The rise in social inequality and the emergence of the new nationalism place us in a new world. The postwar system of social cohesion is gone; the potential for new disruptions to capitalism has grown. So we write this chapter with a good deal of fear and trembling for two reasons. First, the capacities of many advanced capitalist states to effectively manage their economies continue to diminish.

Adam Smith died in 1790, just before the French Revolutionary and Napoleonic wars. The long peace of the nineteenth century that followed rested on an implicit geopolitical deal. For decades after the Congress of Vienna of 1815 had established a framework for peace, no one wanted to challenge Britain, in part because they were exhausted from war but also because doing so might upset the balance of power in Europe and strengthen one’s rivals. Furthermore, the world’s leading economies subscribed to the gold standard – fixing their currencies to the price of gold – thereby ensuring a stable international payments system that steadied capitalism. The hope was that trade would now replace military conquest, and that peace and prosperity would be assured. The first half of the twentieth century crushed that hope. It was a time of war and economic catastrophe.

As sociologists, we view capitalism and its optimal needs differently from conventional economists. Ironically, however, our own perspective draws on the work of well-known early economists – sociologically astute, but often misunderstood or neglected in economics today. Those earlier economists provide us with most of the important building blocks for our argument. They also remind us that the foundations of economics are fundamentally different from the widespread contemporary belief that markets work best when political and social forces do not interfere with them. The historical perspective suggests that this contemporary view is wrong and that putting it into practice has caused serious economic damage.

Let us recall three events that challenged the political status quo in the early part of this century. The first took place in 2000, when Danes were asked in a national referendum whether they wished to join the European Monetary Union, abandoning Denmark’s national currency, the krone, for the euro. Every element of the political elite – both left and right – as well as most intellectuals and the media were in favor of a “yes” vote. But the vote failed, beaten by a vote of “no” most common among less-educated Danish men living outside metropolitan Copenhagen. This was a harbinger of things to come. The second event saw protestors commandeer Zuccotti Park in lower Manhattan’s financial district on a crisp fall day in 2011, setting up a makeshift tent city to protest economic inequality in the United States.

Storm clouds began to threaten the postwar political economy rather quickly. By the late 1960s, war-torn countries had made great strides in revitalizing their economies, while competition was heating up in world markets, challenging the United States’ economic primacy. Then, the price of oil skyrocketed in the 1970s, driving production costs higher. These years came to be dominated by stagflation – a toxic mix of inflation, sluggish economic growth, and high unemployment. On top of that, thanks to dramatic improvements in telecommunications and transportation, consumer demands began to change rapidly, and manufacturers raced to keep up. In 1909, Henry Ford had promised his customers that they could buy a Model T in any color so long as it was black; by 1973, the Ford Mustang came in three body styles, with five engine options, a choice of three transmissions, and more than a dozen colors.

We began this book by presenting the ideas of great economists that have been unduly neglected. Smith recognized that capitalism works best when people seek to catch those above them on the societal escalator. That requires a sense that they are at least on the escalator – something stressed too by Polanyi, who was well aware of the dangers that could follow if people were to feel themselves to be left out altogether. Keynes wanted the state to smooth out capitalism’s instabilities – notably, persistent unemployment – which often stemmed from the creative destruction that Schumpeter described. Hirschman understood that another way of ensuring that capitalism worked for everyone was to provide voice to all of its stakeholders.

Psychiatry has never been without vociferous critics. Anti-psychiatry raised legitimate, albeit irritating, concerns about psychiatric practice. Clinical psychologists in Britain now outnumber psychiatrists, with an enormously expanded clinical remit. Lead psychologists are now as experienced as consultant psychiatrist and vie for leadership. To pretend that all is well in the world of professional mental health practice and relationship is dangerous.

We have argued that a successful state provides order, security, and belonging and as a result affluence to a society that controls it. Modern states of this type were created in Europe’s Darwinian world, one that mandated fiscal extraction by means of bureaucratic development. The institutional state capacity that resulted was far from negative: it involved the provision of legal services, and the fostering and protection of economic activity – this being crucial since traders were mobile and prone to move (and thereby to increase the power of one’s enemies) if they were treated badly. The endless interaction between competitive states and their societies had three dramatic consequences. First, there was further substantial institutional development. Second, distinctive national identities were created over time as diverse linguistic and ethnic groups merged into the culture of their states.

Human history does not come neatly packaged in precise and sharply delineated boundaries. This is certainly true of the world in which states now exist both as objects and subjects. We turn first to a series of novelties, occurring at different times and with different levels of intensity, that have done a very great deal to create new conditions of existence within which states now have to live. But the past is to some extent the present and the future too, as the American playwright Eugene O’Neill stressed, so attention then turns to continuities of structure and behavior, to patterns of social life familiar to us from what we have said in the previous chapter about the past. A consideration of both leads to a conclusion that characterizes the nature of our world today. By explaining the general conditions – both old and new – within which states operate today, our discussion in this chapter provides a bridge from the last chapter, which gave a sweeping account of the development of states in light of their need to provide order, security, and belonging, to the next four, which discuss different species of states today.