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Home Principles of Public Finance Role of State in Economic Activity


Role of State in Economic Activity:


The role of the state in economic affairs is a complex and controversial topic. The political thinkers are divided about the extent and mode of state interference in economic activity. The Anarchists hold the view that a day will come when people will be lifted so much morally that there would be no need of government at all. The society will be so much conscious of its duties that it will regulate its affairs itself. This view of the Anarchists seems to be only a dream and wishful thinking and is not likely to be realized at any stage.


The Mercantilists believe that the state should actively participate in the social and economic spheres. The Physiocrats were of the view that the state should not impose any artificial barriers on individual's economic behavior. They believed in the law of nature.


Adam smith, the father of Political Economy, believes that the state should not interfere in the internal economic life of the citizens of a country as it hampers economic progress. He advocates the doctrine of noninterference or laissez-faire. Adam Smith, however, justifies certain cases in which state interference is necessary. They are (i) defense of the country, (ii) expenses on administration to safeguard the legitimate rights of the citizens and (iii) free education for needy students.


The communists, on the other band, hold, the opposite view. They advocate that state should own all factors of production. The decisions of what to produce, how much to produce and for whom to produce should all be carried out by the state. The state, in other words, should have minute supervision on the economic activities of the individuals. They believe firmly that there should not be any individual economic liberty, because it leads to exploitation of the poor by the rich.


Moreover, the policy of non-interference causes widespread business fluctuation and mass unemployment in the country. So they say, why to involve ourselves in such distress and misery? They, therefore, strongly advocate complete state control in social and economic spheres.


In between these two extreme view held by Adam Smith and the communists, the modern capitalist government have struck a happy mean. The states intervene directly or indirectly in all those economic and social activities where the community as a whole can benefit.

Relevant Articles:

Public Finance
Public Finance Versus Private Finance
Public Expenditure
Principles of Public Expenditure
Public Expenditure and National Income
Role of State in Economic Activity
Functions of Modern State

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money


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