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RENTAL INCOME OF PERSONS: The official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring rent earned by the household sector for supplying land and related services. This is one of five official factor payments making up national income. The other four are compensation of employees, net interest, corporate profits, and proprietors' income. Rental income of persons is typically the smallest of the five factor payment categories, usually less than 5% of national income.

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GOVERNMENT FUNCTIONS:

Resource allocation activities that are more efficiently performed using the coercive government powers of taxation, spending, and regulatory authority than by private sector market exchanges. The most noted activities are (1) common defense; (2) education; (3) transportation; (4) public health and safety; (5) legal and judicial system; and (6) money.
Historical evidence (that is, 10,000 years of civilization) suggests that people are willing to put up with the coercive acts of governments (taxes, laws, regulations, abuse of power, oppression of the masses, meaningless wars) because governments also periodically perform useful functions, such as protecting the homeland, building highways, and maintaining order.

Public and Private Goods

Government functions can be traced to fundamental differences between private goods and public goods. Private goods are so-called because they are subject to private ownership and can be efficiently exchanged through markets. They are characterized by rival consumption (consumption by one person prevents consumption by another) and excludability (people who do not pay can be prevented from gaining access to the good).

Public goods, by way of contrast, cannot be efficiently traded through markets. They are termed public goods because governments (or the public sector) are responsible for their efficient provision. The term public good can be narrowly defined to include goods characterized by nonrival consumption (consumption by one person does not prevent consumption by another) and nonexcludability (people who do not pay cannot be prevented from gaining access to the good).

On occasion, the term public good is also more generally used to include two other goods that have one, but not both of these characteristics. Near-public goods have nonrival consumption, but excludability. Common-property goods have rival consumption, but nonexcludability. All three types of goods--public goods (pure), near-public goods, and common-property goods--can be efficiently produced and allocated only through government involvement. The nature of these goods help to explain the basic functions of government.

The Basic Functions

Without further adieu, consider the most important government functions.
  • Common Defense: In all likelihood distant ancestors established the first governments for the expressed, exclusive purpose of protecting their fledgling civilizations from external threats (wild animals, enemy tribes). Because such common defense provides benefits to every member of society without exception, once it is provided (nonexcludability) and because the protection of one member of society does not prevent the protection of other members (nonrival consumption) it is a prime example of a public good.

  • Education: Governments are also heavily involved in the provision of education, including public schools, higher education, and assorted job training programs. While education provides benefits to those educated with improved productivity and higher incomes, it also benefits the whole of society with less crime, technological advances, and fewer social problems. As such, while nonpayers can be excluded from gaining access to education (excludability), improved education benefits everyone (nonrival consumption), making this a near-public good that cannot be efficiently provided through private markets.

  • Transportation: Transportation systems, including urban streets, interstate highways, subways, buses, railroads, and air transit, are similar to education. Transportation, like education provides, benefits to those using the systems, and it also benefits the whole of society with improved efficient use of resources and lower production cost. While nonpayers can be excluded from gaining access to transportation (excludability), transportation provides benefits throughout society (nonrival consumption), making this a near-public good that cannot be efficiently provided through private markets.

  • Public Health and Safety: Governments also devote a lot of effort to public health and safety, including fire protection, police protection, disease control, and environmental quality. Public health and safety is another type activity that provides direct benefits to some people with immunization shots and clean drinking water, but it also benefits the rest of society with longer lifespans, fewer contagious diseases, and safer streets. As such, while nonpayers can be excluded from gaining access to public health and safety (excludability), improved public health and safety benefits everyone (nonrival consumption), making this another near-public good that cannot be efficiently provided through private markets.

  • Legal and Judicial System: A legal and judicial system that establishes the "rules of the game" is also critical to the efficient operation of an economy. In particular, the efficient exchange of private goods through competitive markets cannot take place without a well-defined system of property rights. If no one "owns" resources and goods, then ownership cannot be exchanged through markets. A government-run legal and judicial system is the only way to maintain property rights.

  • Money: Government is also needed to maintain the value and stability of the money supply. If an economy has too much or too little money in circulation, then the economy can have inflation and unemployment problems. If left exclusively to private banks, the profit motivation is most likely to create financial and economic turmoil.

But, An Imperfect World

Governments can, in principle, efficiently provide public goods, near-public goods, and common-property goods. However, in practice, governments are subject to the fifth rule of imperfection. For example, governments can provide an efficient level of education, but bureaucratic inefficiencies, vested interests, political pressures, and a number of other real world imperfections can, and often do, prevent this from happening.

In effect, governments are comparable to fire. Like fire, when governments are controlled and only perform designated functions they can provide unparalleled good. However, also like fire, when governments rage out of control they can cause horrific devastation.

<= GOVERNMENT FAILURESGOVERNMENT PURCHASES =>


Recommended Citation:

GOVERNMENT FUNCTIONS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: October 24, 2017].


Check Out These Related Terms...

     | paternalism | nationalization | free enterprise | command economy | pure command economy |


Or For A Little Background...

     | public sector | first estate | fifth rule of imperfection | mixed economy | ownership and control |


And For Further Study...

     | three questions of allocation | private property | economic goals | capitalism | socialism | economic system | central planning | distribution standards | business cycles | fallacies | gross domestic product | macroeconomic problems |


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