The economists and the general

Milton Friedman and James Buchanan have been accused of giving support to Pinochet, but Friedrich Hayek has far more to answer for

Features Magazine
Chile’s President Augusto Pinochet: A transitional dictator?

General Augusto Pinochet seized power in Chile in a violent coup d’etat on September 11, 1973—sometimes referred to as “the other 9/11”. Pinochet overthrew the democratically-elected Popular Unity government of Salvadore Allende, who committed suicide rather than be taken into military custody. The conspirators had well-founded concerns that Allende was exceeding his electoral mandate by introducing hardline socialist policies, but what followed was a complete breakdown of the rule of law that led to terrible misery for many Chileans. The Report of the Chilean National Commission on Truth and Reconciliation published in 1993 lists a total of 2,706 people known or believed to have died at the hands of the regime. The majority of those who died or disappeared were young people, aged under 30; 88 victims are known to have been schoolchildren and 140 were university students. In addition to those who were murdered, many more were detained without trial and many of those were tortured.

It is nearly 30 years since Pinochet left office in 1990, but there is an ongoing controversy concerning the relationship between his regime and three of the most famous classical liberal economists, all recipients of the Nobel Prize in Economics: Milton Friedman, arguably the most influential monetarist economist and popular advocate for economic liberalism; Friedrich Hayek, the Austrian economist who spent most of his career at the LSE and the University of Chicago; and James M. Buchanan, the founder of public choice theory, the application of economic theory to the study of politics. All three are alleged to have given explicit, tacit or covert support to the regime. Friedman and Buchanan have been identified as important architects of the regime’s economic and political policies.

The best-known claim concerning the Pinochet regime and the classical liberal economists is that the rapid transformation of Chilean economic policy from socialism to liberalism followed Milton Friedman’s blueprint of economic “shock treatment” to transform a socialist economy into a free-market one. This was a central claim of Naomi Klein’s 2007 book The Shock Doctrine about the global advance of “neoliberal” economics.

The Pinochet regime did employ a team of economic advisers trained at the University of Chicago, known as the Chicago Boys. In fact, these economists travelled to Chicago in a pre-Pinochet USAID-financed relationship between the University of Chicago and the Catholic University of Chile that enabled a stream of Chilean students to study economics at Chicago from 1955 to 1964. Some of these individuals served in the Pinochet regime—though importantly they were not key figures until after the failure of the regime’s initial attempts to manage the economy.

Friedman visited Chile on two occasions during Pinochet’s rule. The most important visit was a six-day trip in March 1975 arranged by his Chicago colleague Arnold Harberger. During those six days, Friedman participated in seminars (planned for government officials, representatives of the public, and members of the military) and gave public lectures. Friedman was also a member of a small group that met with Pinochet for approximately 45 minutes. During that short meeting, Friedman and the others discussed the advantages of a sudden and dramatic change of policy—the infamous “shock treatment”—to address Chile’s economic woes. At Pinochet’s request, Friedman produced a brief report of the Chilean situation that he sent to the General after he had returned to the US. Friedman’s biographer, William Ruger, has described Friedman’s advice to Pinochet:

Friedman unsurprisingly told the president to adopt a package of free-market and monetarist reforms. In particular, Friedman argued that Chile’s inflation problems were so severe that “shock treatment” was necessary, despite his typical preference for gradualism . . . He also advocated that the government promote a “social market economy” by removing barriers (such as wage and price controls) to the effective working of market forces and freeing international trade. In short, Friedman counselled that “No obstacles, no subsidies should be the rule.” Showing he was not unsympathetic to the hardships this would cause, nor unappreciative of the politics of reform, Friedman also argued that the government should “provide for the relief of any cases of real hardship and severe distress among the poorest classes.”

Prima facie, it would seem that Friedman was an adviser to Pinochet and that he influenced the regime’s economic policies. In reality, however, Friedman’s advice was an endorsement of policies already being pursued. Practically from day one the Pinochet regime replaced the interventionist policies of the previous government with policies designed to introduce market forces into the Chilean economy.

Throughout his career, Friedman adopted a policy of offering economic advice to any regime willing to listen—however dubious it might be. On this basis Friedman engaged with morally-questionable regimes of the Left (China, Yugoslavia) and the Right (Chile, Iran). He thought it was acceptable to visit, lecture, and give advice on economic policy to political regimes he disapproved of in order to break down barriers between countries and because he saw himself as akin to a doctor giving technical advice to governments so that they could improve outcomes for society.

Friedman declined two offers of honorary degrees from Chilean universities because he felt that acceptance of such honours from institutions receiving government funds could be interpreted as implying political approval for the regime. Friedman also gave an “anti-totalitarian” lecture while in Chile in which he argued that the centralisation of power destroys freedom, that free markets are essential to maintaining freedom, and that political freedom allows markets to function best. Later, Friedman explained that if he had been a Chilean, he would “if possible have opposed both [Allende and Pinochet]—or alternatively have emigrated”—and that he “would fervently wish their replacement by free democratic societies”.

F. A. Hayek had less direct engagement with the Pinochet regime than Friedman, but his position arguably leaves a lot more to be desired. Hayek also made two visits to Chile during Pinochet’s reign—in 1977 and 1981—ostensibly to lecture at private universities. On the first visit Hayek met with Pinochet, when, according to Hayek, they discussed the problems of unlimited democracy. After each visit, Hayek engaged in propagandising on behalf of the regime—writing letters and giving interviews to newspapers in a number of countries in which he defended Pinochet’s economic and political record. Perhaps the most “unfortunate” comment Hayek made on this subject was in a letter to The Times, published on August 3, 1978, in which he wrote of his time in Chile: “I have 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 Allende.” Given that when Hayek wrote this statement more than 2,000 people had been murdered by the regime, or had disappeared believed to be murdered, and many more had been summarily detained and tortured, it is hard to credit his comment. Hayek argued on a number of occasions that Allende’s government was the only totalitarian regime that had existed in Latin America.

‘Hayek engaged in propagandising on behalf of the regime—writing letters and giving interviews to newspapers in which he defended Pinochet’

Hayek’s support for the Pinochet regime, and for other authoritarian governments of the time, followed from his instrumental view of the value of democracy. For Hayek, democracy was valuable because of the consequences that followed, not because it had any intrinsic worth. Accordingly, democracy was important as a peaceful means of removing an unpopular or ineffective government, but no special value should be attributed to a decision because it happened to reflect the will of a numerical majority of the voting population.

Two American-based scholars, Andrew Farrant and Edward McPhail, have argued persuasively that Hayek viewed the Pinochet government as an example of a “transitional dictatorship” that could use authoritarian methods to set a country on the path towards economic liberalism and limited government. Hayek doubted that democratic electorates would often vote for such a course and therefore he felt on occasion a short-lived dictatorship might be justified to curb the excesses of majoritarian rule that threatened economic freedom. For Hayek, because democracy had only instrumental value, then if it could be shown that democracy in a particular time or place would not bring about good outcomes, then it was desirable to dispense with it temporarily.

James Buchanan’s relationship with the Pinochet regime was largely unremarked upon until the publication of Nancy MacLean’s critical biography,   Democracy in Chains, in 2017. In this book MacLean argued that Buchanan’s influence on the regime was more important and long-lasting than that of both Friedman and Hayek because Buchanan was a key architect of the 1980 Chilean constitution. Buchanan visited Chile in May 1980 at the invitation of Professor Carlos Cáreres, Dean of the Universidad Técnica Federico Santa Maria Business School. The visit was timed to coincide with discussion of Chile’s new constitution that would essentially enshrine Pinochet’s long-term rule. Recent archival research by Andrew Farrant shows that Buchanan gave four formal lectures during his visit (one to undergraduate students) and was scheduled to have two meetings with politicians and officials. The texts of Buchanan’s four lectures were essentially similar (two were identical), providing a basic introduction to the theory of public choice, constitutional political economy and the problems of mainstream welfare economics.

MacLean’s portrayal of Buchanan as the evil mastermind behind Chile’s 1980 constitution is not supported by the evidence. The binomial voting system introduced in the constitution was not discussed by Buchanan in his lectures in Chile, nor did he advocate it in his published work. The introduction of central bank independence without constraints on its power was directly contrary to Buchanan’s advice that institutional constraints were more important safeguards of economic freedom than institutional autonomy. Moreover, the idea that any individual—however eminent or persuasive—could exert such a powerful influence over another country’s constitutional decision-making in one eight-day visit consisting of four lectures and two formal meetings seems fanciful.

The task of speaking truth to power is clearly fraught with danger. Friedman and Hayek were both public intellectuals, willing to give general and specific policy advice and to engage in public advocacy for their preferred policies. Buchanan, on the other hand, only gave general advice concerning the implications of different constitutional rules. Friedman and Buchanan both travelled to Chile to give advice that could have been gleaned from their published works. Hayek, on the other hand, publicly defended the regime. The suspicion of democracy Hayek expressed is consistent with his published works, though the application of his ideas to a particularly unpleasant real-world example brings the possible implications of those ideas into sharp focus.

Of course, intellectuals on the Left have also offered support to barbaric, totalitarian regimes. Beatrice Webb’s hailing of the Soviet Union as a “new civilisation” after a two-month visit in 1932 is one example (and it did not impede her posthumous internment in Westminster Abbey). Joan Robinson, the then doyenne of Cambridge economics, wrote a 1965 article lauding the “Korean miracle” after a visit to North Korea. But the fact that there are faults on all sides does not mean no one is at fault.

Nevertheless, we should be careful to distinguish between guilt by association and guilt resulting from fault. If academics are to give advice to governments on the basis of their expertise, this should not be assumed to mean support for that government—even if parts of their advice are heeded. On this basis it seems wrong to suggest that Friedman or Buchanan supported the Pinochet regime—they simply told Pinochet and others in Chile what they had written in their published works many times. Although Hayek’s views on Pinochet’s regime were also consistent with his published works, he nevertheless offered public support for the regime and revealed some potentially unpleasant implications of his ideas. That surely does not negate all his scholarly contributions, but it should properly give pause for thought about the wisdom of some of his ideas.