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Hayek, Freedom, Democracy and the Pinochet Regime

I have been reading Masters of the Universe by Daniel Stedman Jones [got a free copy to write a review], and was a bit surprised about two glaring absences: Sraffa and Pinochet. Yes, talk about strange bedfellows!*

Hayek main theoretical argument, which is common to Austrian and other versions of marginalism alike, is that markets produce efficient allocation of resources, which includes full utilization of labor and capital (i.e. the 'factors of production'). Hayek emphasized heterogeneous, specific capital goods rather than a single malleable homogenous capital value measure. Hayek followed Böhm-Bawerk's emphasis on heterogeneous capital goods and the period of production. He emphasized an intertemporal price system that determines multiple own-rates of interest, but which tended toward a uniform rate, the natural rate.

Unfortunately for him, Sraffa had shown that the two notions were not tenable. As Hayek's business cycle theory was dependent on the differences between the natural rate and the money rate, in a monetary economy, it was his incapacity to deal with the problems raised by Sraffa that made his theoretical relevance in the 1930s to wane. So the complete absence of Sraffa from the book seems to be a significant lapse, but understandable since this is a book written by a historian, not an economist.

The second lapse is more problematic for a historian. Stedman Jones does cite Pinochet in a few places as a fellow traveller of the neoliberals. He even tells you that Friedman thought that "Britain could avoid the fate of Chile ... [and] he predicted that the 'destruction of democratic society,' were it to occur in Britain, would come 'from the left'." Even if you ignore the wild paranoia about 'the left' being a threat to democracy (Yes Labor was a threat! Doesn't that sound like the tea Party? Obama is a threat to democracy too, isn't he?), at least it seems to acknowledge that Pinochet was responsible for the end of democracy in Chile (and yes pictured above is uncle Milton with Pinochet). Not that this should be a controversial proposition. But Friedman was okay with economic policy in Chile.

Hayek had, if that is possible, an even more outrageous view of the Pinochet regime (he also visited and was received by Pinochet). Hayek was not only full of praise for the economic policies of the Pinochet Regime, but also supportive in political terms. He was concerned that Chile, and the Apartheid regime in South Africa too, did not receive a fair coverage from the 'liberal' press in Western countries, and suggested in his infamous interview with El Mercurio that a dictator like Pinochet might be a necessary step towards a liberal democracy. A more thorough treatment of the issue, in particular since Hayek suggested that economic and political freedom were intertwined, would have been relevant, to say the least.

PS1: The other picture above is of Thatcher and Pinochet. It is always good to remember what neoliberals mean when they talk about freedom and democracy.

PS2: I wrote this Sunday night, with no knowledge of Thatcher's health condition. The discussion of her death, and she was the symbol of neoliberalism if there was one (remember her motto, 'there is no alternative'), so far goes to show some of the problems of conventional analyses of neoliberalism. The New York Times has no discussion of her support of Pinochet. The often contradictory support for right wing dictators by neoliberal politicians in developed countries is swept under the rug.

* This is NOT a review. Just a brief comment on specific issues which are not central for the thesis of the book. The actual review of the book is here.


  1. A post and a link to an article on the topic.

  2. Pinochet's state funeral: some young admirers farewell him.

    Somehow I suspect Pinochet must have been much more appreciative of Hayek's visit, than Friedman's.

  3. Great post. This is not the only strange endorsement of authoritarianism by Austrians. Mises made a glowing (but inconsistent) comment on Italian fascism in 1927:

    “So much for the domestic policy of Fascism. That its foreign policy, based as it is on the avowed principle of force in international relations, cannot fail to give rise to an endless series of wars that must destroy all of modern civilization requires no further discussion. To maintain and further raise our present level of economic development, peace among nations must be assured. But they cannot live together in peace if the basic tenet of the ideology by which they are governed is the belief that one's own nation can secure its place in the community of nations by force alone.

    It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error”
    (Mises, L. von, 1978 [1927]. Liberalism: A Socio-Economic Exposition (2nd edn; trans. R. Raico), Sheed Andrews and McMeel, Mission, Kansas. 51).

  4. If Austrians are such strong believers in market allocations, the fact that the market doesn't care about their analysis is a pretty ironical thing huh?

  5. And Joan Robinson supported Mao who murdered millions. Compared to that Pinochet was a teddy bear. Yet I see no condemnation of her from you

    1. Yes, she did admire Mao, and that's sad. Many lefties did at that time. Lance Taylor told me once he did back then, but certainly not now. However, her admiration never went so far as to give political support like Hayek and Friedman to Fascist regimes, neither she said connected her theories to the political regimes of left of center dictators. Hayek did exactly that. Political freedom and economic freedom were connected according to him. So there is no comparison.



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