Liechtenstein has long been recognized
as one of the most free and prosperous countries in the world. However, there
has been little analysis of Liechtenstein’s development because the scant
research that existed was in German and therefore inaccessible to most American
scholars. Furthermore, many saw no need to study Liechtenstein, viewing it as
an accident of history with an anachronistic political system. Liechtenstein’s
monarchy, unlike the monarchies in most other European states, retains
extensive powers and is involved in the day-today operations of government. In
fact, in 2003, Liechtensteiners voted to give the monarchy even more power,
prompting the BBC to remark that they had “voted to make their prince an absolute
monarch again.”1
Recent
scholarship, however, allows us to examine the reasons for Liechtenstein’s
success. David Beattie, former British Ambassador to Switzerland and
Liechtenstein, published a comprehensive history of Liechtenstein in 2004.2 This book, along with Pierre Raton’s
earlier research, provides sufficient material to analyze Liechtenstein’s
development.
The
work of economist and political philosopher Hans-Hermann Hoppe, specifically
his seminal book Democracy—The God That Failed: The Economics and Politics of
Monarchy, Democracy, and Natural Order gives us a framework
for analyzing Liechtenstein’s development. In his book, Hoppe argues that,
contrary to popular belief, the historical transition from monarchy to
democracy represents decline, not progress. Hoppe offers a two-part thesis to support his theory. First, monarchs,
unlike democratic rulers, tend to have low time preferences; therefore, they
avoid, if at all possible, wars and high taxes for fear of hurting the state’s
long-term capital value. Second, there is a clear distinction between rulers
and ruled under a monarchy; this “class consciousness,” as Hoppe calls it,
encourages the public to resist governmental excesses.3
The
first part of this article will explain Hoppe’s thesis in detail, focusing
particularly on time preference and class consciousness: two factors that have
played a key role in Liechtenstein’s development. The second part will apply
Hoppe’s theory to Liechtenstein’s history. The third part will explain why
Liechtenstein has maintained its freedom in an age of omnipotent government.
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HOPPE’S
THEORY OF MONARCHY AND DEMOCRACY
It is
first necessary to give Hoppe’s definition of time preference and his
definition of a state. Time preference is the degree to which people value
future benefits over present benefits. A person with a low time preference is
future-oriented, preferring savings and investments, for example, to current
spending. By contrast, a person with a high time preference is
present-oriented, preferring instant gratification.4 Hoppe
defines a state as a territorial monopoly of ultimate decision-making
(jurisdiction) and expropriation of resources through property rights
violations (taxation). States, by nature, tend to expand, as the rulers try to
increase the amount of territory under their jurisdiction. Furthermore, rulers
will tend to confiscate wealth at an increasing rate. In short, a state’s
rulers naturally utilize its resources for their own benefit.5
In a
monarchy, the royal family “owns” the state, since the reigning monarch
maintains control of the state until his death, passing ownership to his heir.
The state is, in effect, privately owned, and Hoppe therefore refers to
hereditary monarchy as “private government ownership.”6 A
monarch will tax his subjects, but he will keep taxes as low as possible
because, since he literally “owns” the state, he has an incentive to keep his
subjects as productive as possible. High taxes ultimately decrease the state’s
long-term capital value because, when people produce things of value, they
expect to profit from their work. However, if taxes are high, they have little
incentive to keep producing, as the fruits of their labor will only go to the
state. Therefore, as taxes increase, productivity decreases. High taxes, then,
reduce the state’s long-term capital value and, therefore, the monarch’s future
tax revenue. As a result, monarchs tend to have low time preferences and thus keep
taxes low to maintain the capital value of their taxation monopoly. In fact,
monarchs frequently ran their own “normal” businesses so that they did not have
to support themselves exclusively with tax revenue.7
In a
democracy, by contrast, the executive is usually a president or prime minister,
elected for a specified time (usually four years). He does not pass ownership
of the state to his heirs and, in fact, does not own it himself. Instead,
presidents are best described as “temporary caretakers or trustees.”8 The
state is not owned by a private family, but by the public. Therefore, a
democracy can be described as a publicly owned government. Since the president
only controls the monopoly of taxation and jurisdiction for a short time, his
incentive is to exploit the state and its subjects as much as possible during
his time in power; a democratically elected president will have a high time
preference. Thus, in a democracy, there is a high incentive for rulers to
utilize high taxes to maximize their power while in office.9 To
support this theory, Hoppe notes that monarchs did not levy income taxes, which
punish productivity; the income tax is a creation of democracy.10
For
the same reason, monarchies accumulate less debt than democracies. A king is
less likely to borrow in excess because “he is constrained in this ‘natural’
inclination by the fact that as the government’s private owner, he and his
heirs are considered personally liable for the payment of all government
debts.”11 A monarch can become bankrupt, and his
creditors can force him to liquidate his assets to pay debt. Presidents, by
contrast, tend to accumulate excessive debt. The debts they amass are
considered public, not private. A president, unlike a monarch, cannot be held
personally liable. This creates an increased incentive to accumulate massive debt
to pass on to future generations.12
A
monarch, as private owner of the state, tends to favor preserving existing
private property law and has little incentive to redistribute income and
property. He has little motivation to redistribute wealth through mechanisms
such as tariffs, welfare programs, or subsidies to industry, because the
ultimate effect of any redistribution is to reward nonproductivity. Rewarding
nonproductivity only encourages future nonproductivity; therefore,
redistribution decreases a state’s capital value. By contrast, a president and
elected legislature will increasingly prefer to create positive “public” law in
order to gain new constituencies of voters; they do not own the state and
therefore have no incentive to maintain its value. Thus, under a democracy,
tariffs, welfare programs, and state aid to industry will become prevalent.13
The
redistribution of wealth that accompanies democracy has two effects, both of
which are negative. First, law “becomes increasingly flexible and
unpredictable.”14 This
increases time preferences, because there is little incentive to save if you
know your property could be taken at any time; businesses invest less and
people save less. Furthermore, it increases crime rates, because law is
constantly changing and there are no immutable standards. Second, redistribution
leads to an “infantilization” of society, in which virtually all businesses and
individuals depend on the government. Transferring income to someone who has
done nothing to earn it rewards them for being unproductive; thus,
redistribution encourages the problems it is designed to fix. Businesses who
benefit from subsidies and tariffs become less efficient and ask for more
tariffs and subsidies. Welfare recipients do not find work and instead demand
more welfare.15 As
a result, most Western governments dedicate more than 50 percent of total
expenditures to public welfare, compared to almost nothing during the
monarchical age.16 This
produces what Hoppe calls a “process of decivilization” in which time preferences
of rulers and ruled perpetually decline and government intrudes upon nearly all
aspects of everyday life.17
While
all governments are expansive by nature, monarchical governments prefer the
least expensive and least violent means of acquiring new holdings. A monarch
who raises taxes to build an army risks decreasing the capital value of his
state. Therefore, he will expand his dominions through less expensive means,
such as political marriages and purchases. When monarchs cannot expand through
these methods and must go to war, they fight “on the cheap,” hiring mercenaries
and discharging them at the end of the campaign.18
A
democratic ruler has an incentive to increase his state’s territorial holdings
through the quickest means available in order to either maximize his gains
before leaving office or impress the voters to get reelected. Therefore, rather
than utilizing marriages and purchases, a president will take territory by
quicker means, namely military conquest. In fact, the marriage and purchase
options are unavailable to democratic rulers because a president does not “own”
the state and therefore cannot convey any of it.19
A
second factor limits governmental power under a monarch: a class consciousness
among the subjects. Since a monarch privately owns the state, he will
distribute governmental jobs to his family, friends, and courtiers. He has
little incentive to give jobs to the general population, as that would allow
them to encroach upon his family’s profits. Therefore, under a monarchy, a
“class consciousness”20 develops
in the general population. The people see a clear distinction between
themselves and the ruling class and therefore fiercely protect their liberties.
They resist heavy taxation and view wars as the monarch’s problem, not theirs.
Thus, the monarch lacks the power to conscript his subjects into the army and
is relegated to hiring mercenaries. The people also expect the monarch to
finance wars himself; in the old monarchies, the rulers either financed wars
themselves or with minimal taxation. In democracies, by contrast, nationalism
becomes the rule, as the public, seeing no distinction between rulers and
ruled, forms an emotional identification with the nation as a whole. Thus, the
public tolerates mass conscription and heavy taxation.21
The
personal characteristics of rulers decline under democracy as well. Monarchs
receive their positions from accidents of birth; therefore, it is possible for
a prince to “be a harmless dilettante or even a good and moral person.”22 An
elected president, by contrast, will almost certainly be a demagogue because democracy
politicizes all aspects of life; nothing is outside the realm of politics. This
state of affairs prevails under democracy because, as mentioned above, the
distinction between rulers and ruled disappears. Since everyone can now join in
the plunder, the public will offer little resistance to governmental
innovation. This encourages politicians to stoke the masses’ envy by offering
them handouts through social welfare programs. Under such a system, the most
successful politician will be merely the best demagogue.23 A successful democratic politician has
almost invariably been required to, in the words of H. L. Mencken (1926, p.
118), “abase himself before swine.” Furthermore, monarchy promotes a
cosmopolitan outlook among princes because, unlike democracy, it discourages
nationalism. Princes who lack a nationalistic outlook will learn the languages
and customs of other territories and therefore be more adept at diplomacy.24 Thus,
monarchy leaves open the possibility of a benign ruler; democracy guarantees
that only the worst will rise to the top.
Finally,
monarchical government gives libertarians an option of “reform from above” that
is not available under democracy. A monarch, as mentioned above, inherits his
position by birth and therefore may well be a decent person. Democratic
politicians, by contrast, are “selected nowadays according to their demagogic
talents and proven record as habitual immoralists”25 and
thus it is unlikely they could be converted to libertarian ideas.26
APPLICATION
TO LIECHTENSTEIN
Formation
of the State
Liechtenstein’s
formation conforms to Hoppe’s theory of private government; the state was
formed through the peaceful political purchases of two territories. The House
of Liechtenstein began accumulating the territories that now comprise modern
Liechtenstein in 1699, when Prince Johann Adam Andreas von Liechtenstein
purchased the Lordship of Schellenberg. The prince secured a first
option on the territory of Vaduz as well, which he exercised in 1712. The
previous owner had considered the territories’ revenues insufficient due to,
among other reasons, social and financial instability and a lack of natural
resources, and wanted to find “a buyer who was rich enough not to need the
revenues from the two territories.”27 Austrian
Emperor Charles VI allowed Hans-Adam’s successor, Prince Anton Florian, to
combine the territories under the House of Liechtenstein’s name in 1719, making
it the 343rd state of the Holy Roman Empire.28 The
principality remained within the Empire until it achieved full sovereignty in
1806.
Foreign
Policy
Time
preference and class consciousness have restrained Liechtenstein’s foreign
policy, with the abolition of the army providing perhaps the best example. When
the Austro-Prussian war began in 1866, Liechtenstein favored its neighbor
Austria, as the House of Liechtenstein and the House of Habsburg had enjoyed a
long relationship. Prince Johann II led an army of eighty Liechtensteiners into
the war in the Italian theater; as Hoppe’s theory would predict, Johann II
financed the campaign himself (indeed, he had been maintaining the army
entirely with his own funds). At the war’s end, the German Confederation
dissolved and, as a member of the Confederation, Liechtenstein had been
obligated to maintain an army. With this obligation gone, according to Raton
(1970, pp. 45–46), Johann II saw the army as an unnecessary expense and
dissolved it in 1868.
It
should be noted that Raton and Beattie disagree about the abolition of the army.
As mentioned above, Raton characterizes it as a unilateral cost-cutting
decision by Johann II. Beattie (2004a, p. 30), by contrast, claims that, when
the war ended, Parliament “seized its chance to refuse approval of further
military expenditure.” Johann II, in Beattie’s account, opposed Parliament but
ultimately conceded. Under either scenario, however, Liechtenstein’s private
government played a key role in the elimination of the army. If Raton is
correct, then Johann II’s low time preference caused him to view the army as an
unnecessary drain on his capital. Class consciousness plays the key role in
Beattie’s account, as Parliament is the governmental branch closest to the
people; if Parliament forced Johann to disband the army, they were likely reflecting
the class consciousness of their constituents, who saw a standing army as a
threat to liberty.
Liechtenstein
continued its policy of not maintaining a standing army throughout both World
Wars. Johann II even resisted some popular pressure to revive the army to help
Austria during World War I. Beattie (2004a, pp. 39–40) writes that “given the
strongly pro-Austrian mood in the Principality” and the House of
Liechtenstein’s historical connections with Austria, “it is perhaps surprising
that Johann II should have taken as firm and far-sighted a position as he did.”
It would be difficult to find a better historical example of a ruler’s
farsightedness saving his people from disaster.
Economic
Policies
Time
preference and class consciousness have kept business and personal taxes low
throughout Liechtenstein’s history. The tax code, unlike that in the United
States, is not excessively detailed.29 The
tax system is progressive and the maximum personal income tax rate—combined
national and local—is only 17.01 percent; there is a progressive wealth or
assets tax as well, but the maximum rate is only 8.5 percent.30
Since
the 1920s, Liechtenstein’s business tax policies have focused more on existing
capital than on created wealth, income, and profits (although there have been
changes to adjust to the economic climate), and they have always remained low.31 This
policy reflects a low time preference because it allows business and industry
to increase the state’s long-term capital value; they retain a large portion of
the wealth they generate and utilize it to conduct research and development.
This has led to advances in research and development that would not be expected
given Liechtenstein’s small size. For example, in 2000, industrial firms in
Liechtenstein spent about 5 percent of their export turnover on research
and development, with 11 percent of their personnel devoted to that area.32
Liechtenstein
has instituted some social welfare programs, such as Social Security, health,
disability, and unemployment insurance. This should not be a surprise given the
country’s location on a continent of welfare states. However, Liechtenstein’s
welfare spending is considerably lower than democratic welfare states where, as
mentioned above, welfare spending usually consumes more than 50% of government
expenditures. In 2001, Liechtenstein spent only 20% of its budget on social
welfare.33 Beattie
(2004a, p. 347) notes that Liechtenstein lacks “a benefits culture” and
its welfare programs are based on reciprocity, obliging recipients to find work
as soon as possible to avoid dependency on the state.
Class
consciousness has played an important role in restraining state intervention in
the economy in Liechtenstein. In describing the attitude of the people of
Liechtenstein, for example, Beattie (2004a, pp. 275–76) notes that the state’s
demands have been limited “by the traditional, sometimes excessive, vigilance
of the voters, who have a strong prejudice against ‘big government.’”
Liechtenstein’s
policy on tax evasion provides a striking example of the country’s prejudice
against big government. In Liechtenstein— unlike in most Western
democracies—tax evasion is not a crime (though it is a civil offense).34 The
reason for this, according to Beattie (2004a, p. 322), is “that the citizen is
to be regarded as a trustworthy and informed person rather than an administered
unit.”35 Any American who has endured an IRS
audit knows that the opposite mindset prevails under mass democracy.
Liechtenstein’s
people exhibit low time preferences and a healthy skepticism of taxation. The
result is a state where, according to Beattie (2004a, p. 323):
Tax policy is long-term,
stable and predictable. The intention is to leave as much freedom as possible
to the citizens to decide on the best use for their own money. Tax decisions
are taken close to the citizens, and sometimes by them. Central and local
government expenditure is transparent and closely monitored. The administration
is not plagued by fraud. There are no large and wasteful bureaucracies and no
speculative grand projects whose budgetary outcome is uncertain.
These
qualities have restricted the government in other areas of the economy as well.
Borrowing has never been a problem, and there is literally no national debt.
Nor is excessive spending a problem; there has not even been a budget deficit
for years.36 Business
and industry have never received any state subsidies. Beattie (2004a, p. 140)
notes that Liechtenstein’s industrial firms “were left to sink or swim.”
However, as Hoppe would predict, “They swam”37 without
government aid.
The
Monarchy Today
As
mentioned above, Liechtenstein retains many characteristics of the old regime.
The monarchy has extensive powers, including the right to appoint judges, veto
legislation, and dissolve Parliament. Furthermore, as Hoppe’s theory would
predict, the Monarchy maintains numerous businesses (such as Liechtenstein’s
LGT Bank and a rice technology company) so that it does not have to support
itself with tax revenues; the monarchy, in fact, is entirely self-supported,
receiving no tax revenue.38
The
monarchy has also proven receptive to libertarian ideas. Prince Hans-Adam II,
who reigned as sovereign prince from 1989 until 2004, when he turned power over
to his son (he remains head of state), eloquently defended his country’s low
taxes in a dispute with the Organization for Economic Co-operation and
Development (OECD). In 1996, the OECD began a project on “harmful tax
competition.”39 After
a series of reports, the OECD designated Liechtenstein (along with Monaco,
Andorra, and other small states) an “Uncooperative Tax Haven.”40 The
OECD—despite the fact that Liechtenstein was not a member—called for sanctions
against Liechtenstein unless it harmonized its tax policies and banking secrecy
laws with those of the larger, more centralized democracies. Low taxes and
liberal banking secrecy, the OECD contended, encouraged international
businesses to move capital into smaller jurisdictions. Prince Hans-Adam II, in
an effort to get Liechtenstein removed from the list, began negotiations with
the OECD. However, when the OECD refused to give Liechtenstein the same
treatment it would give a member state, he ended the negotiations.41
Hans-Adam
offered prescient criticisms of economic centralization during the debate with
the OECD. He argued that, despite the good intentions of OECD members, the
ultimate result of their proposals would be “a world-wide tax cartel.”42 The
prince noted that centralized taxation and limited financial privacy would
treat ordinary citizens like criminals, forcing them to prove their
innocence even when they had not been accused of a crime. Even criminals, he
pointed out, are considered innocent until proven guilty. Beattie (2004a, p.
331) explains this position in his account of Hans-Adam’s 29 March 2001 Speech
from the Throne:
A comprehensive and
world-wide exchange of information would leave citizens completely transparent
before the state in all their financial affairs, obliged permanently (unlike
the common criminal) to prove their innocence to the authorities. The
intentions might be good; but the logical consequence would be a world
government called the OECD, responsible to nobody except a few politicians
pulling the strings in the background.
Hans-Adam
succeeded in a libertarian “reform from above” when Liechtensteiners approved
his package of constitutional amendments in 2003. Beattie (2004a, p. 176) notes
that Article I was amended to read: “The purpose of the Principality of
Liechtenstein is to enable the people living within its borders to live in freedom
and peace with each other.” This sentence, Beattie (2004a, p. 176) says, was
inserted “to emphasise that membership of the State is based on free will and
that the State is not an end in itself.” Under democracy, however, the state
tends to indeed become “an end in itself.” Democracies are prone to an
emotional, nationalistic collectivism43 in
which no dissent is tolerated and individuals are depersonalized in favor of a
glorified, abstract nation-state. Erik von Kuehnelt-Leddihn (1943) devoted an
entire book—appropriately titled The Menace of the Herd—to
this troubling feature of democracy. Referring to modern democracy as
“ochlocracy” (mob rule), Kuehnelt-Leddihn (1943, p. 116; emphasis in original)
writes, “[T]he only liberty compatible with the true spirit of ochlocracy is
the collective liberty—the liberty of a class or a nation state.”
The US government’s restrictions on civil liberties during World War I—the
war America entered to “make the world safe for democracy”—provide perhaps the
best evidence of this tendency. Of all the countries in the war, America was
arguably the most democratic. Yet, as historian Niall Ferguson (1999, pp.
222–23) has noted, the most severe measures against dissent occurred in
America; he describes them as “draconian” and says they “made a mockery of the
Allied powers’ claim to be fighting for freedom.”
The
Prince’s package of amendments contained another libertarian proposal: a
guaranteed right of communes to secede from the state. Some of his critics
argued that the measure would encourage division and, in any case, was not
necessary because the communes had a right to secede under existing
provisions. Hans-Adam II, however, wanted the right to secede explicitly stated
for two reasons. First, he is a firm believer in the right of
self-determination and wanted to set an example internationally. Second, in a
particularly far-sighted observation, he noted that, at some point, Switzerland
might join the European Union and, if it did, Liechtenstein might well follow
because of the close economic and political connections between the countries.
Some communes, however, may not want to join the European Union, and codifying
a right to secede would guarantee them a way to opt-out.44
Interestingly,
Hans-Adam’s initial proposals on secession were not limited to communes; he
wanted to give districts and even individuals the right to secede. His critics,
however, considered these aspects unworkable. Beattie spends little time on the
debate over Hans-Adam’s proposal to allow individuals to secede, only noting
that some critics argued that individuals could already secede by leaving the
country.45 However,
since individuals could already leave the country, it would have made little
sense to constitutionalize that right. Thus, the Prince likely wanted to
guarantee individuals the right to declare themselves independent of the state
in a manner similar to that suggested by libertarians such as Herbert Spencer
(1851), Hoppe (2001), and Murray Rothbard (1982, p. 182).46 This proposal, considered in light of
the amendment to Article I that emphasizes that membership in the principality
is based on free will, suggests that Hans-Adam has been influenced by
libertarian views on secession and the state. As Andrei Kreptul (2003) notes,
even liberal democratic thinkers who recognize a right to secede consider the
modern compulsory state absolutely necessary for a “just” society and do not
favor secession by individuals.47
However,
while Liechtenstein resembles the old regime in many ways, it is no longer a
private government in form; the
monarchy no longer owns the state. Raton (1970, p. 106) notes that the
principality is no longer “the personal property of the Prince.” Liechtenstein’s
constitution incorporates many elements of direct democracy and the people can
even vote to abolish the monarchy.48 Thus, the democratic idea that
the public owns the state has taken hold even in Liechtenstein. The above
discussion, however, strongly suggests that Liechtenstein remains a private
government in substance. We must now address
the question of why Liechtenstein has retained the libertarian aspects of
private government ownership when it is no longer a private government in form.
WHY
LIECHTENSTEIN MAINTAINS ITS FREEDOM
The
answer to the question posed above is twofold. First, Liechtenstein has been
relatively insulated from the political ideas and violent upheavals associated
with the French Revolution. While some democratic ideas have taken hold—it
would be impossible for them not to— Liechtenstein has not experienced any
sudden, violent changes in its political culture. Second, while some democratic
ideas have taken hold, the state’s small size discourages democratic
politicians from pursuing any radical changes.
Insulation
from the French Revolution
The
French Revolution and its aftermath—extending up to the present day—caused most
of the West’s current problems, and Liechtenstein’s relative insulation from
these events explains its prosperity. As Erik von Kuehnelt-Leddihn (1990, p.
319) famously wrote, “For the average person, all problems date to World War
II; for the more informed, to World War I; for the genuine historian, to the
French Revolution.” Thus, our inquiry begins with the French Revolution.
The
French Revolution marked the rebirth of mass democracy in the West. Before that
time, nearly all Western governments had been relatively decentralized
monarchies or aristocratic, elitist republics.49 Though
they did centralize, the process was slow, and certain restrictions on liberty
were never tolerated. For example, no monarch, not even the most despotic,
could institute mass conscription. KuehneltLeddihn (1990, p. 22; emphasis in
original) illustrates this point:
[I]t seems that monarchs such
as Louis XIV, Joseph II, or George III were genuine liberals—by modern standards. None of them could have issued a
decree drafting male subjects into his army, nor a decree regulating the diet
of his citizens, nor one demanding a general confession of all economic
activities from the head of each household. Not until the democratic age were
conscription, Prohibition, and income tax declarations made into law by the
people’s representatives, who have far greater power than absolute monarchs
ever dreamed of.
The
French Revolution led to the rise of nationalism. Monarchy, being an
international institution, was not conducive to the rise of nationalism, as
most monarchs were foreign to the people they ruled, married to a foreigner, or
both.50 Furthermore,
as mentioned above, the subjects of a monarchy are less inclined to link their
interests with the state as a whole. The monarchies managed to temporarily stem
the tide of nationalism and democracy after Waterloo, but the seed had been
sown. Democracy gained ground until it finally destroyed Europe’s monarchies at
the end of World War I. By the end of that war, most of Europe’s monarchs had
either been overthrown (as in France, Germany, and Austria) or reduced to
figurehead status (as in the United Kingdom). Thus, Hoppe’s “process of
decivilization” began with the French Revolution.51
Liechtenstein,
however, managed to avoid becoming entangled in these tumults. For example,
Raton (1970, pp. 29–30, 103) notes that the revolutions of 1848 had little
effect in Liechtenstein; there was some initial unrest but it quickly subsided
without causing any significant political changes. Several factors combined to
insulate Liechtenstein from experiencing any wholesale change in its political
culture. Some of the reasons are fairly obvious. Liechtenstein has no natural
resources and is located in relatively remote, mountainous terrain. Although it
became one of the wealthiest countries in Europe after World War II,
Liechtenstein was poor throughout the nineteenth and early twentieth centuries.
These facts combined with Liechtenstein’s small size to make it an unattractive
target for potential conquerors.52 Hitler,
for example, contemptuously dismissed the country as insignificant.53
Geography
was not the only thing that insulated Liechtenstein while the rest of Europe
went to war, however; its monarchs played a leading role as well. In fact,
Liechtenstein probably would not have survived the Napoleonic Wars and World
War I without the efforts of its respective princes during those troubled
times.
During
the Napoleonic Wars, Beattie (2004a, p. 21) notes, Liechtenstein “ought
logically to have vanished from the map of Europe.” When Napoleon defeated
Austria, he dispossessed many smaller German rulers, and Liechtenstein would
have been an ideal territory with which to compensate them.54 Napoleon
forced the Holy Roman Emperor Franz to abdicate and started the
Confederation of the Rhine, a collection of sixteen German states (including
Liechtenstein) under his protection.
It
made little sense for Napoleon to include Liechtenstein in the Confederation,
as it was “incongruous among these much bigger fish.”55 This
was all the more surprising given Prince Johann I’s refusal to renounce his
loyalty to Vienna and place himself directly under Napoleon.
Uncharacteristically, Napoleon went out of his way to accommodate Johann,
including a clause in the act that formed the Confederation that allowed any
ruler who wished to remain loyal to a foreign power to abdicate in favor of one
of his sons. This clause—apparently designed for Johann’s situation—let him
abdicate in favor of his three-year old son, who was obviously in no position
to rule. Napoleon maintained this stance even when German rulers requested that
he give them Liechtenstein.56
The
reasons for Napoleon’s partiality toward Johann are unclear. Johann clearly
made every effort to retain his principality because he knew that, if the House
of Liechtenstein lost it, they would lose their princely status and become mere
members of the upper aristocracy. Napoleon apparently liked and admired Johann
on a personal level and might have believed Johann could be useful as a contact
in Vienna or a replacement for uncooperative German rulers. What is clear is
that Liechtenstein would not have survived the Napoleonic Wars without Johann
I’s diplomatic skill, independence of mind, and determination to retain his
principality.57
Thanks
to the efforts of another Johann—Johann II—Liechtenstein survived World War I,
the war that destroyed the Old Order throughout the rest of Europe. As
mentioned above, Johann, despite some popular pressure to enter the war
alongside Austria, Liechtenstein’s close ally at the time (Austria represented
Liechtenstein’s interests abroad), maintained a policy of strict neutrality.
Had he fought with the Allies, his country would likely have fallen victim to
Woodrow Wilson’s efforts to “make the world safe for democracy.” After the war,
the Allies dissolved the Austrian Empire; this prompted Johann II to realign
Liechtenstein away from Austria and toward neutral Switzerland for
representation abroad.58 Johann II’s farsighted policies—his
dissolving of the army, policy of neutrality during World War I, and realignment
with Switzerland—laid the foundation for his country to remain neutral
during World War II (under Franz Josef II) and thus avoid another great
disaster of the twentieth century.
The
clever diplomacy of Johann I and foresight of Johann II reflect two aforementioned
traits common to monarchical rulers but usually altogether missing in
democratic leaders: cosmopolitanism and farsightedness. Johann I’s
cosmopolitanism and diplomatic skill earned the respect and admiration of one
of history’s greatest, most ruthless conquerors—who then displayed his
admiration by preserving Johann I’s principality when it may have been in his
best interest to confiscate it. Johann II’s foresight saved it from World War I
and laid the foundation for its neutrality in World War II. It is doubtful that
a democratic ruler could have saved Liechtenstein from either the Napoleonic
Wars or the World Wars.
Liechtenstein’s
insulation from the French Revolution helps explain its libertarian tendencies.
Changes in the country’s conception of the relationship between government and
people have been slow and piecemeal, rather than quick and violent. The
monarchy’s extensive powers exert a moderating influence on Liechtenstein’s
politicians. They avoid proposing any drastic changes for fear of a royal veto
and, under Franz Josef II, they would even discuss potential laws with the
Prince before proposing them.59 Hans-Adam
II has utilized less conventional methods—such as his speeches and the media—to
get his message across.60 Therefore,
while the country is no longer a private government in form—in today’s day and
age, it would be virtually impossible for a monarch to claim a state as his
property—it remains a private government in substance; the old monarchical
policies of minimal taxation and intervention in the economy remain in place.
The result is a degree of liberty and prosperity not found in any other Western
state.
The
continued primacy of the monarchy—Beattie (2004a, p. 225) notes that “Hans-Adam
II has sometimes been described as a party in his own right”—discourages the
worst demagogues from even entering politics. Power-hungry demagogues are
unlikely to try to rise to power when they know they will always remain below
the monarchy in influence. Jaime Balmes (1850, p. 143) eloquently describes
this advantage of monarchy:
Regarding things in the
abstract, there is nothing more strikingly absurd than hereditary monarchy, the
succession secured to a family which may at any time place on the throne a
child, a fool, or a wretch: and yet in practice there is nothing more
wise, prudent, and provident. This has been taught by the long experience of
ages, it has been shown by reason, and proved by the sad warnings of those
nations who have tried elective monarchy. Now, what is the cause of this? It is
what we are endeavoring to explain. Hereditary monarchy precludes all the hopes
of irregular ambition; without that society always contains a germ of trouble,
a principle of revolt, which is nourished by those who conceive a hope of one
day obtaining the command. In quiet times, and under an hereditary monarchy, a
subject, however rich, however distinguished he may be for his talent or his
valour, cannot, without madness, hope to be king; and such a thought never
enters his head. But change the circumstances,—admit, I will not say, the
probability, but the possibility of such an event, and you will see that there
will immediately be ardent candidates.
The
Size of the State
Another
factor has helped restrain the growth of government in Liechtenstein: the
principality’s small size. Liechtenstein covers a small territorial area, and
the population was only 33,525 in 2001.61 Small
states have little incentive to interfere in the economy for several reasons.
First, all areas of the state are in close proximity to neighboring states,
making it easy for citizens to learn about other states and, if necessary,
“vote with their feet” by moving; citizens of small states can emigrate easily
because they are invariably close to a neighboring state. This gives small
states an incentive to keep taxes low and generally maximize prosperity by
intervening as little in the economy as possible. Unlike large states, who can,
for the most part, tax and spend as they please because it is difficult for
their citizens to leave, small states must compete with other governments.62 Hans-Adam
II has observed this and views it positively; he has argued that “States must
compete with each other peacefully, to offer their customers service at the
lowest price.”63 Large
states, by contrast, dislike competition. The United States has taken this to
extreme lengths, recently increasing taxes on Americans who live abroad (and
thereby prompting many to renounce their citizenship).64 The
United States is “the only developed country that taxes it[s] citizens while
they live overseas.”65 This
policy is particularly egregious given that Americans who do not live in
America receive none of the supposed “benefits” of American citizenship.
Second,
protectionism can be disastrous in a small state. In a large state, such as the
United States, people can remain prosperous despite excessive tariffs as long
as the government does not restrict internal trade, as most goods can be
obtained within the borders. In a small state, by contrast, the internal
economy is far less diverse and people must trade with neighboring states to
subsist.66 Therefore,
as legal philosopher Carlo Lottieri (2002, pp. 35–36) writes:
Swiss
Cantons, Liechtenstein, San Marino, Andorra, or Monaco never dreamed of
obtaining advantages by refusing international trade. These small political
communities—the true and only heirs of the great European spirit—are interested
in the diffusion of libertarian and freemarket principles. They want to export
their specialties and buy all the goods they can’t (or won’t) produce. In fact,
these small political entities are in the best position to teach an important
lesson: the international division of labor is useful for individuals,
families, communities, and companies.67
Finally,
as Lottieri (2002, pp. 34–35) notes, citizens of a small state are less likely
to tolerate redistributive programs than their large-state counterparts. In a
large state, the costs of redistribution programs can be spread out among
millions of taxpayers. Thus, the economic consequences are not so immediately
apparent as to cause a revolt. In a small state, by contrast, the impact from
tax increases would be felt instantaneously and would provoke either revolt or
mass emigration.68
Liechtenstein’s
insulation from the French Revolution and its small size have made it the one
of the freest—if not the freest—states in the West.
The uninterrupted strength of the monarchy has left the old policies of limited
intervention and low taxes largely intact. Furthermore, while the state has
democratized, it has not been overrun by demagogues because the monarchy’s
preeminent place discourages them from entering the political arena. Finally,
elected politicians are unlikely to pursue any radical interventionist policies
because Liechtenstein’s small size precludes them.
CONCLUSION
Liechtenstein
is important for students of liberty. Throughout its history, the low time
preferences of its rulers and high degree of class consciousness among its
people have combined to minimize the growth of government. Accidents of
geography and highly competent leadership have insulated the principality from
the upheavals accompanied by the rise of democracy. Hoppe’s theory of private
government helps explain the principality’s continued success and, in turn,
Liechtenstein’s development provides ample evidence of his theory’s validity.
However,
it should be noted that Liechtenstein has adopted policies some libertarians
may find objectionable. For example, there is an official religion
(Catholicism), and religious instruction is mandatory in public schools.
Catholic churches receive taxpayer funds. However, the Constitution guarantees
freedom of conscience, so Liechtensteiners are still free to choose their own
religion.69 Drugs
and prostitution are illegal, but this is slowly changing, at least regarding
drugs. According to Beattie (2004a, p. 347), “Liechtenstein’s philosophy is to
give support to everyone in their personal responsibility for looking after
their own health, rather than to prosecute them for behavior that endangers
it.” Thus, Liechtenstein is gradually decriminalizing drug consumption. The
principality is taking a slow approach “in order not to compromise its
neighbours’ interests, send out wrong signals to the rest of the world or
provoke an uncontrollable expansion of dealing and consumption.”70
Liechtenstein’s
freedom and prosperity also gives libertarians an idea of what may be the most
tolerable form of state in existence today. This study suggests that, if there
must be a state in its modern, democratic form—a return to the old regime, in
which the state is the monarch’s property, seems impossible—then the most
tolerable form is a constitutional monarchy, with the monarch retaining
extensive powers to discourage demagoguery. The state should also be restricted
to a small area (in both population and territory), giving politicians little
incentive to expand the state. Under such a situation, as Liechtenstein shows
us, monarchy is, in the words of Charles Maurras, “the least evil and the
possibility of something good.”71
Skeptics
may point to Switzerland as a conflicting example of a free and prosperous
democracy. Switzerland, however, is not the counterexample it appears to be at
first glance; democracy in Switzerland differs from democracy in other Western
states. As Jonathan Steinberg (1996, chap. 3) and Thomas Fleiner (2002) point
out, Switzerland is much less centralized than its neighbors; cantonal and
local governments enjoy considerable autonomy. Switzerland, like Liechtenstein,
has not adopted mass democracy in the style of the French Revolution.72 Thus,
the source of Swiss liberty is not modern mass democracy, but a combination of
localized direct democracy and genuine federalism73 not found in other Western states. In
fact, Fleiner (2002, pp. 108-112) argues that democracy could not function in
Switzerland without federalism (and vice versa).
Most
importantly, we should remember Prince Hans-Adam II’s desire to set an
international example by constitutionalizing secession. A return to monarchical
rule in large states is likely impossible and, in any case, when considering
modern nation-states, monarchy is only a lesser evil than democracy. Our goal
should be to create, through secessions, “tens of thousands of distinct
countries, regions and cantons, and hundreds of thousands of independent free
cities such as the present-day ‘oddities’ of Monaco, Andorra, San Marino,
Liechtenstein, Hong Kong, and Singapore.”74
—
1.“Liechtenstein prince wins powers.”
2.For a discussion of Liechtenstein’s history
focusing exclusively on the Monarchy, see Beattie (2004b).
3.See Hoppe (2001, chaps. 1–3).
4.See Hoppe (2001, pp. 1–3).
5.See Hoppe (2001, p. 45).
6.Hoppe (2001, pp. 15–17).
7.See Hoppe (2001, pp. 19–20). See also de
Jouvenel (1957, pp. 212–13).
8.Hoppe (2001, p. 17).
9.See Hoppe (2001, p. 24).
10.See Hoppe (2001, p. 55).
11.Hoppe (2001, p. 27). Kuehnelt-Leddihn
(1943, pp. 108–09) notes that medieval monarchs only resorted to borrowing
because they lacked the power to obtain sufficient revenues through taxes.
12.See Hoppe (2001, p. 27).
13.See Hoppe (2001, pp. 28–33).
14.Hoppe (2001, p. 31).
15.See Hoppe (2001, pp. 30–33).
16.See Hoppe (2001, p. 65).
17.See Hoppe (2001, chap. 1).
18.See Hoppe (2001, chap. 1). For a
fascinating discussion of the differences between monarchical and democratic
warfare, see Kuehnelt-Leddihn (2000).
19.See Hoppe (2001, chap. 1).
20.Hoppe (2001, p. 21).
21.See Hoppe (2001, chap. 1). On this see also
de Jouvenel (1948, 1957). For a study of the link between democracy and
conscription, see Nickerson (1942).
22.Hoppe (2001, p. 88).
23.See Hoppe (2001, pp. 87-89). For a
hilarious discussion of the mountebanks who rise to the top under democracy—and
the dullards who elect them—see Mencken (1926).
24.See Hoppe (2001, pp. 36–37).
25.Hoppe (2001, p. 287).
26.On this see Hoppe (2001, pp. 287–88).
27.Beattie (2004a, pp. 4–6).
28.See Beattie (2004a, p. 16).
29.See Beattie (2004a, p. 277).
30.See Beattie (2004a, p. 277).
31.See Beattie (2004a, p. 72).
32.See Beattie (2004a, pp. 277, 280).
33.See Beattie (2004a, p. 279).
34.See Beattie (2004a, p. 322).
35.For the same reason, Liechtenstein does not
extradite people to countries where they are accused of tax evasion, as
Liechtenstein does not believe it should be responsible for collecting other
governments’ taxes. The United States, apparently unable to accept the
possibility that some of its taxpayers might escape its jurisdiction (and
prisons), insisted on an agreement by which Liechtenstein will extradite
Americans for tax evasion. See Beattie (2004a, pp. 322–23, 333–34).
36.See Beattie (2004a, p. 275).
37.Beattie (2004a, p. 140).
38.See Beattie (2004a, pp. 184–86).
39.Beattie (2004a, pp. 323–27).
40.Beattie (2004a, p. 327).
41.See Beattie (2004a, pp. 323–33).
42.Beattie (2004a, p. 331).
43.See Kuehnelt-Leddihn (1943).
44.On the constitutional right of secession in
Liechtenstein, see Beattie (2004a, pp. 181–82, 263–64).
45.See Beattie (2004a, p. 263).
46.Professor Hoppe, who is acquainted with the
prince, has informed me that Hans-Adam is not opposed to secession by
individuals and has only “practical” concerns about it.
47.For an overview of differing theories of
secession, see Kreptul (2003).
48.On the role of direct democracy in
Liechtenstein, see Beattie (2004, pp. 238–42).
49.See Hoppe (2001, pp. 50–54).
50.See Kuehnelt-Leddihn (1952, pp. 153–55).
51.See Hoppe (2001, pp. 36–39, 40–43).
52.See Beattie (2004a, p. xi).
53.See Beattie (2004a, p. 101).
54.See Beattie (2004a, p. 21).
55.Beattie (2004a, p. 21).
56.See Beattie (2004a, pp. 21–22).
57.See Beattie (2004a, pp. 21–22).
58.On the realignment with Switzerland, see
Beattie (2004a, pp. 50–57).
59.See Beattie (2004a, pp. 218–19).
60.See Beattie (2004a, pp. 224–25).
61.See Beattie (2004a, p. 335).
62.See Hoppe (2001, chap. 5; 1998).
63.Quoted in Beattie (2004a, p. 181).
64.See Carvajal (2006).
65.Carvajal (2006).
66.See Hoppe (2001, chap. 5; 1998).
67.Thus it is no coincidence that most of the
other “tax havens” that came under the OECD’s fire—such as Monaco and
Andorra—are also small states.
68.Beattie (2004a, pp. 275–76) acknowledges
this as well, noting that Liechtenstein’s small size combines with the
vigilance of the voters to restrain the growth of government.
69.See Beattie (2004a, pp. 265–70).
70.Beattie (2004a, pp. 347–48).
71.Quoted in Kuehnelt-Leddihn (1990, p. 329).
72.See Steinberg (1996, p. 88).
73.As practiced in America under the Articles
of Confederation and the Constitution until 1861.
74.Hoppe (2001, p. 118).
Note: The
views expressed on Mises.org are
not necessarily those of the Mises Institute.
Andrew Young is the director of graduate students and a research
fellow at the Free Market Institute. He also serves as a professor of economics
in the Jerry S. Rawls College of Business Administration at Texas Tech
University.