State is mainly tax collector and tax is nothing but one kind of forced money transfer. Hence it is associated with extraction of surplus labor. Now the question comes by what force this money is transferred. Answer is by the power of armed group. So the transfer of money is enforced through people who is at least more armed than those from whom tax is extracted.

Now what will happen if one state faces another state. There will be three possible outcomes. One state's army is larger than the other and the victorious one either will destroy the opponent state and take its tax colleting base or the victorious state will extract a fraction of the loser state's tax revenue. Another possible outcome is stalemate with both retaining their own tax bases fullt or partially.

So a state needs armed gang to tax the people under its rule and also to protect itself and its tax income from rival states. The former duty is conducted by police and bureaucracy while the later duty is performed by military and intelligence.

Thus s state needs military, intelligence for protecting itself from other states and it needs police and bureaucracy to tax the people residing under its authority. This is the basis of all states.

After establishing its superiority over the entire society, the state will gradually offer some basic service to earn legitimacy from the society it rules. The foremost among these basic services is judiciary. Judiciary helps state to become negotiator among different individuals of the society. People gradually turn to its ruler state for settling disputes. The function of judiciary is critical in maintaining private property rights, market rules, peace and prosperity. So judiciary makes state a necessity for common people. Common people feel that state's forceful collection of tax is necessary for maintaining social stability.

Besides judiciary, state can also offer services like building roads, bridges, canals, hospitals, schools, giving doles to needy, etc. Though these services legitimize a state in the eyes of its people, they can prove too costly. In general we see that as productive forces grow, technology improves, tax revenue rises and so state can undertake more such services. Moreover, today's developed economies face over production crisis where supply exceeds demand and so state's spending in these basic services become main source of demand creation that help production and income to reach its potential. Hence we can conclude that state has gained more legitimacy as technology progresses and tax revenue improves. This is usually conducted by Fiscal or Economic Planners.

Now comes a state's monopoly power to issue currency which becomes the main medium of exchange in the society. The state's power to issue currency is derived from the currency's store of value. A country currency's store of value depends on the gold, silver, foreign currencies that it can get from both home and abroad. Since most countries don't have gold or silver mines, most states rely on its country's ability to export to and absorb loans/investments from abroad. The more gold, silver foreign currencies a country absorbs the more gold, silver, foreign currency its state can collect as tax, the more value is carried by the currency it issues. Today Central Banks issue most of the currencies while in the past State Treasury used to do tjhe same. Currency standardizes medium of exchange within a country which makes trade more convenient. This helps to spread prosperity which helps state to collect more tax. In fact if a country has huge export earning base or massive power to attract foreign investment/debt relative to size of the population, it can forgo tax revenue. This happens today with many Gulf Arab states. 

Now comes another important part of state and that is Propaganda Network. Its function is to look after the accountability of system imposed by the state i.e. if police, bureaucracy, judiciary, army, intelligence, central bank/treasury are doing their duties. Propaganda Network consists of Print Media, Digital Media, Religious & Ideological Institutions, Festivals, various forms of Entertainment, Clubs, etc. It also spreads various concepts and perspectives that make common people come in support of the state they are ruled by.

Now we can see a complete state with all its machineries: Army, Intelligence, Police, Bureaucracy, Judiciary, Central Bank/Treasury, Fiscal/Economic Planners and Propaganda Network.

Besides these machineries state consists of those who enjoy the largest fraction of state's revenue income and those who pay largest share of tax. The former group is Politician and the later group is Big Business. Politicians enjoy largest share of tax collected and Big Business pays maximum share of tax revenue.

Sometimes state spends more than the revenue it collects and then it has to take loans from these Big Business. State has army and police, Big Business does not have them. Hence state can seize assets of Big Business. So states often force Big Business to lend it and then Big Business is left with two options: either to lend the state or to flee from that state's jurisdiction. But again if the Politicians are powerful enough they will force Big Business to pay tax rather than give debt. Big Business often avoids tax by moving abroad. In fact if Big Business give debt to state then it can be said that Big Business has the upper hand over Politicians since debt has to be paid back with interest while tax will never be returned back.

Author: Saikat Bhattacharya