“A government is the means of placing the retaliatory use of physical force under objective control—i.e., under objectively defined laws.” — AYN RAND
Man’s state in nature, where every man is allowed complete discretion in the retaliatory use of force, according to the laws of the jungle, is anarchy — perpetual civil war and gang warfare. If there were no legal agency to carry out such a task, each man would be forced to carry out retaliation at his discretion. Writes Ayn Rand on the need for government:
“If a society left the retaliatory use of force in the hands of individual citizens, it would degenerate into mob rule, lynch law and an endless series of bloody private feuds or vendettas. If physical force is to be barred from social relationships, men need an institution charged with the task of protecting their rights under an objective code of rules. This is the task of a government—of a proper government—its basic task, its only moral justification and the reason why men do need a government. 
Under capitalism, a proper government’s fundamental responsibility is to protect the rights of the individual, by banning the initiation of physical force, thus making all relations between men voluntary, i.e., free from the threat of violence and fraud.
 Ayn Rand, The Nature of Government
Under capitalism the government is banned from initiating force.
As no individual in his private capacity, as a citizen, may initiate force against others, neither may the individual in his public capacity as a state official start force either, since all powers of government are delegated to it by the people.
Force may only be morally used in retaliation or to defend against those who start the use of force.
A proper government is permitted to use force to retaliate against a thief who has initiated force against someone (by robbing them). A proper government is not permitted to copy the means of private criminals by initiating force against its citizens, no matter how “noble” the alleged goal.
Citizens may not delegate the right to initiate force to the government, as they do not possess the right to start force to beginwith, i.e., the right to violate rights. As Ayn Rand has commented, “there is no such thing as the right to enslave.”
Since govenrment has the legal monopoly on the power to use force, the government must be regulated in its use, so the rights of the individual are protected. It is the purpose of an objective legal system to codify and regulate the permittable uses and conditions wherein government may use force. In doing so, an objective legal system submits might to right.
A proper government consists in practice of three things: a military— to protect against foreign invaders, a police force — to protect against domestic criminals, and a legal/court system — to settle disputes that arise, and to punish criminals according to objectively predefined laws.
“….Economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.” — AYN RAND Capitalism: The Unknown Ideal
Power is the ability to act.
What is economic power? The power wielded by businessmen is the power to create wealth through production, and trade. In regard to trade in a free market, businessmen can only entice someone to do their bidding, by offering something to be of equal or greater value in return. Economic power is the power of persuasion: the power to appeal to one’s mind with economic values. Such power comes from creating values–such as when Bill Gates (Microsoft) creates better products at lower prices. The businessmen’s tool is the mind and the material values it can create.
What is political power? The power of a bureaucrat of a statist society is the power of fear — the power to initiate force. He can force you to do his bidding by legally threatening one’s life and freedom. Such power is derived by destroying or threatening to destroy values — such as when the IRS confiscates ones home for not paying taxes, or when the DOJ threatens one with a jail sentence for being too successful.
The difference between political and economic power is the difference between plunder and production, punishment and reward, theft and trade. Plunder, punishment, and theft belonging to the political realm; production, reward, and trade belonging to the economic realm. The symbol of the businessmen is positive — the dollar — given to you voluntarily by trade. The symbol of a bureaucrat is a negative — a gun — pointed at you. The man who prefers the gun to the dollar is the man who thinks he will be holding the gun. The joke is on him — the results are upon all of us.
A government supports its legitimate activities under capitalism through voluntary financing methods.
The costs of a proper government — with an army (engaged only in self-defense and not imperialism), a court system, and a police force — are very small, and easily paid for by voluntary financing methods, such as insurance on contracts.
Similar methods are used within a capitalist society by nonprofit agencies, like churches, to raise billions of dollars.
Comments Ayn Rand on “Government Financing in a Free Society”:
Any program of voluntary government financing has to be regarded as a goal for a distant future. What the advocates of a fully free society have to know, at present, is only the principle by which that goal can be achieved.
The principle of voluntary government financing rests on the following premises: that the government is not the owner of the citizens’ income and, therefore, cannot hold a blank check on that income—that the nature of the proper governmental services must be constitutionally defined and delimited, leaving the government no power to enlarge the scope of its services at its own arbitrary discretion. Consequently, the principle of voluntary government financing regards the government as the servant, not the ruler, of the citizens—as an agent who must be paid for his services, not as a benefactor whose services are gratuitous, who dispenses something for nothing. 
In today’s mixed economies, the removal of taxation would be the last step to implement in the transition to a free capitalist society. Only if one wants to turn government into an engine to support the welfare state do voluntary financing methods fail to work.
Most people (not all) would voluntarily give 5 to 10% of their income to support a government that protects rights. Almost no one would voluntarily give 50% to 90% of their income to support a mixed economy/welfare state, which is why the government must threaten the use of force to confiscate wealth via taxation.
Who would want to voluntarily pay for that? Perhaps a few people would, but they are the ones who think that they will get to be holding the leash.
 Ayn Rand “Government Financing in a Free Society” The Virtue of Selfishness]