First, they are to create and keep order and enforce fairness in society. Though all elements within a society, including common individuals, bear an absolute responsibility to maintain as much order and fairness within their spheres of influence as possible, it is the government that is ultimately charged with physically enforcing the maintenance of civilized order and fairness.
Second, governments are to create and maintain a governed environment where lawful human activities can occur and organize themselves towards providing as many of the goods and services demanded by a society as possible with minimal direct support or funding from any public governing body.
A critical part of ensuring this fairness is to enable the free market forces of supply and demand to naturally set the prices for virtually all goods and services while government serves the function of ensuring fairness by requiring these producers to internalize all costs of production (including the costs of all negative externalities) into their prices.
Governments Should Use Sticks, Not Carrots
Since the minority of social activities are unlawful and undesirable, government involvements in society could be kept to minimal levels if their policies are designed from the perspective of penalizing bad or undesirable behavior rather than from the opposite perspective of encouraging good or desirable behavior. Of course, there are instances where explicit encouragement of good behavior is warranted, however, by default, good behavior will always be encouraged if bad behavior is penalized. In other words, governments should generally use ‘sticks’ to punish bad behavior rather than ‘carrots’ to encourage good behavior. Such a governing philosophy will result in a much less complicated and complex society. Since almost all human activities have an economic component to them, government methods of discouragement should generally be primarily economic in nature. In other words, the tax structure and financial penalties should be the most utilized tools for governance.