Visitors to the Croatian city of Dubrovnik on the Adriatic are struck by the magnificence of the stone walls that surround its Old Town, the beauty of the red-tiled roofs against the blue sea, and the stunning view of the entire city from the summit of nearby Mt. Srd. Even if you know little of its medieval background or its more recent wartime tragedies, Dubrovnik is a jewel to the eye from any angle.

What made my visit this past Monday (April 8, 2019) one that I’ll never forget was a little-but-amazing bit of economic history. As I walked atop the city walls and through its Old Town streets and alleys, I knew I was in the heart of Ragusa—the name of the Republic headquartered here for 450 years. At its height in the 15th and 16th centuries, it was one of the freest and most prosperous enclaves on the planet.

The History of Ragusa

The Republic of Ragusa gained its independence from Venice in 1358. It lost it to Napoleon Bonaparte when he seized it in 1808. In the four and a half centuries in between, Ragusa paid a small annual tribute or fee to neighboring powers like the Hungarians and the Ottomans, who otherwise left the Ragusans alone to govern themselves as an aristocratic, maritime republic. Ragusa’s official motto was NONE BENE PRO TOTO LIBERTAS VENDITUR AURO (“Liberty is not sold for all the gold in the world”). Its flag proudly proclaimed LIBERTAS (“Liberty”).

It was a tiny place as countries were reckoned even back then. Within the city’s walls and around its circumference lived fewer than 10,000 people, well under 100,000 in the entire strip of narrow Dalmatian coastline and islands that comprised the Republic. Yet the hundreds of ships that made up its commercial fleet were larger in number than that of Venice, a city-state boasting ten times the population of Ragusa.

The secret to Ragusa’s remarkable success was unmistakably its liberty. Its government was small, limited, and almost corruption-free.

The Republic’s leaders and diplomats are still the subject of study today because of their unrivaled diplomatic skills. They negotiated free trade agreements that kept Ragusa prosperous and at peace for centuries. Never once in its history did Ragusa forcibly deploy its wealth and might for the purpose of territorial expansion.

Ragusan traders plied the Mediterranean, calling on ports as far as Spain in the west, Egypt to the south, and the Levant in the East. It maintained consulates in dozens of countries throughout Europe, North Africa, and the Middle East.

The secret to Ragusa’s remarkable success was unmistakably its liberty. Its government, though aristocratic in nature, was small, limited, and almost corruption-free. Term limits ensured that the top official, the rector, served only one month before he passed the trappings of office on to his successor. The rector barely moved his stuff into the palace before he had to pack up and move out. He couldn’t run for the office again for at least two years. Such restraints on state power and a singular focus on building society through entrepreneurship and maritime trade made Ragusa the Hong Kong of the Mediterranean.

Rare Equal Opportunity

Women were afforded considerable economic freedom in Ragusa, a rarity in the world of the day. At a time when women were widely expected elsewhere to subordinate themselves to men and the unremitting toil of the home or the farm, wealthy female entrepreneurs built fortunes in Ragusa. As Susan Mosher Stuard, in her book, A State of Deference: Ragusa/Dubrovnik in the Medieval Centuries, notes:

[W]omen in Ragusa were allowed to wear their jewels and parade them around; and they could, entirely on their own, trade them, since they owned them unencumbered. Their display provided a stimulus to the market in what had become a lucrative export industry; silver and some gold from inland Balkan mines were fashioned into a wide variety of wares in Ragusa.

As near as historians can tell, it seems the “ease of doing business” in the Ragusa of the 15th, 16th, and 17th centuries was incredible. Just about anybody of any color or sex could file all the paperwork and secure all the approvals to start a business in a matter of days. There are countries today where you’d be lucky to get all that done in a year or two. (See Institutions Always Mattered: Explaining Prosperity in Medieval Ragusa by Oleh Havrylyshyn and Nora Srzentic.)

Slavery was common around the world in the Middle Ages, as it had been since ancient times. Ragusa abolished it in 1416.

This was a place that appreciated the vital importance of private enterprise and encouraged it by leaving it alone to invent, innovate, and prosper. Ragusa had a bias for the entrepreneurial. Its bureaucrats were few in number and mostly relegated to record-keeping.

In the State Archives in Dubrovnik today is a paper from 1389 that contains the oldest known information about the provision and installation of a public clock in southern Europe. The document is a signed contract between the office of the rector and a private Italian clock maker to build and put in place a clock in the bell tower of the Rector’s Palace. So when it came to making sure the people knew what time it was, the Ragusans privatized it.

Slavery was common around the world in the Middle Ages, as it had been since ancient times. Ragusa abolished it in 1416.

Property Rights and Bankruptcy Law

The tiny republic pioneered in bankruptcy law. While debtors’ prisons were ubiquitous in medieval Europe, Ragusan law established procedures for the settling of debts without imprisonment. In 1568, it passed one of the earliest laws encouraging private insurance for vessels on the Mediterranean.

Every economist worth the name knows that protection of property rights is a necessary condition for sustained economic growth. Here again, this was an area of notable Ragusan achievement. Taxes were low, and capital was safe from the arbitrary confiscations by royalty all too common in the rest of Europe. State finances in Ragusa were known for their prudence; balanced budgets and minimal debt were normal expectations for several hundred years.

In their study of the Republic’s economy, Havrylyshyn and Srzentic present copious evidence of “a favorable business and rule-of-law climate” in Ragusa. It was among the earliest states to formalize commercial registration and contract procedures. It did perhaps the best job in Europe in implementing good business law in an impartial manner, providing a remarkable degree of the “fair field and no favor” approach that is the hallmark of true capitalism. Justice in the courts was speedy and efficient.

Ragusan Currency

Another important, if not indispensable, condition for a prosperous economy is a sound currency. All over Europe from the days of the Roman Empire through the Napoleonic Wars, kings and parliaments routinely debased money in numerous ways—including the reduction of precious metal content, cutting coins and melting the clippings into smaller coinage, and the issuance of irredeemable paper. The German states during the 17th century’s Thirty Years War, for example, ruined their money through hyperinflation. Comparatively, Ragusans were sound money people, establishing a solid silver standard from early in the 14th century.

The mint of Ragusa produced quality silver coin for more than 500 years. In large letters on the stone arch inside the Sponza Palace where the city-state’s public scales were once positioned is this inscription still readable today:Ragusa produced something that, to a free market economist like me, is both remarkable and predictable. FALLERE NOSTRA VETANT, ET FALLI PONDERA MEQUE PONDERO DUM MERCES, PONDERAT IPSE DEUS. It means, “If our weights cheat, then we are cheated; as we weigh goods, God is measuring us.”

The silver coin known in Ragusa as the “libertine” in the 1790s was marked on its reverse side with the words, DUCE DEO FIDE ET IVST (“Led by God, Faith, and Justice”). I personally own one from 1794 on which the word LIBERTAS (“Liberty”) appears.

All of this, even with the shortcomings of an aristocratic structure that limited the political participation of commoners, produced something that, to a free market economist like me, is both remarkable and predictable—a degree of prosperity that made Ragusa one of the envies of Europe.

Even an Earthquake Can't Shake Ragusa's Legacy

So what happened to Ragusa? This is the sad part of the story. At about 8:00 am on April 6, 1667, a massive earthquake devastated the city and surrounding area. Three-quarters of the buildings were destroyed. The city-state rebuilt itself but never fully recovered its former glory. Then the tyrant Napoleon seized and occupied the city in 1808, extinguishing the old Republic. Efforts to re-establish it at the Congress of Vienna in 1815 failed.

Before visiting Dubrovnik (Ragusa) a few days ago, I spoke in Belgrade, Serbia, to hundreds of students at LibertyCon, a conference organized by European Students for Liberty. My subject was “Free Market Success Stories.”

Freedom works, and that’s a lesson that can be found no matter what era or corner of the world you examine.

For the first ten minutes, I explained that while socialism breaks eggs but never makes an omelet, freedom and free markets produce omelets everywhere they are tried. I then provided examples such as Germany, Hong Kong, and New Zealand.

I closed my speech with the example of Ragusa. From Belgrade, it’s just a few hours drive today, but what Ragusans accomplished a few centuries ago should be remembered for all time by all peoples everywhere. Freedom works, and that’s a lesson that can be found no matter what era or corner of the world you examine.

Long live the spirit of Ragusa!