What Is the Purpose of the State?

Part 2 of a Series

Several years ago, the Coen Brothers made a movie, Burn After Reading, that begins with a shot of planet Earth from a high-orbit satellite and then zooms, without a visible cut, down into the suburbs of Washington, D.C., where it starts to follow the lives of two pathetic losers played by Brad Pitt and Frances McDormand.

We, too, want to understand what's going on in Washington, particularly around the looming federal debt limit "crisis". But before we zoom in we're going to hover in high-Earth orbit for a while, observe the planet's political divisions (nation states), and only later move our focus in closer to Washington, D.C.

What is the purpose of the state?

The state mobilizes resources in pursuit of the public purpose. If, from our high-orbit position we were able to observe all the nation states of the planet and ask what was common to each state's purpose, mobilization of resources for the public purpose would be the simplest and broadest answer.

Let's analyze that statement one part at a time (though not necessarily in linear order).

The state: Here we will use that term in the way that political scientists or philosophers would. Wikipedia offers this definition: "A state is a centralized political organization that imposes and enforces rules over a population within a territory." Unless we specify otherwise, we'll be referring to nation states -- politically sovereign entities. The states which make up the United States are sub-sovereign entities; when we want to refer to that level of government we will be do so very explicitly.

The public purpose: The state pursues certain goals and objectives that are public in nature, as distinct from others that may be non-public in nature or which may conflict with public goals. I'm deliberately not using the term "private" here yet because I don't want to be limited to the "private sector versus public sector" trope dominant in American social science.

Note that "the public purpose" is so unspecific as to immediately beg several questions:

1. How is the "public purpose" defined or formulated?

2. Who gets to define the public purpose?

3. Is the public purpose necessarily a good thing?

The too short answers to these questions are:

1. That's what politics is all about.

2. Those who have political power.

3. No.

The pursuit: This suggests that achievement of the goals specified in the public purpose is an ongoing process -- a process which may fail.

Mobilization of resources: This is the key part of the description of the state for the purpose of this series of articles. However the public purpose is defined, the state can only pursue it with human and non-human resources -- resources that, at least initially, it may not own or control.

This mobilization can take various institutional forms. The state could enslave people and directly capture the product of slave labor. The state could go to war -- which would require the mobilization of armed forces -- in the hope of plundering the resources of conquered enemies. However, both slavery and conquest require the constant application of violence, which may not be sustainable. In contemporary business parlance, they don't "scale" very well.

What if the state could devise a way of mobilizing the resources it needed which made use of considerably more voluntary cooperation on the part of the population? What if the state said to the population, "We will give you these tokens of value in exchange for the resources we need to mobilize. You can accumulate these tokens of value, but we are going to require everyone to return a certain portion of these tokens back to the state."

Voilà: money and taxation. With taxation, the population is required to render unto Caesar what Caesar originally rendered to the population in exchange for goods and services. This is the essence of the state theory of money: The state creates money in the very process of spending it. That money is denominated in a particular unit of account (e.g., the dollar). The state simultaneously imposes a tax which must be paid in that unit of account. Imposing the tax on the population provides an incentive for people to accumulate the things in which the tax is paid. People can amass those things (which may be physical objects such as coins or paper money or may be entries in bank accounts) via an exchange of resources with the state. The things created by the state -- the currency -- would in and of themselves be worthless, but taxation drives a demand for the currency.

To sum up:

The purpose of the state is to mobilize resources for the public purpose, however that purpose is determined. Money is a tool created by the state to facilitate that mobilization of resources.

In future posts we will explore more of the details as to how the state uses money to conduct its affairs. We will examine the degree to which different nation states can use money effectively in pursuit of the public purpose in those different countries. We will comment on possible objections to the description of the state presented above as well as to the state theory of money.

All of that will, I hope, prepare us to better understand the political controversies around the federal debt limit which are likely to re-erupt in the next several months. Please stay tuned, and be sure to pose questions in the Comments.