What is profit and loss? In a true free market it is the simple relationship between capital inputs and capital outputs. Where if a person or ‘company’ is producing profits, it is recognized that they are increasing value in relationship to the capital inputs. Whereas money represents value, if a company is selling a product/service for $10 and it costs the company $7 to provide, it is assumed that the company produced an additional $3 in improved value. The total value of the good/service is $10, but since there was a profit, it is a market signal that the company is using its capital in a productive manner and improving the value of the capital used to provide the good/service.

Since government can demand revenue by force, there is no profit/loss system. There is no simple way to determine if the taxpayer is receiving full value for the goods/services received. Therefore, there is no metric to determine if the capital is being used efficiently.

Some argue that there is not any service that government currently provides, whether it be insurance, charity, protection/defense, education, infrastructure, utilities, etc that could not be provided by a market based approach and make the people affected better off than under a coercive system. In any case, this is the economic argument for limited government. Where if any good/service can be provided by the private sector, government should stay out of the business.

Also notice that subsidies, capital taken from people in the form of taxes and given to certain companies or industries, disrupt the ‘profit/loss’ system and make otherwise unproductive companies appear to be productive (profitable) when in fact they destroy wealth. See: Solyndra.