ABSTRACT
Capitalism is a system in which scarce resources are owned privately. Yet under capitalism property is institutionally separated from authority. As a result, there are two mechanisms by which resources are allocated to uses and distributed to households: the market and the state. In the market, productive resources - capital, land, labor capacities - are allocated by their owners and the distribution of consumption results from decentralized interactions. Yet the state can also allocate and distribute and it can act on those same resources that constitute private property. Not only can states tax and transfer but they can regulate the relative costs and benefits associated with private decisions. Thus, inherent in capitalism is a permanent tension between the market and the state.
