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It unexpectedly gained independence in 1440 after Pope Eugene IV, embroiled in a struggle with the Council of Basel, made a sale of territory to the Republic of Florence. By error, a small strip of land went unmentioned in the sale treaty and its inhabitants promptly declared themselves independent. An early centre in Italy for tobacco production, Cospaia eventually evolved into a commerce haven which, in 1826, was divided between Tuscany and the Papal States. Each citizen was awarded a silver coin by the church to help convince them to continue farming tobacco.
The Republic of Cospaia was almost completely anarchist in its government and criminal justice system, or lack thereof. There were no jails and there was no standing army or police force within the tiny nation. There was a council of elders and a chief's family who governed at one point. They met in the Church of Annunciation for councils.