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The role of the state in economic development (affairs or activity) is a complex and controversial topic. The political thinkers are divided about the extent and mode of state interference in economic activity.

Capitalist and Communist Views:

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 hand, 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 (capitalist) 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.