Should politics be concerned with innovation? Should the state play an active entrepreneurial role to change markets? The aim of this thesis is to establish the political philosophical grounds on which the state may legitimately pursue policies aimed at promoting innovation, shaping markets and driving growth. It constitutes an attempt to base ideas about the role of the state in the economy - deriving from certain strands of economic thinking - on a normative foundation in contemporary liberalism. Forging a synthesis between liberalism and innovation policy faces the problem that liberalism has often been understood as imposing boundaries on which government action is legitimate. How can ambitious economic policy be reconciled with the interests, rights or freedoms of individual citizens? I argue that liberal theory is not merely compatible with the pursuit of ambitious innovation policy; it poses demands on institutional design that translate into an imperative for state innovation. Innovation policy that results in the creation of markets may enable individuals to fulfil their responsibilities to society. Such market shaping does not constitute a heavy-handed version of economic policy. It is possible to carry out such policy without interfering with the personal sphere of individual citizens and without disturbing the epistemic role of markets in society. The nature of innovation, growth and markets in a society is not merely given, but is subject to our collective agency. Liberal political philosophy can benefit from adopting such an institutional understanding of economic life. This methodological insight will allow us to tackle new questions in political philosophy. We can move on from asking which excesses in economic life are immoral and should be curtailed; instead, we can ask what kinds of markets would be beneficial and should therefore be created by policy and by individuals able to contribute to the reshaping of the economy.