Chapter 5: The political order
Economic theory explains how markets allow different participants to coordinate their plans, while procuring them the benefits of specialisation and innovation. It considers most human activities through the lens of explicit or implicit markets. What is the proper role of the State in this view? From the very beginnings of economic analysis, that question has preoccupied economists. At first blush, the State is obviously a special player. It has the power of coercion to impose its designs; indeed it has a monopoly on the legitimate use of violence or force. At a minimum, the State must ensure public order, justice and other unquestionably collective goods. But this does not get us very far since the State actually does much more in modern societies. A legal theorist, when asked about the State’s role, might say that the State must look after the public interest, which implies that markets are not, or not always, able to do so. State action should take on tasks the private sector cannot undertake, or correct the interplay of private actions in the market where it produces harmful effects.
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