4. The Economic Significance of the State

All communities have had economic functions to fulfill! This must, self-evidently, have been the case with the original communist societies which we encounter at the threshold of history. In proportion as individual small production, private ownership in the means of production, and production for sale underwent their successive development, a number of social functions came into existence, the fulfillment of which either exceeded the power of the individual industries, or were from the start recognized as too important to be handed over to the arbitrary conduct of individuals. Along with the care for the poor, the young, the old, the infirm (schools, hospitals, poorhouses), the community reserved the functions of promoting and regulating commerce – i.e., building highways, coining money, superintending highways – and the management of certain general and important matters pertaining to production. In mediaeval society these several functions devolved upon the towns and sometimes upon religious corporations. The mediaeval state was little concerned with such functions. All this changed as the state took on its modern form, that is, became the state of office-holders and soldiers, the tool of the capitalist class. Like all previous states, the modern state is the tool of class rule. It could not, however, fulfill its mission and satisfy the needs of the capitalist class without either dissolving, or depriving of their independence, those economic institutions which lay at the foundation of the pre-capitalist social system, and taking upon itself their functions. Even in places where the modern state tolerated the continuance of mediaeval organizations, these fell into decay and became less and less able to fulfill their functions. These functions became, however, broader and broader with the development of the capitalist system; they grew with such rapidity that the state was gradually compelled to assume even those functions which it cares least to trouble itself about. For instance, the necessity of taking over the whole system of charitable and educational institutions has become so pressing upon the state that it has in most cases surrendered to this necessity. From the start it assumed the function of coining money; since then, forestry, care of the water supply, building of roads, come constantly more under its jurisdiction.

There was a time when the capitalist class, in its self-confidence, imagined it could free itself from the economic activities of the state; the state should only watch over their safety at home and abroad, keep the proletarians and foreign competitors in check, but keep its hands off the whole economic life. The capitalist class had good reasons for desiring this. However great the power of the capitalists, the power of the state had not always shown itself as subservient as they wished. Even where the capitalist class had virtually no competitor with whom to dispute the overlordship, and where, accordingly, the power of the state showed itself friendly, the officeholders often became disagreeable friends to deal with.

The hostility of the capitalist class to the interference of the state in the economic life of a country came to the surface first in England, where it received the name of the “Manchester School.” The doctrines of that school were the first weapons with which the capitalist class took the field against the socialist-labor movement. It is therefore no wonder that the opinion took hold of many a socialist workingman that a supporter of the Manchester School and a capitalist were one and the same thing and that, on the other hand, Socialism and the interference of the state in the economic affairs of a country were identical. No wonder that such workingmen believed that to overthrow the Manchester School was to overthrow capitalism itself. Nothing less true. The Manchester teaching was never anything more than a teaching which the capitalist class played against the workingman or the government whenever it suited its purposes, but from the logical practice of which it has carefully guarded itself. Today the Manchester School no longer influences the capitalist class. The reason of its decline was the increasing force with which the economic and political development urged the necessity of the extension of the functions of the state.

These functions grew from day to day. Not only do those which the state assumed from the start become ever larger, but new ones are born of the capitalist system itself, of which the former generations had no conception and which affect ultimately the whole economic system. Formerly, statesmen were essentially diplomats and jurists; today they must, or should, be economists. Treaties and privileges, ancient researches and matters of precedent, are of little use in the solution of modern political problems; economic principles have become the leading arguments. What are today the chief matters with which statesmen concern themselves? Are they not finance, colonial affairs, tariff, protection and insurance of workingmen?

Nor is this all. The economic development forces the state, partly in self-defense, partly for the sake of better fulfilling its functions, partly also for the purpose of increasing its revenues, to take into its own hands more and more functions or industries.

During the Middle Ages the rulers derived their main income from their property in land; later, during the sixteenth, seventeenth and eighteenth centuries, their treasuries derived large accessions from the plundering of church and other estates. On the other hand, the need of money frequently compelled the rulers to sell their land to the capitalists. In most European countries even now, however, very considerable survivals of the former state ownership of land can be found in the domains of the crown and the state mines. Furthermore, the development of the military system added arsenals and wharves; the development of commerce added post-offices, railroads, and telegraphs; finally, the increasing demand for money on the part of the state has given birth, in European countries, to all manner of state monopolies.

While the economic functions and the economic power of the state are thus steadily increased, the whole economic mechanism becomes more and more complicated, more and more sensitive, and the separate capitalist undertakings become, as we have seen, proportionately more interdependent upon one another. Along with all this grows the dependence of the capitalist class upon the greatest of all their establishments, – the state or government. This increased dependence and interrelation increases also the disturbances and disorders which afflict the economic mechanism, for relief from all of which, the largest of existing economic powers, the state or government, is, with increasing frequency, appealed to by the capitalist class. Accordingly, in modern society the state is called upon more and more to step in and take a hand in the regulation and management of the economic mechanism, and ever stronger are the means placed at its disposal and employed by it in the fulfillment of this function. The economic omnipotence of the state, which appeared to the Manchester School as a socialist Utopia, has developed under the very eyes of that school into an inevitable result of the capitalist system of production itself.