They say that behind every great man is a great woman. In the history of Montenegro, there is a legend that gives this phrase a literal economic meaning. It is said that one day, Princess Milena, the wise and perceptive wife of ruler Nikola I, asked him a simple but fateful question: "Why not abolish the taxes on wine? The people will love you, and our treasury will not be much poorer for it." Could this remark, casually dropped in the quiet of the palace, have laid the foundation for an entire industry and turned one of the poorest countries in Europe into a notable player on the world's wine map? Strangely enough, both the fascinating history and strict economic theory answer in unison: yes, it most certainly could have.
The story of Montenegrin winemaking is not just a beautiful legend to attract tourists. It is a textbook, almost laboratory-like example of how wise public policy, based on low taxes, the protection of private property, and, most importantly, predictable and long-term "rules of the game," can unleash the dormant entrepreneurial energy of a people and lead a nation to prosperity. This is a valuable lesson from the past, which today, in an era of global instability and the search for new development models, is more relevant than ever.
Montenegro Before the "Wine Revolution": A Nation of Warriors on Barren Land
To fully appreciate the scale of the transformations initiated by Nikola I, one must mentally transport oneself to Montenegro in the mid-19th century. It was a harsh, almost Spartan society, wedged in impregnable mountains and in a state of permanent, exhausting war with the mighty Ottoman Empire. The country's economy was predominantly subsistence-based: people literally survived by raising livestock and primitive farming on tiny plots of poor karst soil reclaimed from the stone. Every man was first and foremost a warrior, ready to take up arms at any moment. Long-term planning and investment were virtually impossible in such an environment.
Everything changed in 1878. Following the Congress of Berlin, which redrew the map of the Balkans, Montenegro not only received long-awaited international recognition of its full independence but also significantly expanded its borders. The principality incorporated the fertile lands around Lake Skadar and, critically, access to the Adriatic Sea through the ports of Bar and Ulcinj. Before Prince Nikola I, who had ruled the country for more than half a century, lay a titanic, historic task: how to integrate the new territories as quickly as possible and transform a backward, war-torn state into a viable, modern economy?
Prince Nikola I: A Modernizing Monarch with an Austrian Flair
Nikola I Petrović-Njegoš was not a typical Balkan ruler of his time. Having received an excellent education in Trieste and Paris, he thought in broad, European categories and understood perfectly well that without creating a solid export base, his country could not long maintain its precious independence in the boiling "Balkan cauldron." And although he had probably not read the works of the Austrian School economists, his actions, dictated by common sense and a deep understanding of human nature, surprisingly align with their key principles.
The Prince intuitively understood that for people to stop thinking only about survival and start investing in the future, they needed three things: stability, predictability, and a firm confidence in tomorrow. He understood that the wealth of a nation is not created by the decrees of officials or the work of state monopolies, but by the free labor of thousands upon thousands of individuals pursuing their own personal, family interests. And he gave them this opportunity by launching one of the most original and successful government incentive programs in history.
"Vineyard Duty" and a Tax Haven: Coercion to Wealth
Instead of, like his neighbors, imposing new levies on the people to support a bloated state apparatus, Nikola I took a completely unprecedented step. He launched a program that could be ironically called "coercion to wealth." His decrees were as simple as they were brilliant, and, thanks to his authority, unavoidable in their execution:
- Duty for Soldiers: Every soldier living in regions with a suitable climate (primarily in the Lake Skadar basin) was required to plant 200 grapevines. In the reality of the totally militarized Montenegrin society, this meant that practically every family was involved in the new economic activity in one way or another.
- Condition for Marriage: A young man could not get permission to marry until he presented proof that he had planted between 100 and 1000 grapevines, depending on the wealth of his family. Thus, the creation of a new unit of society directly led to the expansion of the national wealth. This was a unique example of demographically-oriented economic policy.
- Tax Holidays: And here is the climax—the very "advice of Princess Milena" in action. Families that showed the greatest entrepreneurial initiative and planted more than 2000 vines were completely exempt from all state taxes for a full 10 years!
The last point was an absolute economic knockout. The ten-year period was chosen with astonishing precision. A grapevine begins to yield its first commercially significant harvest in the 4th-5th year after planting. The Prince gave enterprising peasants the opportunity not only to recoup their heavy initial investments but also to make a solid profit for several years before they had to start sharing with the treasury. From the point of view of Eugen von Böhm-Bawerk's economic theory, this measure sharply reduced time preference—the willingness of people to sacrifice immediate, guaranteed consumption for a much larger, but delayed, benefit. The ruler was, in effect, saying to his people: "Invest for the long term, and I, your Prince, guarantee that you will not regret it."
Spontaneous Order in Action: Hayek and Kirzner in the Montenegrin Vineyards
What happened in Montenegro in the following decades is what Nobel laureate Friedrich von Hayek would unhesitatingly call a perfect illustration of his theory of "spontaneous order." The state, in the person of the Prince, did not hand down detailed five-year plans from above, did not create cumbersome ministries of winemaking, and did not tell each peasant exactly where and what variety of grape to plant. It only established simple, profitable, and, critically, long-term rules of the game. And the system, to the surprise of many, began to work on its own.
Thousands of Montenegrin households, from retired soldiers to ambitious newlyweds, became what another great Austrian economist, Israel Kirzner, would call "alert entrepreneurs." They saw the unique opportunity that the new policy presented to them, assessed the risks, and began to act, investing their labor, time, and scarce resources in a long-term project called "my own vineyard." As scattered but convincing historical data show, by the 1890s, the area of vineyards with high-quality, phylloxera-grafted vines was more than 1,145 hectares. The production of wine, oriented not only for home consumption but also for sale, grew exponentially.
Success Against the Odds: The Advantages of Economic Freedom
The uniqueness and effectiveness of the Montenegrin experiment become particularly evident when compared with the economic policies of neighboring states and regions of that time.
- The Ottoman Empire: In the territories still under Istanbul's rule, traditional winemaking stagnated and declined. The reason for this was a whole complex of problems: high and unpredictable taxes (the tithe, or ushur, in practice could reach 20-25% of the harvest and even more), general religious restrictions, and, most importantly, the corrupt and predatory system of tax farming (iltizam), which killed any incentive for development.
- Serbia: In the young Serbian kingdom, the state was more interested in the export of grain and its famous plums, and viticulture, although it existed, developed mainly in private estates without such powerful and targeted state support. The tax burden was significantly lower than in the Ottoman Empire, but it tended to constantly increase to finance state needs.
- Austria-Hungary (Dalmatia): On the Adriatic coast, which was under the rule of Vienna, winemakers, on the one hand, had access to more advanced technologies, but on the other hand, they suffered from the devastating phylloxera epidemic and high imperial duties, which made their products uncompetitive.
Against this variegated and unfavorable background, Montenegro looked like a real oasis, a "tax haven" for the agrarian entrepreneur. The predictability of the rules and the low tax burden became its main, decisive competitive advantage.
The Fruits of Reform: International Recognition, Income Growth, and Social Progress
The results were not long in coming. As early as 1907, Montenegrin wines, and above all the flagship Vranac variety from the fertile Crmnica region, caused a real sensation at the prestigious wine exhibition in London, receiving the Grand Gold Medal. This was not just a recognition of quality—it was an entry onto the world stage.
Although precise statistical data on the income of individual households from that period have practically not survived, the economic logic and indirect data are inexorable. Estimates for other Balkan regions show that the income from one hectare of vineyards could be 5 times higher than the income from a hectare of wheat. And if we take into account the generous tax breaks, it becomes obvious that successful Montenegrin winemakers became truly prosperous by local standards. This newfound wealth, in turn, had a multiplier effect: people had money for their children's education (which led to a general increase in literacy), for building better housing, and for developing local infrastructure. The country was slowly but surely changing its face.
Conclusion: Lessons from the "Golden Age" for Modern Montenegro
The story of the "wine miracle" of King Nikola I's time is not just an entertaining episode from the distant past. It is direct, empirical proof of several fundamental truths that lie at the heart of the philosophy of a free society and the Austrian School of economics:
- Low, simple, and, most importantly, stable taxes are the most powerful engine of economic growth. They change people's psychology, encouraging investment and long-term planning.
- True prosperity of a country is not created by giant state corporations or foreign megaprojects, but by mass small and medium-sized enterprises for which the authorities have created favorable conditions and simply do not interfere with their work.
- Montenegro has its own, historically successful, and brilliantly proven recipe for prosperity, which does not require the blind copying of others', often less effective, models.
Today, when Montenegro, like many other countries, stands on the threshold of new global challenges and strategic decisions, this story sounds particularly relevant and instructive. Perhaps, instead of relying exclusively on multi-billion, but often ineffective, aid programs from the European bureaucracy and scrupulously following thousands of directives from Brussels, it is worth looking more closely and with greater respect at one's own past?
Perhaps the legacy of Prince Nikola and the wise, almost libertarian advice of his wife Milena—"just don't stop people from working, creating, and getting rich"—is the very simple and effective national idea that the country needs so much today. After all, history convincingly proves: sometimes the best help a state can give its economy is its minimal and intelligent presence.