On 20 January 1981, in his inaugural address as 40th president of the United States, Ronald Reagan declared: “Government is not the solution to our problem, government is the problem.” It was the soundbite that defined the end of the 20th century. “Rolling back the state” became the mission of the “market revolution” spearheaded by Reagan and Margaret Thatcher.

In fact, as Donald Sassoon argues in The Anxious Triumph, the idea that the state and the capitalist economy can thrive apart is nonsense. The modern state and economy are twins born together in the 17th century. Through the age of absolutism and the great 18th-century revolutions, their relationship matured into one of ever-greater interdependence. This was most evident in the newcomer nations of the 19th century, like Meiji Japan or Bismarckian Germany. But it was every bit as true of a “liberal” power like Victorian Britain.

How precisely economic and political interests are articulated varies across the world and depends very much on a nation’s place in the international order. Part of the reason classical liberalism could acquire such a hold on Victorian Britain was that the UK moved first. Having constructed a powerful combination of a centralised fiscal state and a global empire, the UK didn’t flesh out its nation state apparatus or articulate a strong vision of a national economy until the 20th century. But then, as the historian David Edgerton has recently shown, it did so with a vengeance.

When you say that you want to roll back the state, what you really mean is that you want to reconfigure the relationship. Libertarians, down to today’s advocates of cryptocurrency, may dream. But the divorce they fantasise about is not a utopia but a nightmare. Insofar as it has ever existed, anarcho-capitalism is a product of disastrous state failure. Its life is nasty, brutish and short.

Government is not the solution to our problem, government is the problem Ronald Reagan

If the problem of the relationship of government and the economy is nevertheless posed over and over again, it is because on both sides it is fraught with tension. In order to function, as Sassoon stresses, states need politics, and that involves squabbling elites and more or less mobilised masses. Mass politics and modern ideologies, above all nationalism, have explosive potential. Indeed, if taken seriously, the very notion of politics as a process of collective choice and self-empowerment is antithetical to an economic system based on binding contracts between entrenched private interests that have no regard for the political collectivity.

A long line of liberals down to the neoliberals of our own age draw the conclusion that the solution is to tame politics: through law, international treaties, independent central banks and so on. That, not surprisingly, draws political opposition, both from the left and the right. But even more destabilising is the fact that liberals are on the whole hopelessly unrealistic about what actually makes the economy tick.

The arcadia of self-equilibrating markets, falsely attributed to Adam Smith, was one such fantasy. As Sassoon shows, even in the 19th century, not many people really believed in it. The 20th-century version was the macroeconomic idea of the national economy that could be governed like a machine. That, as we now realise, was in large part an artefact of national economic statistics. Numbers like GDP gave us a false sense of common interest in enlarging the collective pie.

Neither the utopian notion of the “invisible hand” nor the Lego-brick conception of the national economy captures the dynamic, disruptive, creative destruction that is the reality of actually existing capitalism. It is a protean force perpetually generating inequality, crises and the all-pervasive anxiety that gives Sassoon’s book its title.

There have been periods in which the tensions in this fraught relationship have been highly contained. The mid-20th century, the moment of the Beveridgean welfare state, was one when the state and economy were held in a fine balance. The periods before 1945 and from the 1970s onwards have been more unstable.

Facebook Twitter Pinterest Margaret Thatcher with Reagan in 1981. Photograph: Bettmann/Bettmann Archive

Sassoon’s book speaks to the present by conjuring up the era between the 1850s and 1914, in which the tensions between global capitalism and modern politics came clearly to the fore. This was the first age of modern politics, if not of democracy – the age of Gladstone, Disraeli, Lincoln and Bismarck. It was the age of imperialism and early experiments in social insurance. It was the age of railways, steamships and the boom and bust of the global cotton industry.

Sassoon offers us a sprawling map, studded with fascinating details. Curious about the urban poor in 19th-century Naples? Want to know why liberalism was stunted in late-19th-century Romania? Sassoon is your man. Ever heard of the city of Elkader, Iowa, founded in 1846? No, neither had I. It was named, it turns out, in honour of the Emir Abd el-Kader, leader of the resistance against the French occupation of Algeria.

As one is thrown from cameo to improbable cameo, reading Sassoon becomes a hallucinatory experience. Insights are proffered and then repeated, sometimes several times. Familiar facts mingle with jaw-dropping novelties. The chronology drifts, at times roaring into the present before retracting not just to the 19th century, but deep into the 18th.

Is there some artful design at work behind the apparent confusion? Is the book’s swirling disorder meant to mirror its subject? If, as Sassoon remarks, capitalism moves “without a goal or a project”, would it be misleading for a historian to impose too much order or narrative coherence? If so, it is a pitfall Sassoon triumphantly avoids. But in a book of 758 pages, the effect is mind-boggling, and not in a good way.

Those craving order may do better to approach Sassoon’s book chapter by chapter. Skip over the preface in which he impatiently refuses to define capitalism and the first chapters in which he meanders through the history of 19th-century state formation. Home in, instead, on his detailed discussion of the role of the Japanese elite in industrialisation, or savour his classically Gramscian reading of the failure of the Italian bourgeoisie. Even better is Sassoon’s discussion of the global spread of democratic political practice before 1914. Skip the chapter that narrates the history of colonialism as a rather moth-eaten house of horrors. Others do anti-imperialism more convincingly. Instead, enjoy Sassoon’s opinionated treatment of French and British parliamentary debates about the rationale of empire.

Or, you could start near the end, where one of Sassoon’s best chapters describes how the great recession of 1873 sparked an awareness of globalisation and triggered a wave of protectionism. He surveys the French debate with real flair but is far too dismissive of protectionism in Britain. It was never “fashionable” he blithely tells us, waving Joe Chamberlain aside.

But read on from there and you are in for a final surprise. Suddenly and without warning, just short of 1914 Sassoon calls a halt. From the trade wars of the early 20th century he jumps into the future. Vaulting over the first and second world wars, he takes us on a sweeping overview of pro- and anti-capitalist politics, complete with nods to Venezuela’s die-hard Chavistas, and Hyman Minsky, the prophet of the 2008 crisis. It is quirkily brilliant. But it is also a diversion. A history of gilded-age capitalism that rightly insists on the inextricable entanglement of the economy and state power, but which does not address the first world war, lapses into nostalgia. It is a puzzling end to a puzzling book.