The government makes its own money (generating inflation, which is taxation on savings), and takes money from people through taxation in various ways. It then spends that money in any way it wants, without a price system to signal where that money should be spent. Therefore, it ends up generating "malinvestments", where money is poured in the government functions, social programs, war, "economic incentive" programs, etc. according to the current political agenda, which is generally of low time preference (as politicians have to keep promising on things they can deliver within their mandates).
The modern state (which dates from the 1700's) might have had its historical justification on the basis of making management costs smaller (as in: property records, basic infrastructure, etc.). But as time goes by and technology improves, making both management and transaction costs diminish, the need for a centralized state becomes less important. The problem, however, is that governments want to persist (as they have a large amount of politicians and public workers), and instead of lowering taxes and being less invasive over time, they are progressively doing the opposite.