Government

Government is the institution that holds the exclusive power to enforce certain rules of social conduct in a given geographical area. Objectivism holds that a government has exactly one proper function — the protection of individual rights — and that it discharges it by placing retaliatory force under objective law rather than by leaving each man to use force at his own discretion.

“The only proper purpose of a government is to protect man's rights, which means: to protect him from physical violence... The only proper functions of a government are: the police, to protect you from criminals; the army, to protect you from foreign invaders; and the courts, to protect your property and contracts from breach or fraud by others, and to settle disputes by rational rules, according to objective law.”
~ Ayn Rand, "The Nature of Government", The Virtue of Selfishness

The argument for having one

The case does not begin with a claim that men need to be ruled. It begins with the initiation of force.

If men are to live together, force must be barred from their dealings. But barring it requires that force be available to answer it, and a man defending himself is also the judge of his own case. Left there, every dispute is settled by whoever is stronger or more certain of his own righteousness, and there is no way for an innocent man to demonstrate his innocence to anyone with the power to act on it. That is not liberty; it is a permanent low-grade war.

A government resolves this by taking retaliatory force out of private hands and subjecting it to rules laid down in advance:

Objective law. A citizen must be able to know, before he acts, what is forbidden and what the penalty is. Law that is retroactive, vague or discretionary gives officials the power to convict anyone, which is the same power a criminal has, exercised with better paperwork.
Due process. Guilt is established by evidence in a procedure the accused can contest, rather than asserted.
A monopoly on legal force, not on force. Self-defence against an immediate attack is not surrendered. What is surrendered is the private prosecution of justice after the fact.

The three functions

The police, protecting citizens from criminals.
The courts, settling disputes, enforcing contracts and applying penalties under objectively defined law.
The armed forces, protecting the country from foreign aggressors.

Each is an instance of the same principle. None of the three involves the government starting anything; all three answer force already started or credibly threatened.

Limiting the government

The same reasoning that justifies a government makes limiting it urgent, because it is the one agency that legally holds force. The device for this is a constitution, whose purpose is to define the powers of officials rather than the permissions of citizens. The asymmetry is deliberate:

A citizen may do anything not forbidden by law.
An official may do only what the law explicitly authorises.

Rand described the proper form as a constitutionally limited republic rather than an unlimited democracy: a majority may choose who administers the government's powers, but not enlarge them. A Bill of Rights restrains the government, not private individuals.

Financing raises a real problem, since taxation is itself compulsory. Rand's position was that a fully free society would fund government voluntarily, and that this is the last reform to consider rather than the first, because it presupposes a government already reduced to its proper functions. She sketched possibilities — fees for contract enforcement, a lottery — without claiming to have settled the question. See "Government Financing in a Free Society".

Common misunderstandings

That "no initiation of force" leaves no room for a state. A government that does only the three things above initiates nothing. The anarchist alternative of competing enforcement agencies does not eliminate the monopoly problem; it multiplies it, since each agency claims final say and nothing decides between them but force.
That the public good can justify an exception. The public is a number of individuals. Benefiting some at the expense of others does not become legitimate because the beneficiaries are counted and the victims are not.
That a limited government is a weak government. It is strong within its function and absent outside it. Objectivism supports a well-funded police, court system and military.
That regulation is a middle course between capitalism and statism. A regulation is enforced, in the end, by men with guns. Objectivism treats the mixed economy as unstable rather than moderate, because every pressure group has an incentive to capture the power that exists. See Statism and Antitrust.

Discussion

References

Rand, Ayn. "The Nature of Government" and "Government Financing in a Free Society", The Virtue of Selfishness. New American Library, 1964.
Rand, Ayn. "Man's Rights", The Virtue of Selfishness.
Peikoff, Leonard. Objectivism: The Philosophy of Ayn Rand, chapter 10.

External links

Government at the Ayn Rand Lexicon