Anarcho-capitalists believed that through serial acts of opting out, the lineaments of a future society without a state could come into definition. Playacting a private society could take on its own momentum. Reality seemed to track the fantasy. When David Friedman was a kid, the University of Chicago created its first police force. In The Machinery of Freedom, he proposed the idea of privatizing security altogether.64 By 2000, the University of Chicago had one of the country’s largest private forces. True to Friedman’s desires, it had been granted jurisdiction over the neighborhood, policing sixty-five thousand people. That same year, about half of all new developments in the US West and South were gated and master-planned, and seven million American households lived behind walls or fences.65 Homeschooling looked like another bright spot. In the 1970s, there were an estimated twenty thousand children being homeschooled. By 2016, there were 1.8 million.66 A John Randolph Club member, Gary North, was critical to getting homeschool laws passed in all fifty states.67

  “The modern state with its unitary legal system is less tolerant of diversity than the states of the Middle Ages,” David Friedman has claimed.68 Yet if gated communities were neo-medieval islands, they testified to the opposite. Tullock praised the way that one could “vote with one’s feet” between communities, but one could not really shop meaningfully between mini-governments. The covenants signed by HOA residents were written in boilerplate hashed out by lawyers and insurance companies.69 They varied even less from community to community than the enclaves’ architectural styles and fanciful names, and they tended to narrow the parameters of acceptable behavior rather than expand residents’ freedom. Political signs and the distribution of newspapers were prohibited. A California couple received a daily fine for having a wooden rather than a metal swing set. A Florida woman was taken to court for a dog that weighed over thirty pounds.70 The private governments of the gated community constrained free choice in the belief that homogeneity best secured their long-term investment. Economic freedom meant less room for individual expression.

  It is to David Friedman’s credit that he conceded that the anarcho-capitalist society would not necessarily be “a society in which each person is free to do as he likes with himself and his property as long as he does not use either to initiate force against others.”71 It is just as likely, he admitted, that privatizing law and order could lead to more restrictions on personal freedom. Residents of the American West needed only look to the recent past for a sense of what this would mean in practice. Well into the twentieth century, the United States was dotted with hundreds of company towns. Built and owned by private individuals, these were enclaves of paternalistic rule. Houses were built by the company, with their appearance and color fixed by the boss. Stores were owned by the company, too, with workers sometimes paid in “scrip” that could only be used there. Sociological federalism was the order of the day, with races and ethnicities living in segregation. Behavior was controlled, with frequent prohibitions on liquor and almost universal prohibitions on joining a union or taking labor actions. Strikes were met with termination and expulsion from the community. Some coal towns made workers sign agreements that they would not even host union members as visitors in their homes.72 In copper mining towns like Bisbee and Jerome, armed freelance vigilantes were used to round up and eject members of undesirable labor unions. A coal boss from Washington State who owned and ran his own town had a well-known saying that doubles as a slogan for the anarcho-capitalist dream: “A good kingdom is better than a poor democracy.”73 He said nothing about the bad kingdoms. Only in anarcho-capitalist fantasies do people live under laws of their own choosing.

  7

  Your Own Private Liechtenstein

  Mosaic of polities in Europe around 1789

  It’s been said that if you light a cigarette when you enter Liechtenstein on the highway from Switzerland, you’ll still be smoking it when you cross into Austria.1 The principality is about the length of Manhattan, a craggy green valley along the river Rhine. It seems an unlikely place to offer a template for political organization for the twenty-first century. Yet despite—and because of—its miniature size, the aura of the principality shines bright in the libertarian mind. In 1985, the Wall Street Journal called Liechtenstein “the supply-siders’ Lilliputian lab.”2 The year after, Leon Louw and Frances Kendall used it to argue for cantonization in apartheid South Africa.3 Radical libertarians celebrate it as the “first draft” of a state designed as a service provider with citizens as customers, and dream about “a world of a thousand Liechtensteins.”4

  Among its virtues is the presence of a resident libertarian theorist. Prince Hans-Adam II von und zu Liechtenstein, the world’s fourth-wealthiest monarch, with a net worth of over $2 billion, has offered himself as a tribune for the cause, sketching blueprints for what he calls “the state in the third millennium”—an alternative globalism based on secrecy, autocracy, and the right of secession. To some market radicals, this last bit of confetti from the Holy Roman Empire is the preview of a potential coming future.5

  1.

  The charm of Liechtenstein begins with its origins: it was bought for cash.6 At the beginning of the 1700s, a member of the Viennese court purchased two stretches of land from the bankrupt Hohenems dynasty and melded them into a single principality. The territory was rechristened with the surname of its new owners.7 Becoming a fully sovereign state in 1806, Liechtenstein was part of the German Confederation until that confederation dissolved in the middle of the century, after which it came under the umbrella of the Hapsburg Empire. Neither the principality’s original buyer nor any of his heirs lived there; until 1842, none even visited it.8 They enjoyed diplomatic immunity in Vienna, four hundred miles away. Liechtenstein was just one of their many properties, strewn across what was still the aristocratic patchwork of central Europe.9

  When the Hapsburg Empire broke up after its defeat in the First World War, Liechtenstein affiliated itself with Switzerland. Austrian currency, made worthless by hyperinflation, was ditched for the Swiss franc, which became legal tender in the microstate in 1924.10 The war dealt a blow to the House of Liechtenstein: most of its scattered properties lay in what became the new state of Czechoslovakia, which followed a policy of economic nationalism and expropriated foreign-owned holdings. The princely family lost more than half its land, with compensation at what they reckoned was a fraction of the true value.11 Liechtenstein’s application to join the League of Nations was rejected in 1920, but the microstate still had its sovereignty and sought ways to make use of it. Ideas for a lottery and a horse-betting operation surfaced and vanished, as did a proposal to launch an extranational currency unit known as the globo.12 Plans to mimic Monaco and become an alpine Monte Carlo also came to naught. In the end, Liechtenstein chose instead to become something that did not yet properly have a name: a tax haven.

  The central institution of the tax haven is the trust. Invented in England, the trust dates back to the time of the Crusades, when people departing to fight in the Holy Wars sought to leave their property in the hands of a confidant. In the medieval and early modern period, putting land in trust with friends or living relatives was a way to avoid it being confiscated upon their death by authorities or tax collectors. They were a means of asserting the power of elites against the rise of tax-collecting rulers. Into the twentieth century, they have filled a similar purpose. The sociologist Brooke Harrington has shown how trust and estate professionals adopted some of the code of earlier knights, bound by personal ties that float above and beyond the confines of terrestrial nation-states.13 For centuries the heart of the profession was the City of London, but the introduction of income tax in many countries around the time of the First World War created more incentive for secreting away personal wealth, and companies whose businesses were fragmented among the newly created states looked for a single seat of incorporation.14 Liechtenstein and Switzerland stepped in to fill the gap.

  Liechtenstein’s status as a remnant of the premodern feudal system made the posture of chivalrous keeper of secrets all the more convincing. In 1920, a multinational consortium created a new bank there.15 The same year, the first holding company was created.16 In 1926, the microstate passed a law that allowed foreign companies to act as if they were domiciled in the mountain valley. All that was required was having a local lawyer act as your agent. In the eyes of the tax collector, their residence became your residence. The number of registered companies quadrupled within a few years, rising to around twelve hundred in 1932; by the early twenty-first century, there would be seventy-five thousand of them. Accounts were anonymous, registration could be in any language, the shares could be denominated in any currency, and all the subsidiaries of the mother company would be covered anywhere in the world.17 One of the enduring features of the Liechtenstein system is that a corporation could be made up of just a single person, their identity vanishing inside a legal black box.18 Liechtenstein’s trademark offering was the Anstalt, originally developed in Austria as a type of foundation for charitable purposes. Liechtenstein adapted it as a way to shield family fortunes from inheritance taxes.19

  “Considered as a country,” a journalist wrote in 1938, “Liechtenstein is much too small to be independent. But considered as a safe it is a very large one, practically the largest one ever built.”20 The quaint streets of Liechtenstein’s capital, Vaduz, with a population of a few thousand, were lined with the corporate offices of the world’s largest companies, including IG Farben, Thyssen, and Standard Oil. Liechtenstein also debuted another practice beloved of the superrich: letting them buy citizenship. In 1938, the price was $5,500. (Adjusted for inflation, this is about $110,000 in today’s money—similar to the current entry level for naturalization “by investment” in countries like Vanuatu and Grenada.)21 Most of the newly minted Liechtensteiners did not stay. They drove in, took the oath of citizenship, and drove away. Liechtenstein became known as “the capital of capital in flight.”22

  In 1938, Liechtenstein’s monarch took up residence in the principality itself for the first time, as Prince Franz-Josef II fled the annexation of Austria by Nazi Germany. By an agreement whose terms remain opaque, the country was left untouched by German forces. There was a small domestic Nazi movement, and Hitler sympathizers were allowed in the fifteen-person parliament, but a slightly comical attempt at a putsch was put down with the aid of Boy Scouts.23 An international commission of historians later found that although forced laborers were used on lands owned by the royal family in Austria, Liechtenstein—unlike its neighboring Switzerland—did not traffic in gold or art stolen from Jews.24

  After the war, Liechtenstein continued to develop its status as an “Eden for nervous capitalists.”25 The 1950s saw the expansion and extension of the offshore world, as more corporations sought to escape taxation by creating holding companies outside the country they operated in. By 1954, Liechtenstein had between six thousand and seven thousand holding companies, including a subsidiary of Ford, alongside other companies disguised behind made-up names like Up and Down Trading Corporation.26 As one trustee explained, someone showing up with a briefcase full of cash would be given a range of options for placing it in an account either personally or through a nominee.27 A charter was needed, but it only had to include the company’s name, the date of incorporation, and the name of the nominee; an annual meeting was required, but it could be held by your nominee—and could be a meeting of one.28 As with the famous numbered bank accounts of Switzerland, secrecy was what was being paid for—a bolt-hole beyond the sight of the expanding postwar state. “Swiss bankers keep their lips sealed,” a saying went, “but the Liechtenstein bankers don’t even have tongues.”29

  The era from the early 1970s to the late 1990s were the “golden years” for tax havens.30 Liechtenstein was joined by others, including Bermuda, the Bahamas, and, above all, the Cayman Islands. By the late 1970s, Liechtenstein hosted more companies than citizens and boasted a GDP per capita second only to Kuwait.31 Alongside its regular corporate clients were some shadier ones. In the 1960s, the CIA used Liechtenstein to register front organizations for its covert involvement in the civil war in the Congo. (The generic name of its holding company was Western International Ground Maintenance Organization.)32 A few decades later, the International Confederation of Free Trade Unions accused Liechtenstein of facilitating investments into apartheid South Africa.33 An Austrian company built a plant in South Africa through an anonymous Liechtenstein subsidiary, while a British business selling asbestos sourced from South African mines to the United States used a Liechtenstein shell company to avoid sanctions.34

  As for individuals with Liechtenstein connections, they included the Nigerian military ruler Sani Abacha as well as the newspaper tycoon Robert Maxwell, who siphoned his employees’ pensions into a secret account in Liechtenstein.35 Intelligence reports also linked the Colombian drug lord Pablo Escobar and the Zairean dictator Mobuto Sese Seko to banks of the microstate.36 Even more prominent were Ferdinand and Imelda Marcos, who used Liechtenstein trusts to stash away some of their embezzled fortune, estimated at $1–$5 billion. (When they wanted money, they would send the phrase Happy Birthday to their Swiss banker, who would retrieve cash from Liechtenstein and then contact their agent in Hong Kong for delivery to Manila.)37 Another notable client was the Ukrainian president Viktor Yanukovych, whose lavish holiday residence was technically owned by a company in the tony London neighborhood of Fitzrovia, which was, in turn, owned by P&A Corporate Services Trust of Vaduz. Liechtenstein was a portal to “Moneyland,” as one journalist put it, a domain beyond tax-collecting states.38

  Liechtenstein did not put all its energies into what was tactfully called wealth management. As an early commentator put it, even though Liechtenstein’s taxes and fees were very low, there was more than enough gold dust to float up and coat the small country. Wealth gained through its novel status as a tax shelter let it move into industrialization. By the 1980s, Liechtenstein was one of the most industrialized nations in the world, with factories manufacturing products ranging from fake teeth to central heating plants. It went from exporting laborers as farmhands to importing them as factory workers. Over half its workforce commuted from neighboring countries—with no chance of naturalization.39

  Citizenship was governed by a radical spirit of communitarianism. After they ended their early practice of selling passports, the only way to become a citizen was by approval from community members voting via secret ballot, followed by approval from the parliament and the prince. So few ever made it through that most did not even try. As the number of corporations registered in the country soared into five digits, the number of immigrants per year averaged only a couple of dozen. Liechtenstein was applying its version of the Singapore Solution: a microstate with maximal openness to capital and closed borders for new citizens. It was a land both of the future and of the past: women did not have the right to vote until 1984.

  2.

  Liechtenstein is usually treated as a curiosity—a fairy-tale kingdom in the heart of Old Europe. What made it part of the libertarian war of ideas was the adventurous ideological entrepreneurship of Prince Hans-Adam II. Born in 1945 and baptized as Johannes Adam Pius Ferdinand Alois Josef Maria Marko d’Aviano von und zu Liechtenstein, Hans-Adam was the first monarch to be raised in the territory. After working briefly in a London bank and interning at the US Congress, he attended business school in St. Gallen, an hour’s drive north of Vaduz.40 The country was still poor enough in the 1960s that Hans-Adam’s father sold a Leonardo da Vinci painting from their collection to the National Gallery in DC, in part to pay for his son’s lavish wedding.41 Hans-Adam recalled being educated in an era that taught that “the bigger, the better.” Smaller nations seemed destined to be swallowed by one of the two feuding Cold War camps. Liechtenstein’s lack of even its own seat in the United Nations made Hans-Adam wonder if he was being set up for failure.

  Given supervision of the country’s finances in 1970 and taking over duties from his father as regent in 1984, Hans-Adam was described as “the technological age’s manager-prince,” bringing his business school mentality to the task of government.42 Worried that Liechtenstein was being lapped by other tax havens like Panama and the Channel Islands, he set up branch offices in Zurich, Frankfurt, and New York City, and increased the number of the country’s banks from three to fifteen.43 Assets under management tripled in the mid-1980s.44 He also went on a charm offensive. The Metropolitan Museum of Art hosted a blockbuster show of pieces from the princely collection.45 The principality’s fairy-tale air was only enhanced by the 3,100-pound golden stagecoach on display in the exhibition.

  Another one of the prince’s goals was reversing the embarrassment of rejection from the League of Nations and earning a seat in the UN, which succeeded in September 1990. In his first address from the floor of the General Assembly, Hans-Adam did not follow tradition by delivering bromides about international cooperation. Instead, he made an astonishing argument: that all nations were ephemeral and should remain open to the possibility of their imminent dissolution. States cannot live forever, he argued. They have “life cycles similar to the human beings who created them.” Extending their life spans could sometimes end up causing more violence than letting them peacefully die. To cling too tightly to the existing configuration was “to freeze human evolution.” Borders themselves were arbitrary—“the product of colonial expansion, international treaties or war and very seldom have people been asked where they want to belong.”46