ABSTRACT

In this chapter, the author distinguishes between several different economic perspectives on what role the government should play in market processes. He examines the free market perspective, according to which the smaller and less interventionist a government is, the less likely the freedom of economic agents to pursue their own trade-offs, and preferences will be substituted by governmental decision-making. The government should refrain from intervening in the economic sphere via macroeconomic policy, industrial policy or price and wage policy. The government must simply guarantee the quality and integrity of money, as opposed to adopting monetary or budgetary policies to stabilize the economy. The government may, depending on the political constellation, also wish to correct the outcome of free market processes out of a desire for greater equality in income distribution. The ideology of the welfare state is predicated on the notion that in order to advance individual freedom, the state must adopt an active role in implementing social reform.