Nobel Prize winning economist James M. Buchanan has repeatedly argued that the “political economist should not act as if he or she were providing advice to a benevolent despot” (Boettke Constitutional Political Economy, 25, 110–124, 2014: 112), but an increasingly influential body of scholarship argues that Buchanan provided a wealth of early 1980s policy advice to Augusto Pinochet’s military dictatorship in Chile (e.g., Fischer 2009; Maclean 2017). In particular, Buchanan reportedly provided an analytical defense of military rule to a predominantly Chilean audience when he visited the country in late 1981. This paper draws upon largely ignored archival evidence from the Buchanan House Archives and Chilean primary source material to assess whether Buchanan provided a defense of Pinochet’s “capitalist fascism” (Samuelson 1983) or whether he defended democracy when he visited Chile in 1981. Aside from the importance of this for assessing Buchanan’s own legacy, his constitutional political economy arguments presented in Chile also provide an interesting and distinct perspective on the connection between democracy and growth, which remains highly relevant to current debates. Despite a general agreement about the desirability of democracy, the view that authoritarian regimes can spur “growth miracles”, or might even be a necessary stage in political-economic development, still has prominent supporters (e.g. Sachs 2012).
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Offer and Söderberg (2016) similarly charge that Buchanan was a “keen advisor to Pinochet’s Chile” (204) who “visited Chile several times” (243).
For instance, Fischer (2009) invokes Stepan (1985: 341) to demonstrate that Buchanan was a “frequent” guest in Chile (325). The evidence shows that Buchanan visited Chile twice while Pinochet was in power and subsequently visited Chile in September 2000 to participate in an MPS General Meeting in Santiago. We thank an anonymous referee for helpful comments on the heavily self-reinforcing nature of the Buchanan-Pinochet literature.
Maclean’s evidence (2017: 279) for Buchanan’s involvement in the organization of the meeting is provided by Pedro Ibáñez’s formal ‘Announcement’ (December 2 1980) of the decision to hold a “Regional Meeting in Chile” (Mont Pèlerin Society records, Box no. 24, Hoover Institution Archives). The document notes that a “first draft of the Programme has been drawn up and considers such subjects as … Democracy, Limited or unlimited?” (1–2). Ibáñez’s ‘Announcement’ lists the members of the Executive Committee organizing the meeting: Pedro Ibáñez (Chile), Paulo Ayres (Brazil), Ramon Diaz (Uruguay), Alberto Benegas Lynch Jr. (Argentina), Carlos Cáceres (Chile), and Hernan Cortes (a Chilean who acted as Secretary to the Committee). Similarly, Ibáñez’s ‘Announcement’ separately lists the officers of the MPS per se including the members (e.g., Buchanan) of the MPS Executive Committee. The evidence suggests that Buchanan’s participation in the organization of the meeting was limited to a number of “very hurried suggestions.” In particular, Buchanan suggested that Ibáñez might invite Colin Campbell to speak on “Social Security” and Clayton La Force to speak on the “‘Education’ panel,” and suggested that the committee might want to add a panel on the “moral defenses” that could be “mounted for the market economy” (Buchanan to Ibáñez, December 30 1980).
Caldwell and Montes (2015: 292) note that Ibáñez wrote to Hayek in late January 1981 to explain that the organizing committee had taken the “liberty of including your name in connection with the theme ‘Democracy, Limited or Unlimited?’”
According to El Mercurio (November 18, 1977, pp. 27–28), Hayek “told reporters that he talked to Pinochet about the issue of limited democracy and representative government. . . . [Hayek] said that the head of state listened carefully and that he had asked him to provide him with the documents he had written on this issue.” The U. S. Embassy in Santiago noted Ibáñez’s anti-democratic views in late February 1978: “Pedro Ibáñez dominated the conversation … [but was] particularly evasive in describing how a transition to civilian government might occur … Subsequently a senior Embassy Chilean employee reported to us that Ibáñez had been troubled by the direction of conversation and had made his concern known to the government. Presumably our interest in the mechanics of a transition, bothered him.” (U.S. Embassy Santiago, Chile. Memorandum of Conversation: 23 February 1978. https://www.foia.state.gov/Default.aspx).
The Ortúzar Commission (1973–1978) was created shortly after the military coup and “held a broad mandate to ‘study, elaborate, and propose a draft of a new Political Constitution of the State and its complementary laws.’” (Barros 2005: 90). The Council of State was created in early 1976 as “an exclusively advisory body to the president … Consultations were optional and council recommendations were nonbinding” (165). As Barros explains, neither body had any “authority regarding the timing of promulgation nor the content of the new constitution” (175).
As Ibáñez explained to the Council of State, the “central idea” behind his “memorandum – that of a largely autocratic government” was strongly favored by Chilean “public opinion” (March 27 1979).
The draft constitution which the Council of State gave to Pinochet in early July 1980 was heavily revised by a “special working group …On a chapter-by-chapter basis, in daily afternoon sessions, agreements were hammered out, and then presented to the Junta for review and decision the following morning” (Barros 2005: 219).
“I am fairly certain that the days of unlimited democracy are numbered. We will, if we are to preserve the basic values of democracy, have to adopt a different form of it, or sooner or later lose altogether the power of getting rid of an oppressive government” (Hayek 1979: 134). Hayek subsequently told a journalist that “‘it is possible for a dictator [e.g., Pinochet] to govern in a liberal way. And it is also possible for a democracy to govern with a total lack of liberalism … I prefer a [self-limiting] liberal dictator to democratic government lacking in liberalism’” (El Mercurio, April 12 1981: D9). Hayek readily acknowledged that the probability of self-limiting dictatorship was low: “It is at least conceivable, though unlikely, that an autocratic government will exercise self-restraint; but an omnipotent democratic government simply cannot do so” (1979: 99).
Hayek views unlimited democracy as “legalized corruption” (1979: 103) but argues that it “is not democracy or representative government as such … that makes it necessarily corrupt” (11).
Hayek wrote to Cáceres in February 1981 to explain that he was highly unlikely to make a second visit to Chile to attend the MPS meeting (Caldwell and Montes 2015: 292). We especially thank Leon Montes for kindly drawing our attention to the late 1980 and early 1981 correspondence between Ibáñez, Cáceres, and Buchanan. Copies of the correspondence can be found in the Pedro Ibáñez papers.
Hayek argued that “free choice” could “exist under a dictatorship that can limit itself but not under the government of an unlimited democracy which cannot” (Hayek 1978b), and he subsequently illustrated his thesis by noting that when he had visited “much maligned Chile” in late 1977 he had not met anyone who did not readily “agree that personal freedom was much greater under Pinochet than it had been under Allende” (Hayek 1978c: 15). As Meadowcroft and Ruger (2014: 362) aptly note, “[n]o one can read the Report of the Chilean National Commission on Truth and Reconciliation … which details the thousands of arbitrary arrests, summary executions, and imprisonments without due process that took place under the Pinochet regime, and be impressed.”
La Segunda noted that Buchanan “was ready to answer press queries” and had provided La Segunda’s reporter with a copy of his paper: “This gesture [was a] surprise because the [MPS] debates occur ‘behind closed doors and without access to the press.’” (November 19 1981: 2). Araujo (1982: 208) briefly mentions that Buchanan’s MPS paper provides a defense of constitutionally-limited democracy which has much similarity to Buchanan’s other early 1980s writings.
The total interdependence costs of a specific collective choice equal the sum of the external costs (a decreasing function of the inclusivity of the voting rule) and decision-making costs (an increasing function of the inclusivity of the rule) of collective choice. For instance, an in-period unanimity rule assures that the external costs of collective choice are equal to zero but the requirement for unanimity similarly assures that decision costs are extremely high. By contrast, the decision costs of in-period dictatorship are very low but the expected external costs of dictatorial rule – e.g., Idi Amin’s Uganda or Mobutu’s Zaire – are very high.
Watrin told his MPS audience that the “present-day democracies” had displayed an inherent “tendency to develop from minimal state towards an unlimited democracy,” and provocatively charged that a “growing number of people in some European countries” viewed their “country as a welfare dictatorship rather than a welfare state.” (The Growth of Leviathan: 13. Mont Pèlerin Society records, Box no. 24, Hoover Institution Archives).
As Buchanan subsequently noted, “few persons” could be found who would “openly ... defend the ‘rights’ of legislative or electoral majorities to do whatever they please” (1986: 60).
Buchanan and Tullock insisted that the individuals participating in discussion “must approach the constitution-making process as ‘equals’ … [i.e.] the existing differences in external characteristics among individuals are accepted without rancor … [and] there are no clearly predictable bases among these differences for the formation of permanent coalitions.” Ultimately, their contractarian analysis had “little relevance for a society that is characterized by a sharp cleavage of the population into distinguishable social classes or separate racial, religious, or ethnic groupings sufficient to encourage the formation of predictable political coalitions and in which one of these coalitions has a clearly advantageous position at the constitutional stage” (1962: 80).
Buchanan’s MPS defense of universal suffrage is heavily influenced by Frank Knight’s view that democracy is fundamentally equivalent to “government by discussion” (see Levy and Peart 2016). Buchanan was far more Knightian than any other mid-late 1970s or early 1980s member of the MPS and argued for an “‘approach … which deliberately avoids the independent establishment of criteria for social organization (such as ‘efficiency’, ‘rapid growth’, etc.), and instead examines the behavior of private individuals as they engage in the continuing search for institutional arrangements upon which they can reach substantial consensus or agreement’” (Buchanan quoted in Levy and Peart 2016: 65). As Buchanan himself noted, “The definition of democracy as ‘government by discussion’ implies that individual values can and do change in the process of decision-making” (Buchanan 1954: 120). Meadowcroft (2011) provides a fascinating and detailed analysis of Buchanan’s view of democracy.
Buchanan subsequently told a Chilean interviewer that “‘nobody would support completely unlimited democracy’” (El Mercurio November 22 1981: D4)
Buchanan’s advocacy of a wide-range of in-period voting rules appears to have made him an outlier in mid-late 1970s and early 1980s MPS circles. For instance, George Stigler’s 1978 MPS discussion of the merits of “becoming non-democratic in our desired political institutions” (1979: 66) provides much evidence to signify that the average mid-late 1970s MPS member viewed majority rule as the substantive equivalent of democracy per se. Maclean (2017: 152) implies that Stigler’s discussion of “non-democratic” institutions signified that Stigler included military rule in the set of institutions he wanted the MPS to think about. As Stigler himself had clearly noted, however, “that kind of policy is repugnant to our principles” (1979: 61). As Stigler subsequently made abundantly clear when he raised his MPS speculations about the consequences of the abandonment of the “total acceptance of present day democratic institutions,” he was not thinking about the merits of dictatorship per se but instead about the merits of federalism (the “decentralization of political life”), the use of super-majorities to “pass economic legislation,” and the “restriction of the franchise to property owners, educated classes, employed persons, or some such group” (66). Stigler much doubted whether a “narrow electorate would engage in less income redistribution through the state.” Ultimately, Stigler told his MPS audience that “It is not congenial to us to contemplate departures from simple majoritarian political systems” (66).
Buchanan told his 1984 audience that his “individualistic and contractarian” model of politics did not necessarily “yield direct implications” about the in-period use of “‘democracy’ in the everyday meaning [i.e., in-period majority rule] of this term” (1984: 2). As Buchanan similarly told another MPS-friendly audience in mid-1984, “decisions as to how … [public] goods are to be provided may be assigned to the state. The question at issue here involves the possible role for democratic procedures in the making of such [in-period] decisions. Will individual contractors necessarily adopt majority rule for those political choices that may be confronted within the allowable ranges of state action?” (1986: 243, emphasis added).
Although Pinochet had been unexpectedly defeated in a late 1988 plebiscite and Chile would subsequently make the transition back to democracy, Buchanan would have been well aware that his reference to a military junta would immediately cause his readers to think of Pinochet. Buchanan’s assessment of “nonconstitutional” and unlimited military rule is squarely congruent with the analytical tenor of his 1981 and 1984 MPS papers. We thank an anonymous referee for drawing the importance of the timing of Buchanan’s 1989 paper to our attention.
Buchanan gave his MPS paper on November 19 1981 (the final session of the MPS meeting).
Although Fischer argues that some MPS members viewed Buchanan’s paper “as a critique of the host country’s recent history” (2009: 324–325), the ultimate downfall of Chilean democracy was far more attributable to the heavy polarization of the early 1970s than to the supposed logic of ‘unlimited’ democracy. Levy’s (1989) analysis of the consequences of a heavily polarized bimodal distribution of political preferences is of particular relevance. As Radomiro Tomic – evaluating the likely consequences of the breakdown of the August 1973 negotiations between Allende’s Unidad Popular (the coalition which supported Allende) and the Confederation of Democracy (the anti-Allende coalition that was squarely in control of Chile’s bicameral legislature) – presciently told General Prats, “‘everybody knows what will happen, everybody says they do not wish it to happen, and everybody does exactly what is necessary to bring about the disaster’” (see Collier and Sater 2004: 330).
Buchanan wrote his MPS paper – “a paper on the topic assigned in the title” (1981: 1) – over a three-day period in late July 1981 (Draft MPS Paper, BHA).
General Lucius D. Clay was the High Commissioner (1947–1949) of the American occupied zone in postwar Germany. Clay had reportedly provided Ludwig Erhard with a relatively “free hand” to introduce his famous economic reforms in 1948 (Frickhoffer, Introduction of Market Economies: The German Model, Compared with the Chilean Model: 4). Frickhoffer initially told his audience that the analysis in his paper “takes me close to the final subject of this congress which is concerned with limited or unlimited democracy” (1). In particular, Frickhoffer was unwilling to “close” his eyes to the “fact” that significant and “far-reaching” economic and social reforms could not be easily adopted by a “normal parliamentary system” (1). For instance, Erhard had reportedly told Frickhoffer that Germany’s late 1940s economic reforms would never have been adopted if they had to make their way through the “normal” and cumbersome democratic procedures of “our German Bundestag” (4). Pedro Ibáñez was much gratified by Frickhoffer’s acceptance of an invitation to speak in Viña Del Mar (Ibáñez to Chiaki Nishiyama December 2: 1980, Mont Pèlerin Society records, Box no. 24, Hoover Institution Archives).
Although the Chilean journal Estudios Públicos 6 (1982) subsequently published a number of papers from the MPS meeting (e.g., the papers by Cáceres and Frickhoffer) it did not publish Rose Friedman’s 1981 MPS paper.
Chamberlain praised the way in which dictatorship assured that the Chilean Chicago Boys could easily disdain the “compromises that have been forced on Britain’s Margaret Thatcher and that now threaten the supply-side revolution of Ronald Reagan” (1982: 356).
Meadowcroft and Ruger (2014) provide a valuable analysis of the important contrast between the way in which Buchanan, Friedman, and Hayek evaluate democracy and Pinochet’s dictatorship.
Any adequate discussion of the Chilean Constitution of 1980 is far beyond our scope here. Nevertheless, the “permanent body of the text structured a ‘self-protected democracy’ … [but the accompanying] twenty-nine transitory dispositions … reinstated the status quo of dictatorship” (Barros 2005: 169).
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We thank Jo Ann Burgess for permission to quote from James M. Buchanan’s published and unpublished writings. Sarah Armstrong provided invaluable assistance in translating all foreign language sources. We also thank Geoffrey Brennan for helpful email correspondence about Buchanan’s views and his visit to Chile. We similarly thank Peter Boettke, Don Boudreaux, Bruce Caldwell, Tyler Cowen, Ali Khan, David M. Levy, John Meadowcroft, Scott Scheall, and Karen Vaughn for helpful comments and discussion. We also particularly thank an anonymous referee for valuable comments and suggestions.
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Farrant, A., Tarko, V. James M. Buchanan’s 1981 visit to Chile: Knightian democrat or defender of the ‘Devil’s fix’?. Rev Austrian Econ 32, 1–20 (2019). https://doi.org/10.1007/s11138-017-0410-3