent a strong leader from arising or to transfer power from one strong leader to another. Likewise, some people (this author included) agree that government authority comes from God (as described in Romans 13:1-7) but that it is bestowed through the people; therefore, the people have a God-given right to overthrow one government and replace it with another when the first government is no longer using divine authority in a God-pleasing manner.
Under some theories, government must be strong so it can accomplish its purposes. Under other theories, government should be limited by the people so it does not rob them of their rights. One approach says that some problems are too big to be handled by anyone other than the government; another approach says that too much government is the biggest problem. Thomas Hobbes described government as a necessary evil, a monster that must be fed and maintained, but that also must be watched constantly and controlled to keep the monster from causing too much trouble and destruction.
So, governments make rules on behalf of their citizens. They inspect food and other products to be sure that they are safe and uncontaminated. They ensure that workplaces are safe and that workers are being treated fairly. They prohibit monopolies, trusts, and cartels, breaking apart businesses that otherwise could take advantage of customers and workers. They protect the air and land and water from pollution. They zone some areas for industry, some for sales, some for homes and neighborhoods, and some for parks and natural preserves.
All these regulations are part of the social contract, an agreement between the people and the government. The government claims strips of land from landowners, develops them as roads, demands that travelers move from place to place only on those roads, restricts the speed and other behavior of travelers (fining lawbreakers when they are caught), and charges for the use of the roads with taxes, licenses, and tolls. Most citizens accept the government’s right to do these things because we need roads; many kinds of trouble would follow if each citizen traveled from place to place as he or she wished, without government roads and without traffic laws.
Within that social contract, disagreements arise and compromises much be reached about the level of government regulation and the details of that regulation. Which pollution standards are beneficial, and which are excessive? Excessive regulations are costly to businesses and consumers. They can rob the economy of jobs and businesses. Yet insufficient regulation leaves people in danger of being poisoned by pollution. Likewise, minimum wage laws are controversial. Some people insist they are needed to reduce or prevent poverty; others say they increase poverty by raising prices and by persuading businesses to hire fewer workers, replacing them with affordable machines. Lawmakers must consider all sides of such a debate. They must decide for themselves which regulations help the people and which are excessive. They must vote according to those decisions, and they must explain their votes to the voters who will decide if those lawmakers keep their jobs or will be replaced.
Some regulation is needed. Some regulation is beneficial. When the government assumes the job of controlling the economy, the people suffer. When the government uses its power to make decisions that are better made by the business owners, the people suffer. A free market, regulated but not controlled by governmental laws, historically works better than a socialist system in which the government manages the economy. J.