IN 1698 the nobles and landowners of the Kingdom of Scotland tried to elevate their country to a world trading nation by colonising the isthmus of Panama. The Darien scheme failed and nearly bankrupted the country. Within a decade Scotland had signed an Act of Union with England to create the United Kingdom of Great Britain. Scots found it tough in the 18th century to be a small nation in a globalising world. But nationalists are an optimistic bunch, and they would dearly like to have another go.

In two years' time the people of Scotland will be asked whether they want to become an independent sovereign state. It is not often that a 300-year-old union is broken, so the vote will have ramifications far beyond a land of 5m people. Scottish independence could lead to a break-up of the United Kingdom. The Catalans, among other disaffected European groups, see Scottish independence as a harbinger of their own bid for nationhood. Other diverse nation-states watch, and worry.

Some of the arguments for and against Scottish independence are aimed at the heart. Alex Salmond's pro-independence Scottish National Party (SNP) says Scotland has its own “society and nation” that could thrive with autonomy. It has also played on local resentment at being bossed around by posh Westminster politicians—so successfully that no politician with an English accent, let alone a plummy one, is likely to play a large part in the pro-union campaign. As for the unionists, they argue that Britain would be diminished on the world stage if Scotland were to go its own way. Petty resentments and centuries-ago battles notwithstanding, the nations have rubbed along pretty well over the years and have a glorious common history, they say. Why dissolve the marriage now?

Every nation has its price

The political and cultural issues around independence are hotly debated. Yet fittingly, in the birthplace of Adam Smith economic arguments seem to weigh heaviest. Opinion polls suggest that they will determine whether or not Scots go for independence. One poll found that just 21% of Scots would favour independence if it would leave them £500 ($795) a year worse off, and only 24% would vote to stay in the union even if they would be less well off sticking with Britain. Almost everyone else would vote for independence if it brought in roughly enough money to buy a new iPad, and against it if not.

Opinions on the economics of independence are starkly divided. Nationalists argue that, mostly thanks to North Sea oil and gas, Scotland subsidises the union and would be better off alone. The more sneering sort of unionist argues the opposite, that Scotland is a parasitic subsidy junkie.

Both are wrong, in the short term at least. Assuming it keeps the oil and gas extracted from under Scottish waters, an independent Scotland would currently gain roughly as much in taxes as it would lose in subsidies (see article).

The future, however, looks much dicier. This is a stormy economic world, and an independent Scotland would be a small, vulnerable barque. It would depend on oil for some 18% of its GDP, making it subject to shifts in global commodity prices. Though high oil and gas prices have pushed up tax revenues, if they drop production as well as receipts would plummet. The richest reserves have already been exploited, leaving inaccessible oil that becomes uneconomic when prices fall. North Sea production has been falling by about 6% a year for the past decade. Eventually the oil will run out entirely.

A small country is more vulnerable to other shocks. In 2008 the British government had to bail out Royal Bank of Scotland (RBS) and HBOS, Scotland's two biggest banks. At its peak, RBS's balance sheet was 13 times Scottish GDP. Edinburgh has faltered as a financial centre since, and would be hard to revive. There is a limit to how large a financial sector an independent Scotland—a new, small economy—could support. Mr Salmond has already rebuffed suggestions that he should take a share of RBS's £187 billion of toxic assets.

The sexy Swedish model

By virtue of its size, an independent Scotland's borrowing costs would almost certainly be higher: its bond market would be small and illiquid. But Scotland's biggest problem could be its currency. The SNP's enthusiasm for the euro has faded: it wants Scotland to stick with the pound for the moment. That would mean entering a monetary union without fiscal union, a set-up that has proved disastrous in Europe. Though Mr Salmond claims Scotland would enjoy automatic EU membership, European Commission lawyers are doubtful. A candidate Scotland would have to negotiate entry terms—and commit to join the euro one day.

Subtly, the nationalist argument has shifted. Some years ago the SNP envisaged Scotland joining an “arc of prosperity” of small, thriving countries such as Iceland and Ireland. After the banking and euro-zone crises, advocates for independence have pointed instead to the Nordic countries. The SNP implies that Scotland can combine a Scandinavian-style nurturing state—with free university tuition, free elderly care, free universal child care and more generous pensions—with a thriving business sector. An independent Scotland would hope to lure businesses through low corporation taxes, hucksterism and a dose of industrial policy—something the SNP says cannot be safely left to a government in far-off London.

Small countries can indeed pull in foreign investment: just look at Ireland. But Scotland would struggle to attract enough to pay for such a generous state. The country would not be the only one bidding for footloose global capital: one competitor would be Britain, which is cutting corporation taxes swiftly.

If Scots really want independence for political or cultural reasons, they should go for it. National pride is impossible to price. But if they vote for independence they should do so in the knowledge that their country could end up as one of Europe's vulnerable, marginal economies. In the 18th century, Edinburgh's fine architecture and its Enlightenment role earned it the nickname “Athens of the North”. It would be a shame if that name became apt again for less positive reasons.