Various notions of the state are considered, with its origins and the limits set to its importance by globalization; among them, Webers thesis of the state as characterized by the monopoly of legitimate force, and Marxs theory of the state as an instrument of class power. Rousseaus theory of the social contract (and its implications) is contrasted to Humes notion of tacit consent. The ordoliberal idea of the necessity of a legal construction of the market is contrasted to Hayeks theory of a spontaneous order (grown order rather than made order). Issues of personal security (police) and the administration of justice are discussed, then national defence and military power. The notion (and limits) of the state as a countervailing power to economic power is then considered, with specific attention to the welfare state (and national differences in its realization) and to types of regulation (connected to the notion of different kinds of capitalism).

Our theory can explain why governments do not define and enforce property rights. The political history of Afghanistan illustrates the persistence of non-emergence of legal property rights. We also seek to explain why the Hobbesian account of the world in which there can be no sense of justice and no concept of property without a state is mistaken. According to our theory, self-governance would substitute for the state as a source of property rights when organizations have local monopolies, when they possess the capacity to resolve conflicts over land disputes, when their key decision makers face constraints, and when the institutions for local collective action are inclusive. Chapter 5 investigates this claim. Using original evidence from fieldwork, we show that self-governance of property works well in rural Afghanistan because customary governance satisfies the above criteria. Our theory can also explain why the formal property regime remains ineffective nearly two decades after state building commenced in 2001. Importantly, the property institutions in rural Afghanistan are typically private property rights, not unlike property rights in Western contexts. The difference is that customary private property rights in Afghanistan are effective despite not having any legal recognition.

In the framework of a critical illustration of the contemporary history of economics, this chapter provides an (original) illustration of Hayek’s thought: his formative years, his contributions to the theory of the trade cycle and the theory of capital and the subsequent debates with Sraffa and Kaldor, his theory of the spontaneous order and of the market as a mechanism of knowledge diffusion, his political individualism and the similarities/differences to the notions of methodological individualism , liberism and liberalism, his thesis on the denationalization of money.