True or False: Economists Should Advise Despotic States

Economists are often asked to render economic advice to foreign nations. Sometimes these countries are ruled by dictators. That presents a moral quandary. Maybe they shouldn’t give advice at all, for fear of seeming to endorse human rights violations. Or perhaps we could look at this differently. Maybe giving good advice can make a bad situation better for people living under despotism. Maybe by advising trade liberalization, a stable currency, and more secure property rights, an economist can nudge a rogue state’s government toward political liberalization as well.

This conundrum sits at the heart of an ongoing historical debate about the role of economists in engaging illiberal political regimes. The oft-discussed example of the dictatorial Pinochet junta in Chile serves as a point of illustration that complicates and stains the reputations of several free market economists. After a military coup toppled socialist President Salvador Allende in 1973 amid growing concerns about Soviet influence in the region, Friedrich A. Hayek offered a qualified defense of what he dubbed a “transitional … liberal dictatorship,” deeming it preferable to a “democratic government devoid of liberalism.”

Hayek traveled to Chile in 1977, where he held a 20-minute audience with Pinochet, advised several senior political figures of the junta, and offered several cringeworthy commentaries about the Chilean government to the press. In an oft-compared case, Milton Friedman similarly met with Pinochet in 1975 and provided him with informal advice on how to tame a spiraling inflationary crisis.

Friedman took greater care to distance himself from the junta’s political leadership, declaring his “sharp disagreement with the authoritarian political system in Chile.” As he argued at the time, an economist has a professional duty to offer economic advice on the plague of inflation just as a doctor would offer advice on ending a medical plague. Furthermore, while Pinochet’s authoritarian regime hailed from the political right, Friedman offered similar instruction on a 1970s visit to communist China, albeit with almost no alarm or criticism from his detractors on the American left. He believed on similar grounds that economic liberalization would bring about greater political liberalization in both countries.

The ethical stain of the Pinochet regime is nonetheless difficult to avoid. The junta murdered over 3,000 political dissidents during its 15-year reign, suppressed criticism of its reign, assassinated opposition political figures in exile, and personally enriched itself through the tools of the state. Chile emerged from the junta in 1990 after a national plebiscite expelled Pinochet from office and has since grown into the most stable economy in Latin America. The scars from the dictatorship nonetheless persist in Chilean politics to this day. The question of whether figures such as Hayek and Friedman bear some responsibility lingers over their respective reputations as economists and remains a hotly debated subject.

To writers on the political left, the Pinochet episode has given rise to elaborate polemics positing a natural kinship between dictatorship and “neoliberal” economics. Writers such as Corey Robin and Naomi Klein place a mixture of Austrian economics, the Mont Pelerin Society, and the “Chicago Boys” at the center of the Pinochet regime’s political economy on account of Hayek’s and Friedman’s respective engagements. A burgeoning but also intellectually vacuous academic literature routinely cites Chile’s autocracy as the natural end game of “neoliberalism” — an ill-defined and pejorative stand-in term that the academics deploy to describe almost any line of economic reasoning of a non-Marxian variety.

Implicated

Even alleged neoliberals with little connection to Pinochet find themselves implicated in the junta’s crimes. Through a combination of misrepresented evidence and outright fabrication, Duke historian Nancy MacLean recast economist James M. Buchanan as a secret architect of Pinochet’s 1980 constitution. Although Buchanan had little discernible input on the constitution and MacLean’s account of this event has been almost entirely debunked, numerous historians and commentators now credulously repeat her charges in order to tar Buchanan’s Nobel-winning work on constitutional economics.

The unifying theme of this body of literature is straightforward. It seeks to indict free market economics, again dubbed neoliberalism, as being inherently disposed to illiberal and undemocratic political practices. Or as economist Branko Milanovic summarized this position in a recent review essay, “the support for Pinochet in 1973 was not an oddity, but represented a consistent choice, driven by neoliberals’ increasing rejection of democracy and quasi-religious emphasis on free markets.”

The Inconsistencies of Historical Reckoning

Fidelity to the historical record requires that we not shy away from investigating and interpreting ethically problematic relationships. Indeed, some of the best critical scholarship on Friedman’s and Hayek’s respective influences on Pinochet has come not from the overheated polemics of Klein or Robin or MacLean, but from academics who are decidedly more sympathetic to their free market economic persuasion.

In processing these debates, however, it is difficult to avoid seeing a stark double standard at play. As the academic popularity of Klein, Robin, and MacLean illustrates, it is fashionable at the moment to demand that modern free market economists must undergo a historical reckoning with the sins of Pinochet by way of Friedman or Hayek or other “neoliberals” who engaged with his regime — even if such “neoliberals” only intended to offer prescriptive economic advice in dealing with widely recognized problems such as an inflationary crisis. This reckoning, in turn, is supposed to highlight an underlying defect of free market thought that must be similarly conceded and chastised in the present day.

Although it is intended to cast free market thinkers, and thus “neoliberal” thought, as uniquely undemocratic, this line of reasoning pays alarmingly little attention to political illiberalism in its own ranks. And that includes politely ignoring dozens of economists on the political left who advised, indulged, and in some cases even championed several of the most oppressive and undemocratic governments of the 20th century. The difference, of course, is that most of these illiberal regimes hailed from the political left.

China

As a point of comparison, consider a recent body of historical work surrounding a large “Friendship Delegation” of politically radical U.S. economists who traveled to Maoist China in 1972 — the first group of American academics to do so after the reestablishment of diplomatic ties with the communist regime. A new paper on the subject explores the history of this unusual event, yet in a very different tone than one comes across in work on economists and the Pinochet regime.

Although this delegation of leftist economists came to China with explicit intentions of advising and indulging and learning from the Maoist regime’s operations in practice, there is almost no suggestion of their moral complicity with their totalitarian host. Instead, the authors effusively praise their subjects for participating in a cultural exchange, credit the sincerity of their desires to forge a radical alternative to the neoclassical mainstream of the economics profession, and empathize with their eventual disillusionment with Mao, mainly for Mao’s failing to live up to their ideological expectations.

As the authors put it, “the more general conclusion” one of the delegates “drew from his engagement with China was that the pursuit of laudable revolutionary goals was bound to be excessive, this was the case with Robespierre, Stalin and Mao.” Most of these visitors did recoil in horror when they learned the extent of the death toll from Mao’s politically instigated famines. But notably, the article makes no judgment on the economists themselves for indulging this brutal regime.

Instead we only see sympathy and lament for the economists’ own ideological disenchantment when they realized its brutality in the face of overwhelming evidence.

Similar incidents extend well outside of the radical periphery of the economics profession. In fact, a quick glance across the 20th century reveals a long pattern of leading economists on the political left who visited and, in some cases, actively aided recent history’s most notorious autocrats and tyrants.

The Keynes Problem

Some of these examples likely amount to moral negligence, rather than intentional harm.

Consider the example of John Maynard Keynes, who visited the Soviet Union in 1925 to speak at a conference of the Russian Academy of Sciences. Although Keynes was generally critical of Marxism and the Soviet regime, his odd remarks at this occasion evinced a tin ear to the totalitarian proclivities of his host government:

I believe that the poverty of Russia before the War was due to the great increase in population more than to any other cause. The War and the Revolution reduced the population. But I am told that now again there is a large excess of births over deaths. There is no greater danger than this to the economic future of Russia. There is no more important object of deliberate state policy than to secure a balanced budget of population.

One might grant Keynes some modest moral leeway for this pronouncement. It was dangerously naïve in light of the atrocities committed by Lenin and Stalin, but probably not made out of malicious intentions. It is not difficult to imagine a free market economist being pilloried over a similar pronouncement though, or its occasion being used to insinuate stealth “neoliberal” sympathies for autocracy and genocide. And yet Keynes would repeat this overpopulation argument on numerous occasions, often pairing it with eugenic themes that would again play into the hands of illiberal political regimes.

Keynes, to his credit, rejected Marxism in part for its own illiberal proclivities. But as late as 1936, he still looked on in wonder at the Soviet “experiment,” writing:

They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one-sixth of the land surface of the world. Methods are still changing rapidly in response to experience. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation.

The most charitable reading that can be afforded to such statements at this point in history is to note its unsophisticated credulity for the source that prompted it, a notoriously uncritical appraisal of Stalin’s regime by the Fabian socialist economists Sidney and Beatrice Webb.

Unlike the Webbs, who based their whitewashing on a two-month tour of the Soviet Union, Keynes at least had no firsthand knowledge of its descent into tyranny.

Several other luminaries of the economic left did possess such knowledge, and indulged open sympathies for dictatorial strongmen nonetheless.

Rexford Tugwell, a member of FDR’s “brain trust” and one of the chief economic architects of the New Deal, traveled to Italy in 1934 for an audience with Benito Mussolini. Tugwell could hardly contain his enthusiasm for the fascist dictator, believing that his policies offered a model for economic planning. As Tugwell recorded in his diary, Mussolini had created “the cleanest, neatnest [sic], most efficiently operating piece of social machinery I've ever seen. It makes me envious.”

These sentiments were not wishful aberrations, but actually reflective of a pattern. Tugwell’s fascination with centralized economic planning led him toward intellectual affinities for both Mussolini’s fascists and the Soviet regime of Joseph Stalin. In 1928, while serving as an economics professor at Columbia, Tugwell penned a lengthy essay reflecting on his own visit to the Soviet Union and extolling potential lessons and adaptations for centralized planning in the American economy.

When one of his Soviet hosts asked why Americans expended their energies attacking communism rather than studying “our experiment,” Tugwell responded, “The only possible answer I could make was that some of us were doing that very thing and pass over as lightly as I could the obvious fact that those of us who were doing it were neither numerous nor influential.” Just over six years later, Tugwell directed American economic policy from a perch in the White House.

Unfortunately, authoritarian communism has proven a recurring ethical blind spot for numerous luminaries of the academic left. Prominent New Dealer economist Harry Dexter White was implicated in espionage on behalf of Stalin’s government shortly before his death in 1948. Ditto for FDR’s economic adviser Lauchlin Currie. While declassified Soviet archives corroborate the allegations against both, the serious ethical shortcomings of their collaboration with such a brutal regime is seldom scrutinized, although pointing it out in academic circles will often be met with the countercharge of “red baiting.”

Joan Robinson

Or consider the case of Joan Robinson, the brilliant and irascible Cambridge economist who in 1933 developed and formalized the concept of monopsony. While Keynesianism overshadowed the more doctrinaire planning approaches of the New Dealers such as Tugwell, Robinson remains an intellectual giant of the economic left. She helped to shape the Keynesian ascendency in the profession as an early interpreter of his work. Her much-contested contributions to capital theory in the 1960s helped to launch an entire school within the profession that remains at the core of radical political economy today. And her monopsony model forms the underlying basis of a modern attempt to rescue the minimum wage from its rejection by economists on standard price-control grounds.

Robinson’s association with totalitarian regimes far surpasses even the most uncharitable renderings of Hayek or Friedman in Chile. At midcentury, Robinson became enthralled with Mao Zedong’s own distinctive form of Marxist communism. Robinson met with Mao in 1957, attended military processions as a guest of the communist regime, and returned several times to observe and study its planned economy in action. She published her findings in a succession of academic tracts in the 1960s and ’70s, each an apologia for the Maoist regime in action. Unlike the 1972 delegation of radical economists from the United States, Robinson consciously brushed aside evidence of the mounting atrocities of the Chinese government, even as their body counts reached into the tens of millions. Commenting in 1963 on Mao’s catastrophic and oppressive Great Leap Forward, she adopted a stance of open denialism:

A curious legend in the foreign press is that the commune system broke down and failed during the difficult years of natural disasters. But just the opposite is true. It was precisely the organisation that made it possible to keep people fed, to help people work and to repair the damage.

A few years later when presented with mounting evidence of famine and starvation at the hands of the communist state, Robinson would only praise Mao’s “remarkable” progress and insist “the Chinese are not hungry.”

Robinson’s case stands out among the most extreme examples of an economist openly indulging, advising, supporting, and even propagandizing on behalf of one of history’s greatest monsters. The associated controversy she invited through these actions likely prevented her from receiving several professional honorifics within economics, including a Nobel Prize. Yet Robinson’s admirers make no similar move as the one we find in the literature asserting a “neoliberal” proclivity toward undemocratic regimes. In contrast, they largely accept and celebrate her economic contributions as intact and untainted by Maoism.

Perhaps Robinson’s economic contributions and political enthusiasm for Maoism can be somewhat dissociated, though again no such charity would ever be afforded in parallel interpretations of far lesser ethical challenges on the free market side. Furthermore, there are clear and discernible ideological reasons that cause the features of her academic work and political advocacy to align: a belief in the underlying idealism of various left-wing utopian movements; a confidence in the abilities of central planning; perhaps even a wishful desire to see a leftist governing experiment succeed in practice where others have failed.

We see a recurring pattern, even among economists hailing from closer to the political mainstream than Robinson.

John Kenneth Galbraith

To cite a few more tempered examples, economist John Kenneth Galbraith made four visits to the Soviet Union between the 1960s and 1980s, each time reporting back optimistically about the country’s economic “progress” and “modernization.” Would it be fair to morally judge him for presenting an overly positive economic account of a regime that was also aggressively attempting to spread its own undemocratic institutions and political oppression into other parts of the world?

As recently as 2007, economist Joseph Stiglitz traveled to Venezuela as a guest of the country’s central bank and delivered a speech praising Hugo Chavez’s “positive policies in health and education.” The country’s predictable descent into a humanitarian and economic disaster of corruption, hyperinflation, and Marxism seems not to have damaged his academic stature, even though it easily surpasses Friedman’s generally condemnatory appraisal of Pinochet.

What About Whataboutism?

In noting parallel, and in fact substantially worse,– dictatorial and antidemocratic indulgences from the left wing of the economics profession, I will admit to risking the charge of “whataboutism.” This inelegantly coined colloquialization of the tu quoque fallacy holds simply that an appeal to the hypocrisy of another does not absolve the faults of one’s own side.

Yet the charge of whataboutism presupposes an intention to deflect that is simply not found here. Quite the contrary, the question of what, if anything, economists should say or do in the face of an illiberal political regime is an important one. I openly maintain that we should study and scrutinize the reasons that led Hayek, Friedman, the other “Chicago Boys,” and others to engage a Chilean government that was objectively horrible on matters of human rights and democracy. As noted, however, we already find exactly that sort of scrutiny in a vibrant and growing historical literature on the Pinochet regime, much of it researched and written by other economists who have sympathies with the free market positions of their subjects. The result is not only a necessary reckoning, but a scholarly grappling with the acknowledged moral difficulties set forth at the beginning of this inquiry.

What emerges is not the finger-wagging at caricatures as painted by Klein, Robin, and MacLean. Rather, we see intellectual studies of a group of economists who knew they were constructively if cautiously engaging an undemocratic regime amid the tradeoffs of the Cold War and a belief that it could be nudged toward political liberalization through economic liberalization. Those economists responded to that conundrum in different ways, some less defensible than others.

But there is a pressing matter of perspective to attend to. While the hypocrisy of others is no excuse for one’s own faults, it does provide a powerful means of testing the sincerity of an ethical claim.

The polemical arguments put forth against Hayek, Friedman, and others all directly implicate their respective economic beliefs in the abuses and atrocities of the Pinochet regime, even going so far as to portray them as intractable features of a posited neoliberal order.

Yet those charges and their associated outrage come across as grossly insincere when they are made by scholars who also turn a blind eye to parallel and even more severe moral failings by economists in their own intellectual corners.

If the coddling of dictators, autocrats, and antidemocratic regimes is to become the standard by which we evaluate the intellectual contributions of economists, consistency then requires we turn our gaze in the progressive direction as well.

Sign up here to be notified of new articles from Phillip W. Magness and AIER.

Phillip W. Magness

Phil Magness is a Senior Research Fellow at the American Institute for Economic Research. He is the author of numerous works on economic history, taxation, economic inequality, the history of slavery, and education policy in the United States.