The Role of the ‘State’

When it comes to the economy, governments set economic rules known as regulations, collect taxes, and spend money. The idea is that they use public funds to provide services that anyone and everyone should have equal access to, and set the rules of the game for everything else – i.e. private services – to happen in a fair way.

The government is big and abstract and hard to get your head around in everyday language. To deal with this, we try to relate it to smaller things we understand, like businesses and households (sometimes called the nation-household metaphor). But these common comparisons rarely do a good job of explaining how governments work.

Pretty much any argument relating to politics or economics comes back to this question of governments vs. markets, or state-owned vs. privately held. The problem is, this makes it sound like modern governments and market economies are two distinct things, when actually, history shows that they developed at pretty much the same time.