Just as we would be remiss to skip past a discussion of the role of entrepreneurs in innovation, we would be remiss to skip over the role of the state. In this chapter, we move through three starkly different visions of what role government ought to play in bringing about innovation in the economy. The first paper discussed, by Acemoglu & Robinson, suggests that the state actually plays a key role in creating the institutions that make innovation worthwhile. The second reading, a set of chapters from a book by Mazzucato, argues that this institution-oriented view is too limited, provides evidence of how ‘entrepreneurial states’ can also work to develop innovations, and suggests that this implies a state that is much more active in investing in and directing innovation. The third reading turns up this argument further, arguing that the urgency of the global climate crisis and the vast economic reorganization that it demands means that the state should not just be more active in investing and directing: the crisis, it argues, can only be solved by a complete socialization of the economy, by the state actively managing innovation and production.

Understanding economics is critical to understanding the history of humanity, from hunter-gatherers to today. Economics is the study of decision-making and how humans make decisions. Without understanding economics we cannot understand the trajectory of history over the last 10,000 years. This chapter reviews basic economic principles, and how economies have evolved through time. It discusses the economic principles of Adam Smith and Karl Marx, the differences between a market economy and a command economy, and the political and historical implications of the clash between those two models.

The integrity and durability of the Chinese empire over two millennia rested on the strength of its fiscal capacity. From antiquity, sovereignty was linked to the ruler’s duty to provide for the economic as well as moral welfare of his subjects. Rulers of the Bronze Age manifested and reproduced their authority through distribution of wealth among their kinsmen and noble allies. The autocratic monarchs who rose to dominance after 500 bce amassed wealth to buttress their military prowess, but they also strove to protect the independence and livelihood of the smallholder family farmers who undergirded their economic prosperity. The institutional apparatus of the fiscal state – centralized planning of taxation and expenditure to satisfy the state’s commitments to good governance – became a defining feature of the first empires, beginning with the Qin dynasty (221–206 bce). Yet at the same time the rise of a market economy also shaped the relationship between the state and its subjects. Even the command economy instituted by the Qin Empire made accommodations to markets, merchants, and money.