The history of economig thought might well be described as the record of the ebb and flow of government influence in economic life. Indeed, the close parallel between economic and political thought and institutions throughout the course of history has led more than one great student of society to contend that the character of economic life at any given time determines the form of the political institutions. Lincoln Steff ens, the eminent American journalist of the early days of the present century, after his extensive investigations of existing political organization, said that politics and economics were merely the opposing sides of the same coin. One might draw far-reaching conclusions on this subject from the course of economic thought. Economics had its origins in a period when the state was all powerful and economic activity was conducted ultimately in the interests of the state. It reached the full stature of an independent social science with laws of its own during the two centuries between 1750 and 1930. In recent years when economic controls have begun to shift from the forces of the market place back to the power of the state, the circle seems to be drawing to a close. Moreover, the very idea of economic activity carried on in isolation without regard for the government on the one hand and only incidentally related to other social institutions on the other, somehow seems absurd, or at least unrealistic. Many aspects of the modern relationship of government to economics will be clarified if we begin at the origin of ideas on this subject.
The earliest and most prevalent form of government interference with the economic life of individuals and business enterprises is taxation. The right of the chief authority to collect taxes, and the general policy which determines who is to be taxed, how much the tax shall be, and for what purposes it shall be levied has always been a controversial issue. The tremendous increases in public spending accompanying recent depressions and war periods have brought the question of taxation to the mind of each and every citizen. In the twelfth and thirteenth centuries the revenues of rulers came from their own estates; there was no system of general taxation for the support of a public office. But the extension of the power of the monarch and the creation of the great states was expensive. One might say that the financial difficulties of governments was one of the chief causes of Mercantilism. The extravagance and waste of luxurious courts and the increased needs of government could not be met by the revenues from the monarchs' estates. The development of general taxation was inevitable.