Why is Monaco Rich?

Finance. Trust fund. 6'5". Blue eyes.

S. in Seattle asks: “Why is Monaco so rich?”

Monaco is a tiny little microstate on the south coast of France. At less than a square mile in size (smaller than New York’s Central Park), and with only 38,000 people, it’s not like the earth-shattering big boys we usually talk about here at Distilled History. But it’s notable as the richest country in the world: #1 in GDP per capita ($256k per person, compared to America’s paltry $83k), #1 in the number of billionaires and millionaires as percentage of the population, and #1 in real estate prices ($4500/sq ft). So considering that Monaco has no natural resources to speak of, no oil, no diamonds, no industry, and not really…anything besides casinos, hotels, and luxury stores, how did this little town become so rich? And why is it an independent nation anyway?

Monaco’s origins date back to the Middle Ages, when the map of Europe looked like a plate someone dropped on the floor and there were a zillion quasi-independent fiefdoms and self-ruling towns all over the place. Over time, all those little feudal duchies were absorbed into larger states, with a couple of exceptions that often come up as answers on trivia night. Monaco was the domain of the Grimaldi family, who pledged their allegiance to the crown of France. After the French Revolution, the Napoleonic wars, and a bit of back-and-forth tussling with Italy, France ended up controlling the surrounding area, but the Grimaldi princes managed to wriggle through and maintain sovereignty over their little town. After the Napoleonic era Monaco lost the outlying agricultural areas they had once controlled back in feudal times, and as such the city-state didn’t have much going for it. Since they were heading for bankruptcy, they started brainstorming and came up with the bright idea of opening a casino.

Gambling has been around forever: in the Bible, Roman soldiers gambled for Jesus’s clothes while he was being crucified, and the story goes that the whole bread-meat-cheese thing got its name from the Earl of Sandwich, who wanted something he could eat with one hand while playing cards. Casino gambling is generally regarded as good fun in the modern era and now serves as a way of reinjecting Social Security money back into the American economy, but in the 19th century gambling was seen as a degenerate vice. Especially in France, it was associated with the wig-wearing dandies of the ancien regime who had spent all their time playing cards and chasing skirts while le peuple were suffering from a severe lack of cake. Casino gambling was illegal in most countries, and even private card games were not something respectable people got involved with. A young Abraham Lincoln, giving a speech in 1838 that referred to the lynching of a group of card-players, said that “[gamblers] constitute a portion of population that is worse than useless in any community; and their death…is never matter of reasonable regret with any one.” Honest Abe wasn't spewing unhinged crazy-talk like an anti-vaxx Facebook mom in the comment section: that speech accurately summarized mid-19th century public opinion. The closest analogy nowadays would be drug use, but still, that’s not exactly right considering that there’s now a weed shop on every corner and a junkie overdosing at every bus stop in America. Maybe a better comparison would be to say that when Monaco opened its casino in 1863, that was kind of like Amsterdam back in the 1990s when cannabis was illegal in the rest of the world. If you were mad, bad, and dangerous to know, that’s where you’d go to hang out.

In the 1870s there was only one other legal casino in Europe (Spa, Belgium), and the railways had recently connected the South of France to Paris. The weather in Belgium is typical northern-European rainy and cold, so the nice climate made the Med a much better holiday destination. People who wanted to have a bit of illicit fun could now easily travel to Monaco and have a go at the tables, just as the hoi polloi can now fly budget airlines to Fort Lauderdale and Tenerife as they seek out new places to vomit in public and fist-fight strangers. The casino started making so much money (a percentage of which went to the state) that Monaco was able to eliminate all income and property tax in 1869, leading to a construction boom. By the late 19th century it was the destination for the degenerate rich of Europe, and the name of the main casino, Monte Carlo, became synonymous with both gambling and the state of Monaco.

In the same way that Las Vegas would come to diversify its offerings from just gambling to other forms of entertainment, Monaco did the same thing several decades earlier to keep people coming. The first Monaco Grand Prix automotive race was held in there in 1929, and due to their non-existent taxes, the city-state started advertising itself as a place for corporations to base themselves. There was no hard border between France and Monaco in these years, so if you were a rich French person you could flit on down to casinotown anytime you liked. Times were hard during the Great Depression and WW2 (there was a brief Axis occupation), but generally Monaco fared better than most places during the war and picked up when the European economy started booming again.

Now keep in mind that while no one likes paying taxes, rates were blisteringly-high in postwar Europe as those countries had to rebuild themselves, establish welfare states, and maintain large armies to fight colonial wars and keep out the Russkies all at the same time. The Beatles wrote a song complaining about this in 1966 as John, Paul, George, and Ringo were subject to a 95% withholding rate. France’s top tax bracket was 65%, and many countries instituted wealth taxes on large fortunes at this time as well. As a result, moving down to the sunny Riviera and buying an appartement in Monaco, thus instantly dropping your tax rate from 95% to 0% became an attractive proposition. So plenty of people did that, and today about three-quarters of Monaco’s population is foreign-born. Frenchies have always been drawn there since the city-state speaks their language and has strong cultural and business ties with France. And the French are desperate for tolerance from those who understand and support their need to smoke cigarettes constantly, look like rotten fruit after age 40, and speak their terrible language in public. The frogs can’t just go anywhere on Earth and be welcomed like you are, my dear privileged English-speaker. They need a safe space.

*The author of Distilled History is a direct descendent of French immigrants, thus officially, legally, and morally shielding him from any and all charges of anti-French racism.

While on paper Monaco was an independent state, it had a quasi-protectorate status with France until the 1960s, existing as a sort of French Hong Kong. Sensing France’s decline in power after WW2, Monaco started to break their formal ties with France, which caused the frogs to retaliate in 1962 by instituting a hard border and revoking the tax-free privileges of French citizens living in the microstate. This could have been the death-knell for Monaco, but they negotiated a new settlement that removed the border while also eliminating the tax-free status of French companies and citizens who had based themselves there. While French people living in Monaco now have to remit taxes back to their homeland, other non-French rich people are free to move there and enjoy tax-free status. Monaco lost some of its attraction for rich ciggy-munching-deodorant-dodgers, but it still could bank on a reputation as a playground for the rest of the world’s billionaires.

That’s the answer to why Monaco is rich: it’s been a gambling-focused tax haven for 150 years, a sort of miniature combo of Hong Kong, Macau, and Las Vegas. Other than that brief standoff in 1962, Monaco has always had an open border and customs union with France, so goods, money, and people can flow freely in and out of the city. As such, the place was able to become rich merely by attracting lots of rich people, not by developing any particular industries or resources. And while casino gambling is now much more widespread and socially-tolerated in other countries than it was in the 1860s, Monaco has retained its cachet as a hangout for the richest of the rich, and will probably continue to do so for years to come.

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