Friedrich von Hayek and Milton Friedman are the founding fathers of neoliberal economics. When Augusto Pinochet overthrew Chile’s elected government, they helped devise his economic agenda and endorsed the brutal repression that was needed to force it through.
The president of the Centro de Estudios Públicos in Chile, Jorge Cauas, welcomes the conference “Foundations for a Free Social System” in April 1981. Friedrich Hayek can be seen fourth from left in the front row. (Centro de Estudios Públicos via Wikimedia Commons)
In late 1977, as the Chilean military junta extended the state of siege in place since its 1973 coup and formally dissolved all political parties, Friedrich Hayek wrote a letter to a German newspaper, the Frankfurter Allgemeine Zeitung, to protest what he depicted as unfair international criticism of the government of General Augusto Pinochet. When his article was rejected, he wrote to the editor expressing disappointment that the newspaper lacked the “civil courage” to resist popular anti-Pinochet sentiment.
Hayek singled out the human rights organization Amnesty International for turning “slander [into] a weapon of international politics.” After accepting an invitation to lecture in Chile, he complained, he was inundated with phone calls, letters, and anti-Pinochet material by “well-intentioned people I did not know but also from organizations like ‘Amnesty International,’” who asked him to cancel his visit. Hayek’s fellow Mont Pèlerin Society member, the Chicago School economist Milton Friedman, later echoed this assessment, describing Chile as an economic and political “miracle.”
Neither Hayek nor Friedman were detached observers of this “miracle.” Both men gave advice to Pinochet, and both had disciples in his authoritarian government — Friedman among the Chicago-trained técnicos (or “Chicago Boys”), who formulated its economic “shock” program, and Hayek among the conservative Catholic gremialistas, who produced an institutional order to protect the economy from political challenge. These two civilian elite factions were to define the economic and political orientation of Pinochet’s government.
Neoliberalism and Human Rights
Despite Hayek’s displeasure at Amnesty’s anti-Pinochet activism, the neoliberals did not eschew the language of human rights; on the contrary, they argued that their own proposals were necessary in order to secure freedom, human dignity, and human rights. As the government unleashed a brutal program of torture, assassination, and extrajudicial killing aimed primarily at Hayek’s own antagonists — leftists, social democrats, and trade unionists — he remarked that he had “not been able to find a single person even in much maligned Chile who did not agree that personal freedom was greater under Pinochet than it had been under [Salvador] Allende.”
Rather than protecting individuals from state repression, neoliberal human rights operated primarily to preserve the market order by depoliticizing society.
Rather than simply dismissing this claim, we should look more closely at the neoliberal idea of freedom, and the place of rights and law within it. This means departing from the standard story, according to which the neoliberals in Chile focused on their area of technical economic expertise while turning a blind eye to the repression necessary to implement their economic agenda.
On the contrary, not even the most technical of the Chicago economists justified their work in Chile simply on economic grounds. Rather, they argued that the junta had saved Chile from a totalitarian regime, reversing a history of planning and state intervention, and making possible individual freedom and human rights.
The neoliberals in Chile mobilized a stark dichotomy between politics as violent, coercive, and conflictual, and market relations as peaceful, voluntary, and mutually beneficial. It was in Chile that a neoliberal human rights discourse was consolidated. This neoliberal version of human rights justified constitutional restraints and law as necessary to preserve the individual freedom that only a competitive market could secure.
If human rights were a product of a functioning market, as the neoliberals consistently argued, they were also necessary to protect the market from egalitarian political movements. Rather than protecting individuals from state repression, neoliberal human rights operated primarily to preserve the market order by depoliticizing society and framing the margin of freedom compatible with submission to the market as the only possible freedom.
The Chicago Boys
In 1986, Friedman and his Chicago School colleague Arnold Harberger participated in a symposium on the relations between economic, political, and civic freedom organized by the Fraser Institute, a promarket Canadian think tank. The symposium’s premise was that economic freedom and civil liberties could flourish in conditions in which political freedom was absent, as majority rule had “no particular virtues, especially if the majority decides to abuse the rights of the minorities.”
For Harberger, who had spent decades overseeing the training of economics students from Latin America, this relationship between political and economic freedom was a “dilemma.” Latin Americans, he told the symposium, were beset by a “predilection to romanticism,” a “tremendous, incredible vulnerability to demagogy” and a collective tendency toward “self-pity.” Military governments, he contended, were “best at leading them to think their way out of that, but it is a terrible dilemma for us as freedom-loving individuals.” If romanticism was a barrier to economic freedom, Harberger wondered, was it legitimate to use political repression to shatter it?
From the Chicago-inspired perspective, Allende’s proposals amounted to an ignorant violation of the laws of the economy and the destruction of a free society.
Harberger oversaw a US government–sponsored partnership between the Catholic University of Chile and the University of Chicago, which, he reflected, spawned more than a dozen key ministers, central bank presidents, and budget directors. The Chile Project stretched back to the era of import-substitution industrialization of the 1950s — a time, he reflected, when the watchwords across Latin America were “interventionism, paternalism, nationalism, and socialism.”
The Chicago Boys’ opposition to the politicization of the economy preceded Allende’s victory by decades, but his socialist government’s economic planning, Keynesian demand-stimulation, and wealth redistribution provided their ideal adversary, and brought them to the attention of Chile’s business elites. From the Chicago-inspired perspective of these técnicos, Allende’s proposals amounted to an ignorant violation of the laws of the economy and the destruction of a free society.
Chile’s transformation into an exemplary laboratory of neoliberalism owed much to Harberger’s Chicago Boys. On September 12, 1973, the morning after the coup, their 189-page economic program, El Ladrillo (The Brick) was on the desk of every major figure in the new government.
It called for trade liberalization and tariff reductions; widespread privatization, including of social security; and a regressive value-added tax. In 1993, Harberger noted with satisfaction that this vision was now overwhelmingly accepted by all of Chile’s major parties, while at the time, the Chicago program was “too market-oriented, too open-economy, and too technocratic” even for the traditional Chilean right.
Milton Friedman met with Pinochet to convince him that Chile’s economy required ‘shock treatment,’ primarily in the form of a drastic reduction in public spending.
In 1975, Friedman met with Pinochet to convince him that Chile’s economy required “shock treatment,” primarily in the form of a drastic reduction in public spending. The general, Friedman noted, “was sympathetically attracted to the idea of a shock treatment but was clearly distressed at the possible temporary unemployment that might be caused.” In the wake of his visit, Friedman wrote to Pinochet to stiffen his resolve: “There is no way to end the inflation that will not involve a temporary transitional period of severe difficulties, including unemployment.”
In the Chilean case, what is most striking about the relation between the economists and the junta’s repression is not that they ignored it, but how willingly they embraced it. Friedman wrote to Pinochet to assure him that Allende’s government represented the “terrible climax” of a trend toward socialism, and that the general had been “extremely wise in adopting the many measures you have already taken to reverse this trend.” In 1977, the Chicago human capital theorist, Gary Becker, wrote of his pride in his Chilean students, whose “willingness to work for a cruel dictator and start a different economic approach was one of the best things that happened to Chile.”
Harberger later dismissed those who protested the junta’s repression, saying: “if you look at human rights violations or political violations, you will find them in any Asian country almost at that time, in multiples of whatever was happening in Chile.” Hayek told the right-wing Chilean newspaper El Mercurio that, while he did not support permanent dictatorship, he saw Pinochet’s “transitional dictatorship” as a “means of establishing a stable democracy and liberty, clean of impurities.”
In 1982, Friedman claimed that Pinochet’s Chile was a “miracle.” The previous year, Hayek had called Chile’s economic recovery “one of the greatest miracles of our time.” For Friedman, Chile was not simply an economic miracle — it was “an even more amazing political miracle.” Despite having facilitated a massive transfer of wealth to the rich, Friedman contended that, by substituting market mechanisms for state control, the dictatorship had replaced “control from the top with control from the bottom.”
What is most striking about the relation between the economists and the junta’s repression is not that they ignored it, but how willingly they embraced it.
In extolling Chile’s political miracle, Friedman argued that a free market, unlike a military structure, is typified by dispersed authority — “bargaining, not submission to orders, is the watchword.” But submission remained central to his account of the market. Economic pain (like physical torture) was designed to break the political subjectivities that led people to resist the “fate” doled out by the market.
Everyone in this country was “educated in weakness,” Minister of Economy Pablo Baraona warned: “To educate them in strength, it is necessary to pay the price of temporary unemployment, of bankruptcies.” When asked about the high bankruptcy rate, junta member Admiral José Toribio Merino concurred: “Let fall those who must fall. Such is the jungle of economic life. A jungle of savage beasts, where he who can kill the one next to him, kills him. That is reality.”
Such statements were a long way from the myth of the sweetness of commerce, but they were not far divorced from the tenets of the neoliberal market, for which, as Michel Foucault has stressed, the central principle was not exchange but competition, with its systematic production of winners and losers. Weakening solidarity and creating competitive subjects was central to what Pinochet identified as the junta’s ultimate goal: “not to make Chile a nation of proletarians, but a nation of entrepreneurs.”
Success and Failure
As Friedman had predicted, the junta’s “shock” approach produced “severe difficulties” — but not for all sections of the Chilean population. As he acknowledged, the immediate effect was “severe recession,” as Chile’s GDP fell by 13 percent per annum.
In an open letter to Friedman and Harberger, Andre Gunder Frank denounced “economic genocide” in Chile. Frank pointed out that the removal of price controls, combined with the destruction of trade union power, had drastically reduced real wages, to the extent that, by December 1975, one hour of work at the official minimum wage purchased 160 grams of bread.
From 1975, stark spending cuts and the ‘freeing’ of prices on two thousand commodities caused purchasing power to fall to 40 percent of its 1970 level.
From 1975, stark spending cuts and the “freeing” of prices on two thousand commodities caused purchasing power to fall to 40 percent of its 1970 level. While the real incomes of the poorest plummeted, the share of national income in the hands of the upper 5 percent of income receivers rose from 25 percent to 50 percent.
What Friedman termed a “temporary transitional period” and Gunder Frank called “economic genocide as a calculated policy” was a deliberate attempt to strip Chileans of nonmarket social reproduction and force them to submit to the judgment of the market. This was what Friedman meant when he said that “underdeveloped” countries needed
an atmosphere of freedom, of maximum opportunities for individuals to experiment and of incentives for them to do so in an environment in which there are objective tests of success and failure — in short, a vigorous, free, capitalistic market.
During the first of his two visits to Chile during the junta’s rule, Hayek spoke with Pinochet about the dangers of “unlimited democracy.” As Hayek recalls, the general listened carefully, and requested that he send him any materials he had written on the question.
While the Austrian economist might conceivably have sent a large bundle of his writings, his secretary recalls that he asked her to send the chapter “The Model Constitution” from his three-volume work Law, Legislation and Liberty. There, Hayek used the term “unlimited democracy” to refer to the “particular form of representative government that now prevails in the Western world.”
Doubting that a functioning market had ever arisen under such a democracy, he also suggested it was likely that such unlimited democracy would destroy an existing market order. “The Model Constitution” also forthrightly defends emergency powers; “freedom may have to be temporarily suspended,” Hayek wrote, echoing Carl Schmitt, “when those institutions are threatened which are intended to preserve it in the long run.”
The threat that democracies would interfere with the ‘spontaneous order’ of the market led Friedrich von Hayek to support brutally violent dictatorships.
Hayek expanded on these themes in a 1981 interview with the Chilean newspaper El Mercurio. Echoing Schmitt, he argued that, when a government is in a “situation of rupture,” it is “practically inevitable for someone to have absolute powers.” As the market is necessary to preserve freedom, when the market is threatened, society may temporarily be converted into an organization, and government may rule by decree. He would prefer a “liberal dictator,” he told the newspaper, to a “democratic government lacking in liberalism.”
This was not the first time Hayek had expressed sympathy for liberal dictators. In 1978, he singled out Pinochet and the Portuguese dictator António de Oliveira Salazar as leaders of “authoritarian governments under which personal liberty was safer than under many democracies.” In 1962, he sent Salazar a copy of The Constitution of Liberty with a note expressing his hope that it would help the dictator “design a constitution which is proof against the abuses of democracy.”
Five years later, Hayek praised the government of Indonesia’s Suharto — also brought to power by a CIA-backed anti-communist coup — in similar terms. In each case, the threat that democracies would interfere with the “spontaneous order” of the market led him to support brutally violent dictatorships that were prepared to take all necessary measures to preserve existing inequalities.
In Chile, Hayek praised the junta for its willingness to run the country “without being obsessed with popular commitments or political expectations of any kind.” Coercion was justified, he believed, to “provide an effective external framework within which self-generating orders can form.” The fragile “spontaneous order” of the market required a strong state to protect it from political interference.
In Chile, Hayek praised the junta for its willingness to run the country ‘without being obsessed with popular commitments or political expectations of any kind.’
James Buchanan struck a similar note in his paper “Limited or Unlimited Democracy,” presented at the regional Mont Pèlerin Society meeting in Viña del Mar, the Chilean seaside town where the coup was plotted. The Virginia School neoliberal criticized the “totalitarian thrust of unlimited democracy,” and stressed that any government (whether a democracy or a “junta”) must be strictly limited for the sake of “insuring and protecting individual liberties.”
Contemplating the return to democracy, Baraona, twice minister for the economy during Pinochet’s rule, argued that Chile’s “new democracy . . . will have to be authoritarian, in the sense that the rules needed for the system’s stability cannot be subjected to political processes.” The single proactive role of the state, he contended, would be “to enforce market discipline on society.” In Chile, constitutionally enshrined rights, including human rights, became tools for enforcing such market discipline.
This is an extract from Jessica Whyte’s book The Morals of the Market, available from Verso.Original post