The Role of Government in the Free-market Economy – Part I

In our nation’s history, the struggle between the liberal and conservative wings of government has centered on the role, if any, government should play in addressing the weaknesses of a free market and encouraging economic growth.  The conservative view of government’s role has been generally that of “laissez-faire” or to leave the free market to correct itself while stimulating the supply-side of the economy through tax incentives and management of the money supplied through the financial system of banks and other lenders.  The conservative solution would also include relieving businesses of burdensome regulations that hamper profit and incentive.  The liberal view has been to stimulate the economy’s demand-side via the government’s direct injection of money, which it either borrows by issuing government debt or collects by imposing income taxes, into specific economic sectors.  A liberal policy would also include managing the supply of money through banks and other lenders and encouraging regulations to police business practices that would be unfair or harmful to the public at large.  While both the liberal and conservative sides would, through the Federal Reserve Bank, manage the money supply, their tax policies could differ significantly, with Liberals emphasizing that the income tax burden should be borne primarily by those with greater ability to pay it, but with Conservatives emphasizing a lesser degree by which those of greater ability to pay the income tax burden should in fact bear it.  The controversy thus centers on the role of government in the free-market economy.