This chapter concentrates on the roughly fifty-year period from the mid-1930s to the early 1980s. This is not to imply, however, that before this period the state performed no function in the market economies.

THE TRADITIONAL ECONOMIC FUNCTIONS OF THE STATE

Economic historians have identified three major traditional functions of the state – functions performed even during the phase of the so-called liberal state which adhered to the doctrines of laissez-faire – in capitalist systems. The first of these is the creation and enforcement of a legal code which guarantees and reproduces existing relations of production and which makes exchange possible. The right to private ownership, the enforcement of contracts, the regulation of free competition – without these legal institutions the free market as we know it today could not have developed.

The second traditional function of the state is to manage international economic relationships in such a way that national capital is defended and augmented on world markets. Historically, such management has taken forms ranging from the aggressive behaviour associated with colonialism and imperialism to others more defensive in character, such as protectionism and currency devaluation, in order to enhance the competitiveness of the country's products.

The third function is to guarantee the ‘material conditions of production’, that is, the supply of at least some of the inputs that the productive process needs: labour, capital, technology and infrastructures. Although the importance of each of these inputs has varied from one period to another, the role of the state, in its various forms, has almost invariably been decisive in ensuring their supply.