The concept of nations and nationality has been around for thousands of years. Herodotus wrote about the German nation 2500 years ago. In those days the term did not refer to a country, a government, or a state. It referred to a people. There were dozens of different German tribes with no central authority, but together, they still constituted the Germanic nation. Nations were the sum total of a given "people" who were part of a single ethnic group, with the same language, the same religion, and the same cultural identity.
The development of the nation-state is often called nationalism. It was by far the most powerful political force of the 19th and 20th centuries, and will probably remain the most important political force in the 21st century. The national government has two primary tasks. It is responsible for maintaining national security and protecting the safety of the citizens. Just as important, it is responsible for establishing a regulatory framework to support and protect the market economy. The success or failure of the government in regulating the market economy will determine whether the population enjoys prosperity or suffers from poverty.
When aristocrats began to lose control of Western European society during the 17th century, aristocratic states began the slow and difficult transformation into nation-states. The modern nation-state is a very different kind of society from the earlier aristocratic state. Peasants become farmers. Instead of turning over a portion of their harvest to the aristocrats, they sell it through a system of wholesale and retail markets. The market economy becomes the most important factor in people's lives. The primary activity of nearly all nation-state governments is to regulate the market economy and make sure that it does not collapse, as recently happened in Argentina.
Market based nation-states do not have to consist of a single ethnic group, with one language, one religion, and one culture, but they have fewer problems when that is the case. The reason has much to do with the market economy. In a market-based society, people must routinely do business with strangers. It is much easier to trust strangers, and do business with them, if they speak the same language and share the same basic cultural identity.
As the market economy grows larger, it must be regulated by the state. The government must define what money is, and establish who has the right to coin or print it. The government must regulate banks, corporations, wholesale markets, retail markets, and a great deal more. Activities that constitute fair market practice must be defined, written into law, and enforced. Activities that do serious harm to the markets, such as theft, fraud, and extortion must be outlawed. Most of the legal code in a nation-state is there to regulate and protect the market system.
The process of developing modern regulatory mechanisms is slow and often painful. Societies that are still in the early stages of developing...