Why Small States Are Better

Tyler Durden's picture

Authored by Philipp Bagus and Andreas Marquart via The Mises Institute,

Andreas Marquart and Philipp Bagus (see their mises.org author pages here and here) were recently interviewed about their new book by the Austrian Economics Center. Unfortunately for English-language readers, the book is only available in German. Nevertheless, the interview offers some valuable insights. 

Mr. Marquart, Mr. Bagus, you have released your new book „Wir schaffen das – alleine!” (“We can do it – alone!”) this spring. The subtitle says: “Why small states are just better.” To begin: Why are small states generally better than larger ones?

Andreas Marquart (AM): In small states the government is closer to its citizens and by that better observable and controllable by the populace. Small states are more flexible and are better at reacting and adapting to challenges. Furthermore, there is a tendency that small states are more peaceful, because they can’t produce all goods and services by themselves and are thereby dependent on undisturbed trade.

How far can the principle of small states go? You are for example open to the idea of Bavaria seceding from Germany, or Upper Bavaria then from the rest of Bavaria. Ludwig von Mises stopped at the communal level, thinking that the secession of individuals would be unrealistic. You as well? Is there a point when your rule – the more decentralized the better – is not true anymore?

Philipp Bagus (PB): In principle not. We don’t want to arrogate, however, to know the optimal size and to say that this state is too small and that one too big. The optimal size would be determined in competition through the right of secession. If an apartment tower or street secedes from its municipality and then concludes that there are problems which were previously done better, then the secession could be revoked and the two entities reunited. Are they are better off alone, however, they will stay seceded. In this competition it will then show how successful small states can be.

At the moment we see more and more attempts around the world to secede – Brexit for example or recent attempts by Scotland and Catalonia. What all these cases have in common is that the secession is executed by governments which are economically more on the Left, and by that probably no advantage can be seen for the seceding entity, since the newly gained freedom is used immediately for more state intervention. Are cases such as these, where the secession would bring forth downsides for that country, also to support?

AM: Generally secession attempts should always be supported. The citizens must have a right to self-determination. Even the UN charter says that a people or a nation has the right to establish its own state or to join another nation. If a region wants to secede to try again if socialism works, then so be it. We learn from mistakes. And the smaller the states, the quicker and clearer the mistakes will become visible and the quicker changes have to implemented. After Brexit for example Britain will be under immense pressure to set itself apart from the EU. By the way, I don’t know any government and close to no party in Europe or any other country which isn’t in some way on the Left. In which way for example is the conservative CDU in Germany any different than the social democratic SPD or the Greens? Or the “classical liberal” FDP? Real classical liberal or liberty-oriented politics cannot be found anymore. All the differences are mere nuances and everyone is similar to each other in a more or less social democratic mishmash.

Would it be possible in your model that small states still cooperate with each other in supranational organizations? Or are the EU, NATO, UN etc. all obsolete in the end?

PB: Of course small states could or even have to cooperate with one another, especially on defense – at least as long as larger states still exist, which have a tendency to be more aggressive. Forms of cooperation like free-trade zones or also organizations which contribute to the harmonization of standards would exist. The EU in its current form is pointless, it has outgrown its original purpose of a pure cooperation.

On foreign policy you argue that small states conduct less wars. For many this will sound unintelligible at first, considering the common picture of the Middle Ages, where there were many more small states than today, is one of constant conflicts between kings and nobility. Why doesn’t this have to be the case?

AM: I don’t think we can compare those days with today. We are on a totally different level in terms of civilization. What has not changed of course: wars are about resources. In the past, most fighting occurred over land since farming was so significant and was in no way as productive as it is today. And when there were no possibilities to trade in the Middle Ages, it wasn’t too tragic, because the division of labor had nowhere near the significance it has today. Because of the very advanced international division of labor no small state of today can afford to deny itself from foreign trade or that the flow of goods is stopped – at least as long as it doesn’t want its population to starve as it happens in North Korea. So one has to behave peacefully. Just look at Liechtenstein: They haven’t even had an army since 1868. Free trade is the ultimate guarantor of peace.

You often use the example of Switzerland in your book. In which ways does this country show how small states work?

PB: It relies on free trade, open borders, has relatively low taxes, a high standard of living and didn’t have to moan over war deaths in the twentieth century. It is often asserted that small states can’t protect its population, that it would lead to different standards or new trade barriers which would prevent trade from happening, or that it would be overrun by economic refugees. Switzerland is the counterexample.

As good as Switzerland – or also small states such as San Marino or Liechtenstein – may work, there are still counterexamples like Belgium, a country which has always remained neutral, but was still overrun by Germany in both World Wars – among other things due to its overall weakness. How does the sorrow of Belgium fit into the overall picture?

AM: For one we are not saying that a world of small states would be heaven on earth. Libertarians should in general watch out for not creating the impression that in the world they describe all problems we are fighting over today would vanish. We can assume nonetheless that in a world of small states both World War I and II would not have happened in all likelihood. And if the gold standard hadn’t been suspended at the beginning of World War I, the war – if he had broken out at all – would have been over within a few days, since the warring parties would have run out of money. Of course there could arise the situation that a small state is threatened by a “big neighbor.” In this case the small state can enter a defense alliance. Examples from the past – the Hanseatic League or the German Confederation – are manifold. In the same way that goods and services are organized on the market to cover the demand of the consumers, alliances between small states would organize if they demand protection and security. Humans are very ingenious if they are allowed to act freely. We shouldn’t underestimate this ability.

Followers of the realist school of thought would probably argue that the idea of small states is surely nice, but that in the world we live in not everyone thinks that way. To give examples: Wouldn’t it be possible that assuming the US breaks apart, Russia would quickly invade Eastern Europe? Especially at the end of World War II, the Soviet Union would have had the chance to conquer the entire continent, but there was the US and Great Britain who restored the balance of power. Aren’t major powers on the global stage in this sense necessary to prevent the not-so-friendly states – who would never be pleased by the idea of small states – from taking over?

PB: Clearly we have to stay realistic. The Soviet Union would also have had the chance to subdue entire Europe at the beginning of World War II, when a Greater Germany was opposed to them. The Soviet Union possibly would have conquered the entire continent if the many small German states of the early nineteenth century had continued to exist. But maybe the German small states would also have implemented a common defense, we don’t know. To guarantee to win a war is impossible. Going back to today: Even if the US would break apart they could still forge a common defense alliance and the Baltic states could also search for allies and make a Russian attack as expensive as possible – for example by arming the populace. Maybe the separated US wouldn’t be as aggressive anymore abroad which would lead to fewer wars. We should also keep in mind that since World War II we are in a nuclear age which deters aggressors. Even after a split by the US this deterrence would remain. Moreover – as mentioned already – because of globalization the costs of war would increase constantly between mutually connected economies.

Specifically libertarians in the US are often accused of being in favor of isolationism or even autarky whenever they demand to leave supranational organizations, to intervene less in foreign conflicts and to look at the national interest first. Why is this accusation missing the mark?

AM: The problem is that the terms “isolationism” and “non-interventionism” are lumped together by proponents of an interventionist foreign policy. Non-interventionism – that means trade with other countries, travelling to other countries, cultural exchange, respect for one another, but not meddling in the affairs of other nations – has nothing to do with “isolating” oneself. I wouldn’t take the accusation of advocacy for autarky serious. By mixing up terms it is obviously tried to color libertarians in backwardness to win over support for an interventionist foreign policy. The type of foreign policy the US is conducting needs a certain amount of support from the population. This is only possible, though – when one doesn’t have any arguments – by discrediting the opponents.

You have an entire chapter in your book on monetary systems and why they would work better in a world of small states. We at the Austrian Economics Center are of course particularly interested in that. Could you shortly outline the advantages on that specific point?

PB: Larger states also imply monetary harmonization. Monetary competition in the Eurozone has declined due to the introduction of the euro. Before the euro, a Spaniard could buy DM, Franc or Lire to protect himself against inflation.  One could see which monetary policy worked better and which worse. The Dutch central bank for example followed the German Bundesbank. So there was an institutional competition and a trial and error process. Today we have an Italian monetary policy for everyone in the Eurozone. Small states have to offer their citizens stable currencies or attach themselves to stable currency zones or else they will quickly lose companies and citizens. Borders aren’t that far away after all.

On a final note the everlasting question that libertarians get to hear sooner or later: Only theory or also imaginable in reality? Do you think we will ever see a world of small states, a world in which those states live next to each other peacefully and a world in which free trade over borders is possible without any problems (or where borders become even completely irrelevant)?

AM: It sounds as if you are asking if it isn’t utopian to imagine a world of small states – but utopian is only what is not working in practice. A world of small states can work. And the path to that point? Brexit could be the beginning of the end for the EU. If Britain is smart, it will lower taxes and embrace truly free trade. By that, they could trigger an economic boom in Britain, encourage other countries to imitate them and put pressure on the individual EU members to follow. Another possibility is the collapse of the paper money system which unavoidably would lead to distribution battles. Distribution battles in the sense that wealthier regions, having their own problems, will refuse to co-finance others – northern Italy, Bavaria, Baden-Wuerttemberg for example. Borders can only become irrelevant concerning free trade, though. Otherwise they are needed. Only through borders can bad governments, which will exist, be challenged.

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Rapunzal's picture

Less corruption, in big states it's easier to hide criminal activity. Government employees are much better in small communities, they are your neighbors. Democracy is also much better in smaller communities.

peddling-fiction's picture

Small states are easier to manipulate and coerce.

glenlloyd's picture

Possibly, but my guess is that your example would be the US, where the states are manipulated and coerced by the Fed. In a case where the small states were all sovereign I don't think that would happen.

I think their point is that borders help sovereign states battle the kind of thing you're talking about, not borders like those between US states but real borders with fences.

Xredsx's picture

Great Britain winning the race to world dominance by the right and trade. Defeating all her enemies without firing a shot.  Declare war on corruption and bring down the governments and international organisation . Politicians signing contracts like there ain't going to a tomorrow, on their citizens behalf. Defeating the nwo and ending bible prophecy, freeing the human race from its rule makers. I am writing a book and i would they to talk about when the 13 colonies signed a contract with the US Constitution. It is them signed admendments, you see.

Escrava Isaura's picture

Xredsx Rapunzal:  I am writing a book……… Great Britain winning the race to world dominance by the right and trade……freeing the human race from its rule makers.

So, you are writing a book about jokes, right?  

British war crimes are acts by the armed forces of the United Kingdom which have violated the laws and customs of war since the Hague Conventions of 1899 and 1907.



Xredsx's picture

Name me a war without crimes against humanity? Human history is what it is. Censorship only shields you from the truth and it cannot alt reality. The empire was the empire just like the rest. But, about everyone joins the commonwealth and bring peace on earth. This global centralisation agenda actually started way back in May 1st 1776. About the same time when the hidden war on Christianity began.

HRClinton's picture

I wrote some time ago, that countries that range in population of 2-20 million are best suited for overall quality of life.

They tend to have an educated and culturally homogenous population, if not corrupted by (((Global-Lusts))) who covet them for their own design or takeover.

They have also do not have the mindset of imperialism -- with a few notable exceptions, of course.

Escrava Isaura's picture

2 to 20 million?

Can you see your problem there?


Teja's picture

The seminal book for the "Small nations" idea is Leopold Kohr's "Breakdown of Nations", published in 1957. Seems the estimate of 2-20 million is matching his ideas, looking at a suggested map of a new small nation Europe. I would say an optimum size would be between 5 and 10 million, for efficiency reasons. Smaller nations tend to be hotbeds of cronyism.

Peanut Butter Engineer's picture

A nation with Population of two men will surely work.

fiddy pence haff pound's picture

"Less corruption, in big states it's easier to hide criminal activity. Government employees are much better in small communities, they are your neighbors. Democracy is also much better in smaller communities."


I agree, and I didn't even have to read the mind-numbing

screed that the Mises hack lays out. Their titles promise so much

and yet they never get to the point.

Once a politician discovers how to cheat and lie, and get away

with it, he'll do it every time.

The old maxim: Wouldn't trust him further than I could throw him.

that's local democracy

grunk's picture

I don't know.

I live in Delaware and it's running 300-400 million dollar budget deficits each year.

The upper part of the state is blue while the lower part of the state is red, but the population is up north so they run the (welfare) state.

Yog Soggoth's picture

You mean like how Illinois would be a great place if it put a wall around Chicago?

sodbuster's picture

Look at South Dakota- less than a mln( about 850,000) Their pensions are 100% funded and by state law they must have a balanced budget every year. Also no state income tax if I'm not mistaken. Not many homeless- you have to be damn tough to survive a Dakota winter if you are homeless.

Flair1239's picture

The Dakotas are special. The winters and the prevalence of Agriculture as the main industry (until recently) gives the area a very wholesome feel.

This is changing though, as the multicultural fanatics slowly chip away. Injection of refugees and also blacks have had a steady migration to the Dakota cities, attracted by the the low cost of living.

As usual, the minorities end up shitting on everything. Crime goes up, racial tensions are stoked, white people relocate.... welcome to the new ghetto.

sodbuster's picture

Yep- Sioux Falls is starting to have problems- and it's mostly the trash, the dindus, and the free shit army.

hoytmonger's picture

Make states smaller and smaller, until it's down to the individual.

JRobby's picture

The united state of me

sodbuster's picture

Then I can print my own fiat!!!!!!!

SantaClaws's picture

Smaller states make sense provided they share some resources with other states.  Otherwise they run inefficiently and government is unduly costly for the citizens.  But sharing resources deprives each state of some patronage jobs, which causes political resistance.  Government usually cares only about itself and increasing its own power and wealth at the expense of individuals.

SmackDaddy's picture

Another doozy from the (((mises))) institute. Preying on whites' idealism. Making us easy pickings for the Judeo-Bolsheviks. What we need is an Imperium Europa.

VladLenin's picture

Like grunk.... My backwards ass county in Florida is ate up with government corruption and general incompetence which no one does anything about.

That said, I totally believe in the small state concept, given the populace is conditioned to be responsible.  Unfortuantely, that's a pipe dream too.

Yog Soggoth's picture

If you want a cushy job for the county just marry into Boss Hoggs fam man. What you have here is a failure to communicate.

Flair1239's picture

You could divide up Africa and the Middle East in as small of countries as you want. They will still be Authoritarian shitholes. The people in those areas are incapable of functioning under any other form of government.

For homogeneous Western Europeans, small states may work very well. A constitutional USA that actually functions as a Republic with limited Central government also seemed to work.

But let’s not kid ourselves. Once you get outside of Europeans and East Asian stock, the rest of the populations of the world have shown little ability to effectively govern and provide for themselves.

Gatto's picture

And the smallest state is the individual!

"Once one concedes that a single world government is not necessary, then where does one logically stop at the permissibility of separate states? If Canada and the United States can be separate nations without being denounced as in a state of impermissible "anarchy", why may not the South secede from the United States? New York State from the Union? New York City from the state? Why may not Manhattan secede? Each neighbourhood? Each block? Each house? Each person?" -  Murray Rothbard
Gatto's picture

"But, of course, if each person may secede from government, we have virtually arrived at the purely FREE SOCIETY, where defense is supplied along with all other services by the free market and where the invasive state has ceased to exist!"   -   Murray Rothbard

SmackDaddy's picture

Seriously, how old are you? Must be some kind of childless boomer. I mean I went through a Libertarian phase when I was a teenager. Then I grew the fuck up.

Endgame Napoleon's picture

Are you suggesting that, due to having children, “mature” people give up libertarian ideas to participate in the lucrative, womb-based welfare state that rewards womb productivity with reduced-cost or free rent, groceries at no cost via EBT, cash assistance by the month, energy bill assistance and [refundable] child tax credits between $3,337 and $6,269 to spend as the parents please, while childless people at the same wage level struggle to cover all household bills on wages with no welfare and taxfare treats from Santa’s bag. I am not sure that this government-defined version of parental maturity is actually mature.

SmackDaddy's picture

No I'm suggesting that I gave up libertarianism because I realized that it was just another form of degenerate liberalism.

And yeah I had kids so I could take advantage of the child tax credit. Makes sense you fucking faggot. Now that my income has me phased out of the credit I'm dropping the fuckers off at an orphanage.

You're so smart you literally thought your way to extinction. Clever you.

Irate Samurai's picture

Always funny to hear a brother-sister-fucking conservative refer to anyone else as a degenerate but their self. Keep sucking that government tit, pussy.

Gatto's picture

I am sure the US government will be glad they now have a volunteer to stick around and pay off the debt!  Good luck to you and your debt serf kiddos!  

hoytmonger's picture

You became a statist tool.

Smell the glove, bitch!

Gatto's picture

Some people just lack the knowledge, self esteem, and confidence to direct their own lives and really think they need Trump/Hillary to "lead" them!  LMAO!

Weisshorn's picture

One of the problems for Switzerland is that it is constantly being bullied, threatened and extorted by the EU and the neighboring lands.  By the EU too.  Kadafy's son once threated to nuke her too.

Switzerland may have have its referendums, but the recent round shows that when the state doesn't like the result of a referendum they can just get another one started to undo the one they didn't last.  The case in point was an autarky provision that would have forced a larger portion of food be sourced domestically.  Now they have fudged it to be "reliable sources" or something similar.

The main reason Switzerland escaped the second WWII was because of BIS and jewish money.  At one point Eisenhower was frustrated by the German resistance and wanted to perform an end run past the Black Forest through Basel, but he was instructed by his jewish masters to find another solution.  There is also several allied bombings of Shaffhausen and Stein am Rhein, just show the Swiss who the new boss was.

Smaller states are definitely better, but in virtually all cases the end up becoming vassals.  Switzerland, Lichtenstein, Andorra, Monoco, etc, really only exist at the pleasure of Nato and the EU.

Akdov Telmig's picture

Switzerland was not invaded by Germany in the WW2 because it's a country of mountains with a strong militia army and they were ready to fight an invasion, Hitler wanted to invade Switzerland from the north with Italy at the same time from the south, but were estimating 100'000 casualties so they backed up from their plan at the last moment and sent the troops to invade Yugoslavia instead it's an historical fact.


DEMIZEN's picture

micro-regions are more transparent but not efficient when it comes to defense costs or any other territorial agglomeration synergies.

Umh's picture

Being efficient is a real bitch when you are going in the wrong direction.

Bunga Bunga's picture

"Divide and Conquer"

~unelected EU emperor Juncker ca. 2017

alexcojones's picture

Small states Better? I agree.

Every ZHer is his / her own State.

css1971's picture

Markets become dominated by the Pareto principle. Small numbers of people dominate large percentages of the wealth / Market. e.g Nestle, Google, Exxon, BP  (name any large dominant corporation)

It means citizens, and businesses who don't make up that 1% are better off with many small markets than one large one. A single market will very naturally come to be dominated by small numbers of very large companies. Each distinct market is an opportunity for businesses.

So increase the numbers of markets and reduce their size.

willy up the creek's picture

Do we learn nothing from history?  We have larger states today as small ones didn't work  They always will be gobbled up by larger, aggressor states.  Always.  The smaller states can craft common defense?  Sure, they can, but how well does that work out?  Like herding cats.  Never works in practice.  

This is utopian nonsense.

Yog Soggoth's picture

Bad analogy. I used to herd cats. Even the feral ones can be rounded up in a cast net.

SeuMadruga's picture

So a United yet Independent States of America wouldn't work w/o DC ? I really doubt that !

SurlysonofaBitch's picture

New Jersey has more municipalities that any other state, including much larger states as Texas, New York and California ... It's not working . . . 

SeuMadruga's picture

As though those municipalities enjoyed the independence advocated in the article...

pidesd's picture



«In small states the government is closer to its citizens and by that better observable and controllable by the populace. Small states are more flexible and are better at reacting and adapting to challenges. Furthermore, there is a tendency that small states are more peaceful, because they can’t produce all goods and services by themselves and are thereby dependent on undisturbed trade.»


It could also be the other way around:

«small states are better controlled by foreign interests the the populace is beter controlled by the authority. They can react to different changing environement better, they are more dependant on other countries to produce the goods and services they need»


It really depends...it's much more complicated than that. It omits geopolitical considerations. the size in itself reveals nothing on how much «better» is a state.



adr's picture

My local town bought a 600sq ft house for use, not determined yet, by the city. The city paid $142k for the house because someone said the house used to have some sort of historical significance as a trading post in the 1800s.

Homes in the town generally sell for $84 a sq ft. So who authorized the retard mayor to pay $215 a sq ft for this old house? 

Of course the mayor is a woman so arguing against her is a hate crime. Fucking bitch.. 

Government at any size at any level will become corrupt.