MISES: Interdisciplinary Journal of Philosophy Law and Economics ISSN: 2318-0811 ISSN: 2594-9187 Instituto Ludwig von Mises - Brasil
Salazar, David Chávez A detour in the Road to Totalitarianism: An extended review of the book “Causas y causantes del desastre económico en Venezuela. Un homenaje a Hugo J. Faría” MISES: Interdisciplinary Journal of Philosophy Law and Economics, vol. 6, Esp., 2018, pp. 661-677 Instituto Ludwig von Mises - Brasil
DOI: 10.30800/mises.2018.v0.967
Available in: http://www.redalyc.org/articulo.oa?id=586364252008
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A detour in the Road to Totalitarianism: An extended review of the book “Causas y causantes del desastre económico en Venezuela. Un homenaje a Hugo J. Faría” David Chávez Salazar
CIROCCO, Luis B.; ACEVEDO, Rafael (Orgs.) Causas y Causantes del desastre Economico en Venezuela. Un Homenaje a Hugo Faría. Almería: Círculo Rojo Editorial, 2018. 254 p.
At the time of writing this review, the its maximum expression in the last nineteen IMF predicted that the price increase in years of socialist revolution. Venezuela would reach 1,000,000% by the This book is quite interesting from a end of 2018. If this forecast is fulfilled, the literary perspective. It is a Festschrift, a book Caribbean country will be among the top in honor of a respected person, which contains five worst hyperinflations in world economic articles by close associates. In general, such history. The Fund also foresees that the GDP tributes coincide with a special date for will contract 15% in 2018. The situation is the honoree, such as their birthday or the devastating. But, how did Venezuela get to commemoration of an important event in this point? How did it go from prosperity their career. In this case, the reason is more to misery? These are some of the questions pragmatic: not only to pay tribute to Professor that the book Causas y causantes del desastre Faría for his invaluable contribution to the económico en Venezuela (Causes and agents of defense of freedom, but also to share the the economic disaster in Venezuela) tries to highlights of his theory, which can serve as answer. It is a collection of essays that revolve a guide to understanding and overcoming around the ideas of the illustrious Venezuelan the crisis Venezuela is going through. economist Hugo Faría. Some of the texts are his own while others are contributions from In the book, the reader will find a deep colleagues, pupils and friends. analysis of the economic, social, political, and cultural factors that led to the current Faría receives due recognition for this work, as he is probably the most lucid and situation in Venezuela. Despite the abundant original thinker to address the Venezuelan references to economic theory and history, it is crisis. He has demonstrated, through rigorous possible to identify a common thread among qualitative and quantitative analyses, that the different approaches and explanations. countries with higher levels of economic The work is structured as four major freedom grow faster than those less free. essays written by Hugo Faría (“The Tyranny His research indicates that the debacle in of Minorities”, “Venezuela: Without Liberals, which Venezuela is engulfed is the result of There Is No Liberalism”, “Hugo Chávez increasingly aggressive interventionism, in Against the Backdrop of Venezuelan use since at least the 1960s, and has reached Economic and Political History”, and “The https://doi.org/10.30800/mises.2018.v0.967
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Critical Role of Economic Freedom in protectionism”, which consists of multiple Venezuela’s Predicament”), each accompanied bolivar´s devaluations. Like tariffs, it makes by comments from other authors. imports more expensive, ending up in harm to the final consumer. 1. The Tyranny of Minorities Faría continues his analysis with a questionable point. He says the violation of This text aims to pinpoint a few obstacles property rights, represented by barriers to faced by Latin American countries, in general, international trade, could only be legitimized and Venezuela, in particular, which prevent if those barriers were adopted with popular them from affording material prosperity for consent. Is he referring to a kind of democratic their inhabitants. The author discovers the consensus? And if so, how could a majority reasons why it is so difficult to change the decide for the whole of society, especially in current situation and shows how eradicating a subject as important as trade? them could contribute to “insert Latin America The second insight that Faría tackles into paths of high and sustained growth” is central planning, according to which the (FARÍA, 2008, p. 182) state is the central agent in society, the engine The article is divided into four sections. In of development and owner of the so-called the first, Faría offers three insights about the “Commanding Heights” of the economy. Citizens are forced to sacrifice their welfare for economic problem; in the second, he studies the objectives established by the government, the causes why there is so much resistance always on behalf of the common good. This to changing the status quo; in the third, he perspective has Keynesian and socialist roots. proposes possible solutions for the sake of change. Finally, he presents his conclusions. In Venezuela, central planning is the order of the day. The state owns vital resources The three insights to which Faría offers such as oil, gas, iron, coal, and subsoil, as are: mercantilism, central planning, and well as water and electricity companies. As if humanistic Natural Law philosophy. that were not enough, it also sets prices and Mercantilism is based on the idea that interest rates, establishes exchange controls, it is necessary to favor existing companies, determines credit quotas for banks and owns even if this means sacrificing the welfare numerous companies in the most diverse of citizens. Therefore, instead of a company sectors. serving society, society must adapt to the Faría also refers to one of the elements interests of a company. that have contributed to the ideological success The government adopts a series of of central planning: the education system. measures to protect certain productive sectors He tells us that in the schools of Economics, from foreign competition. In Venezuela, for Administration and Law of Venezuela (and example, the import of certain goods – mainly possibly throughout the western world), the agricultural products – is forbidden, and high macroeconomic theories taught the most tariffs are imposed on those few allowed in. are of Keynesian inspiration, which assert In 2007, the year in which this article was that state intervention is necessary (through written, the average tariff was 12.2%, while fiscal, monetary and exchange policies) to the Latin American average was 10.7%. drive the economy to the idealized state of Additionally, the country applies “exchange full employment.
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Finally, the author presents the humanistic for absolute power. Precisely those are the Natural Law philosophy perspective, in ones who end up in the highest government which the central actor/agent is the human hierarchies. being, who has inalienable natural rights, It is useless to believe in a “small such as the right to life, freedom of speech, government”, because the agents that make freedom of religion, as well as the right to it up will always look for ways to expand the use, enjoy and dispose of private property range of intervention. Robert Higgs (1987) obtained honestly. Faría says that, because found that, in 1870, the government size in there will always be people who try to violate six major economies was between 7% and these rights, we constitute governments as a 13% (that is, public spending as a percentage mechanism for protection of natural rights, of GDP). In 1986, it ranged from 30% to 60%. and therefore we grant it coercive powers. On the other hand, government is not the However, government powers are delegated result of free and spontaneous agreements ones. The government cannot have any right among men. On the contrary, it is an artificial that has not been conferred by the people. entity that is the product of predation and Although Faría presents a good defense violence (OPPENHEIMER, 1926), and survives of the Natural Law, the part that mentions from illegitimate confiscations (taxes). From government is quite questionable. It is a an ethical perspective, the existence of common misconception among classical government is incompatible with Natural liberals to believe that government is Law. necessary and that it will fulfill its minimum task of defending individual rights. After this digression, let us continue with Faría’s analysis. In another section of Economics has shown that the existence of government is not justified in any case, not his article, he focuses on the issue of rights. even that of a small government. According In this regard, he affirms that natural rights to Mises and Rothbard, since government is are protective, that is, they protect us against a monopoly, this means that there is no free damages inflicted by third parties. In this, entry of new actors/agents into the business they differ from intrusive rights that force of protecting individual rights. In the absence one individual to transfer goods and services of competition, the price of protection and such as housing, healthcare, or education to justice will increase, even though the quality another. This distinction between protective will not be improved. Instead of being a good and intrusive rights takes on special relevance protector and judge, the government will in the current age, in which the latter are abuse its monopoly position, becoming a enforced, even with the force of law. violator of the natural rights that it is supposed Faría criticizes intrusive rights, claiming to protect (HOPPE, 2001). that they are impossible to satisfy because we The government operates under perverse live in a world of scarcity. This statement is incentives that attract the worst individuals, very similar to the one exposed by Rothbard eager to accumulate power and seek rents. (1982) in his Social Ethics of Freedom, where The American economist Doug Casey (2013) he recognizes that scarcity is the reason for has found, using the Pareto principle, that human conflicts and that the only institution 20% of people in a society show a combination capable of mitigating them is private property, of “perverse” characteristics such as lack from which rights of exclusive ownership of scruples, lack of empathy, and desire over resources are assigned (HOPPE, 2010).
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Once exposed the content of the Natural that allows the generation of suitable policies, Law philosophy, Faría recognizes that in they are produced in a minimum amount. Venezuela there is no favorable situation for its In its turn, this insufficient production enforcement. The result is the introduction of results from the combination of three factors: perverse policies that benefit a minority of the • Inability to efficiently organize the population and harm the majority. In other beneficiaries of suitable policies, who are words, policies that generate concentrated the vast majority of the population. It is benefits with dispersed costs. In his opinion, very difficult to establish communication a policy centered on the human being would mechanisms and binding agreements in generate dispersed benefits with concentrated such a diffuse and heterogeneous group costs. of people. Showing unusual intellectual depth, Faría • The “free rider” problem. Once the public tries to reveal the reason for this situation. good is produced, all people can enjoy His response is that the winners of perverse it, whether or not they have contributed policies, typically a minority, do everything to its production. According to Faría, in their power to maintain the status quo to this is a problem, because it induces the the detriment of the majority. The latter, being following reasoning: I do not incur the cost a large group, is difficult to organize in order of production because I hope that someone to move towards suitable policies. else does. As many individuals reason in a To support his thesis, the author resorts similar way, the result is that very few (or to the neoclassical public goods theory and none) incur the cost and, as a result, the to the analysis of collective action problems. good is not produced. He defines the public good as that which is • Rational ignorance. Many people remain non-rival and non-exclusive. It is non-rival, ignorant on economic issues, because because its quantity is not diminished by the the costs of getting informed do not fact that it is consumed by a greater number compensate the benefit. Such ignorance of people. It is non-exclusive, because, as the is taken advantage of by the minorities term indicates, we cannot exclude anyone who benefit from perverse policies. from its consumption. Although Faría does not say it, this characteristic also implies that At this point in the discussion, I would the public good must be produced for a whole like to make a few comments. First, the group or not be produced at all (BENEGAS- free rider problem is not really that bad. In fact, it is possible to affirm that human LYNCH, 1998). actions constantly benefit third parties, even For Faría, free trade, monetary freedom, inadvertently (BENEGAS LYNCH, 1998). and a good judicial system, which correspond Therefore, most of the goods and services to what he calls suitable policies, meet the carry free riders. On the other hand, the characteristics of non-rivalry and non- situation posed by Faría would only make exclusion. sense if the collective action took place in For its part, collective action is the ability an environment similar to the prisoner’s to organize and coordinate efforts among dilemma – which he cites in his article – in people with the aim of producing a public which two people cut off from each other must good. Because there is no collective action make a single decision that defines the luck of
Diagramação e XML SciELO Publishing Schema: www.editoraletra1.com.br | [email protected] MISES: Revista Interdisciplinar de Filosofia, Direito e Economia 665 David Chávez Salazar both. On the contrary, collective action takes certain products (produced by the protected place in a process of open communication and manufacturers) over others (produced by in a context of multiple decisions. It is possible foreign competitors). that, at some point, an individual will reason The other factor that contributes to as Faría points out, but he can learn from the Venezuela’s inertia is the existence of what consequences of his action (or his inaction, Faría calls “patrimonial government”. In this in this case) and decide to act in the future. regard, he presents an interesting thesis: when Second, the principle of rational ignorance the government depends economically on is quite questionable. Following Caplan (2003) citizens, a balance that limits power is created. we see that if the majorities were ignorant If, conversely, the government becomes about economics, “its members should economically independent from citizens, it essentially be agnostic on the subject” (s/p). will not be obligated to be held accountable In practice, instead, they often support (to a and its power will be disproportionate. In greater or lesser degree) regulations, controls, Venezuela, the government achieved such protectionism, among others, despite lacking independence because it can support itself sufficient knowledge to express an informed economically thanks to oil revenues. opinion. What is true in Faría’s analysis is Faría recommends distributing the taxes that the minorities that benefit from these paid by oil companies as well as the shares perverse measures benefit doubly, by winning of state companies among all Venezuelans. the discursive battle: “public opinion shares This way, the government would not own our concerns”. resources, having to negotiate the collection Faría asserts that there are two additional of taxes with all citizens. factors that prevent formulating suitable I consider that Faría´s idea of “patrimonial policies in Venezuela: collusion between government”, with its respective consequences, socialism and mercantilism, and the existence can be questioned. Following Hoppe, we see of a “patrimonial government”. that, while all forms of government are bad, According to the author, both the “least bad” are those in which there is mercantilism and socialism have in common economic independence between rulers and the destruction of free market, although for citizens. If the ruler is economically self- different reasons. Socialism does not accept sufficient, they will not need to burden citizens that the market is an efficient mechanism with exaggerated taxes. In turn, these will for allocating resources, and prefers central monitor every action undertaken by the ruler, planning; mercantilism is opposed to it for in order to protect their freedoms. If the ruler pragmatic reasons: it wants to eliminate commits any abuse, they could face a rebellion. competition so that inefficient companies Examples of this type of government would survive. be some absolute monarchies of the past. At Although the identification of common present, probably, the state most independent interests between socialism and mercantilism from its citizens is Liechtenstein, where the is a very accurate point in Faría’s analysis, Sovereign Prince (who enjoys extensive I think we could take it a little further. constitutional prerogatives) supports himself Mercantilism is, actually, a branch of central economically from his private business, planning, because by protecting certain and doesn’t depend on his citizens’ taxes. productive sectors, the government controls The country is one of the freest and most consumers´ will by forcing them to choose prosperous on the planet.
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That type of economic independence He was not wrong. Even when one of those between rulers and citizens does not exist in factors was absent (high oil prices) Chavismo Venezuela. In Liechtenstein, the Prince lives continued to govern. However, Faría warned from legitimate businesses, that is, voluntary that “Socialism of the 21st century” was not transactions in which he has taken on profits a sustainable model, and at some point the and losses. The Venezuelan government, on crisis would come. He was not wrong either. the contrary, lives on illegitimately acquired oil revenue. From the point of view of 1.1 Comments to Faría’s The Tyranny Natural Law, oil would belong neither to the of Minorities government nor to the people of Venezuela, Three essays on the article are presented: but to those companies that discover the “On the Tyranny of Minorities, by Hugo deposits and “mix” them with their work Faría”, by Rocío Guijarro Salcedo; “Beware (homesteading principle). So, there is a of Hugo Faría”, by Daniel R. Morales; and relationship of economic dependence based “Hugo Faría, Friedrich Hayek and Bitcoin”, on pillage. Therefore, taxes should be returned by Humberto J. Rivero. to companies that are victims of confiscation. After analyzing these factors, Faría proposes some alternatives/guidelines for 2. On the tyranny of minorities, action. According to him, the problem is by Hugo Faría how to move from a rent-seeking society, immersed in a poverty trap, to a society This article compares the situation that generates wealth. Since it is largely a described by Faría (in 2007) and that of today problem of collective inaction by citizens, one (2018). According to the author, Faría’s article of his suggestions is to strengthen business was written at the precise moment in which leadership. That is, to organize entrepreneurs Venezuela reached the point of no return to whose personal interest is well aligned with socialist totalitarianism. Since then, the state the welfare of most of the population. Thus, has reached the limit of wanting to annul the what Faría suggests is to reduce the scale individual. Faría’s article is as valid today as it of the group called to foster the changes. was when it was written. The path to freedom Instead of resorting to a dispersed majority, seems very far away, hence the importance it should be better to resort to a small group of rescuing an analysis like Faría’s. that represents their interests, which would Professor Guijarro also points out an be easier to organize. Yet, what would be implicit element in Faría’s analysis: the fear the real influence of business leadership in of freedom and the responsibilities it entails, a totalitarian environment such as that of which ultimately leads to the status quo of Venezuela? mercantilism and socialism. She says that if Faría himself recognizes that due to something makes us human, it is the gift of the absence of business leadership, along freedom, which can lead to decisions that with the government’s immense economic elevate well-being, or to a terrible paradox: power and high oil prices (in 2007) it was to be the only species that willingly enslaves not difficult for Chavez to continue in power. itself.
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3. Be careful with Hugo Faría! points out that money is a spontaneous institution that arose among men in order This article addresses the academic to facilitate voluntary exchanges of goods and influence of central planning discourse services. Behind all this lies the Natural Law based on the author’s personal experience philosophy, with which Hugo Faría supports as a former student of Professor Faría’s. The his thesis of free currency competition. author recalls that, in his macroeconomic According to Rivero, both Faría and classes, the illustrious economist used to tell Hayek have the same idea regarding the his pupils that Keynesian models had only pedagogical utility and that they did not serve “denationalization of money” and the freedom as a foundation of public policies, since they of each bank to produce its own currency. Both would lead to a deterioration of the quality would glimpse at the existence of a model of life. of competition between currencies, where Indeed, nothing good can be expected each bank would have incentives to create from Keynesianism on a practical level. and back its money in gold, thus preventing Keynes himself, in the introduction to his the currency produced from depreciating famous General Theory, affirmed that his compared to those of the other banks. The theory “can be adapted much more easily to result would be a healthy and sound currency, the conditions of a totalitarian state, than to which we do not currently have. those of free market” (KEYNES, 1981, p. xxvi). In this regard, I consider it important Professor Faría taught his students to make a small theoretical observation. that institutions should enforce property Hayek’s model (1990) never considered gold rights, and that economic policy should be as monetary support; he advocated free designed to reduce people’s cost of living. competition between fiat currencies. This The author recognizes that Faría was is just one of several monetary laissez-faire always in “propaganda” mode, continuously models that have been proposed over the transmitting the principles of humanistic years as an alternative to the inefficient and Natural Law. pernicious central banking system. Professor According to Huerta de Soto (2009) one Faría’s proposal, as Rivero puts it, would fit of the main tasks to modify public opinion, the Free-Banking model, which has already always prone to statism, is to disseminate been tested in different places and times with the ideas of freedom in all possible scenarios through activities such as teaching, publication relative success (DOWD, 2002) and which of academic material, and promotion of would undoubtedly be a relief for the current specialized media in the study and application situation in Venezuela. of free market ideas. This is Faría’s legacy. Rivero also refers to bitcoin as a new form of money that rescues the principle of freedom 4. Hugo Faría, Friedrich Hayek under which the currency was born, and and Bitcoin states that once the use of cryptocurrencies becomes massive, citizens will no longer The third article applies the Natural be condemned to pay the silent tax called Law approach to money issues. The author inflation.
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5. Venezuela: Without Liberals, While there was corruption, it was limited to There Is No Liberalism high-ranking officers, and the loot represented a tiny fraction of GDP and public finances. This article, written by Hugo Faría and From 1935 to 1957, the country took a Leonor Filardo, offers a historical perspective turn towards interventionism, manifested on the state of liberalism in Venezuela from in measures such as: creation of the Central the time of independence to the present. Faría Bank and price control board (1939), exchange discovers that there has never been much controls (1940), taxes on people’s income discourse or liberal activity in the country; and corporate profits (1943), establishment rather, the opposite is true: moral and political of a government-owned steel industry, culture is exceptionally unfavorable for nationalization of the telephone company, liberalism. and even the construction of numerous hotels The author says that Simón Bolívar, owned by the government. “the father of the Venezuelan nation”, felt Faría points out that the country a deep animosity for everything that the experienced considerable growth rates in Natural Law philosophy represented. For spite of this. In the 1940s, the average rate that reason, he did not endeavor to introduce was 12%, and in the 1950-57 period, 9.4%. In institutional changes that would lead to the fact, Venezuela came to be at the head of Latin private accumulation of wealth, by means American countries between 1945 and 1958. other than political power. With the advent of democracy in 1958, Since its independence, Venezuela interventionism deepened further. During went through a long period of institutional the government of Romulo Betancourt (1959- instability that came to an end around 1910 1964) OPEC was founded (by initiative of (almost a century later), under the government the Venezuelan energy secretary), the of Juan Vicente Gómez. Despite having gone extension of concessions to multinationals down in history as a dictator, he pacified the for exploration of oil deposits was terminated, country and established the conditions for the the CVP - a dedicated state company - was private initiative to flourish, which allowed created to manage the oil business), a central the majority of Venezuelans to prosper. planning agency known as CORDIPLAN Economic growth was strengthened in 1914, was established, a policy of redistribution of the year in which an important oil deposit was agricultural land was undertaken (where the first discovered. President Gómez allowed “owners” only received the right to cultivate multinational companies to extract oil from the the land), new taxes were created, and subsoil, although the government remained exchange and price controls were established. the legal owner. In that way, Venezuela went These last two measures would be adopted by from being an agricultural country to be the all his successors, from Raúl Leoni to Nicolás second largest oil producer in the world. Maduro. Venezuelan economy experienced Another highly interventionist high growth rates from 1920 to 1935, when government was the one of Carlos Andrés Gómez died. During his administration, the Pérez (first term from 1974 to 1979) who country also enjoyed a semi-free banking promulgated minimum wage decrees and system, price stability, low taxes, and little laws to prohibit the dismissal of workers, government intervention in the economy. carried out the nationalization of the
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Central Bank and the iron and oil sectors, government” (HAZLITT, 1956, p. 85). established regulations that hindered business Despite being a federal state, the truth is that development, and forced banks to grant Venezuela’s state governors, most of them loans to sectors considered strategic by the belonging to the ruling party, are no more than government. His term was also characterized local executors of the national government’s by high inflation. orders. In the states administrated by the As a result, economic growth between opposition, parallel governments are installed. 1960 and 2000 was quite mediocre. Between The third trend that indicates the drift 1960 and 1978 it was weak, and from then towards totalitarianism, according to Hazlitt, until 2000, it was negative. By the year is “the increasing concentration of power in 2000, Venezuela’s GDP per capita had fallen the hands of the President at the expense to 45% of that in 1960. On the other hand, of the other two coordinate branches of corruption, once limited to high rank officers the government: Congress and the courts” and insignificant from a fiscal point of view, (HAZLITT, 1956, p. 86). This is the case of overflowed all spheres of power. Venezuela, where Hugo Chávez eliminated With this historical recount, Faría shows the separation of powers. His successor, that the disaster surrounding growth predates Nicolás Maduro, went much further, installing the arrival of Hugo Chávez to power. Therefore, a “National Constituent Assembly”, to which the Bolivarian Revolution is nothing more all public servants in the country must be than the deepening of the interventionist subordinated. drift experienced by Venezuela since 1958. For Hazlitt (1956), quoting Cassel, concludes nearly nineteen years that Chavismo has been that “economic interventionism and in power; undoubtedly the darkest period government economic planning lead toward in Venezuelan history. There is no reason, dictatorship” (p. 84). Total control over the however, to suppose that the country was economy represents total control over what going in the right direction before. people do, say and think, in such a way From Faría’s analysis, we see that the that the elimination of civil liberties (press, “Road to Totalitarianism”, as described by association, voting against the government) Hazlitt (1956), was fulfilled in Venezuela. This is a mere corollary (HAZLITT, 1956). famous economist says that the road to total Finally, Faría talks about three sectors control is marked by three trends. that contribute to the system’s ideological The first is pressure for constant increase strengthening: universities, media, and the in public intervention, in public spending, and clergy. He warns us that, at a political level, in public power. Faría presents the results of we are witnessing the struggle for power the Index of World Economic Freedom (EFW) between two non-liberal factions (government of 2014 as evidence of this trend, in which and opposition). Venezuela ranked last among 152 countries, with a score of 3.71 on a scale of one to ten 6. A tireless defender of freedom, (the higher the score, the greater the economic with courage freedom). The other two trends derive from the This article, written by Luis B. Cirocco, first. The second is the “greater and greater emphasizes three points previously mentioned concentration of power by the central by Faría and Filardo: the existence of material
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and cultural institutions that hinder the being separate or in opposition, mutually implementation of a market economy in strengthen and support each other” (p. 153). Venezuela, the perverse symbiosis between socialism and mercantilism that has existed 8. Liberal-Libertarian Venezuela: for a long time in the country, and the points A Common Dream of inflection in its economic history. Moreover, Professor Cirocco highlights In this article, Professor Rafael Acevedo that free market ideas do not find a voice points out the reasons why Venezuela is in any business and/or political leadership, going through the current crisis, based on the and that is the reason why it is not on “equal analysis of Faría and Filardo, and emphasizes conditions” with other schools of thought. the difficulty faced by those who have decided to disseminate the ideas of freedom. He 7. Hugo Faría: A Voice in the Desert recognizes that while freedom is one, which is composed of the economic, political and civil, This review, written by Hugo M. the foundation is the economic one. Quite Montesinos, revolves around the three rightly, the author affirms that the struggle economic views posed by Faría: mercantilism, for political and civil rights can only occur socialism and humanistic Natural Law. From when the material needs of the individual a historical analysis, Faría and Filardo show are satisfied. that Venezuela has experienced a combination of the former two, which has resulted in very low levels of economic freedom. For its part, 9. Hugo Chávez Against the the third vision was never really employed Backdrop of Venezuelan in the country’s institutional life. From this Economic and Political History historical analysis emerges the fact that Hugo Chávez was a consequence (and not In this article, written in 2008, Faría the cause) of the problems that Venezuela is tries to explain the political and economic going through. determining factors for the rise of Hugo This review also highlights one of the Chávez to power and his popularity. Chávez virtues of Hugo Faría’s thinking, which is represented a destabilizing force for the to consider that well-being is not only an region, as he tried to establish the so-called economic problem, but also an ethical one, Socialism of the 21st century beyond the with profound social implications. For him, borders of Venezuela. economics and ethics are closely connected. In the first part, the author elaborates a Certainly, there are close interrelationships historical recount of the Venezuelan economy between economic theory and social ethics. from the 1920s to the present, presenting According to Huerta de Soto (1999), economic the context that allowed the emergence of a science “is not only able to help to adopt clearer character like Chávez. It is noteworthy that, ethical positions but can, furthermore (…) between 1920 and 1957, Venezuelans enjoyed make logical-deductive reasoning easier and substantial economic freedoms that ended up surer in the social ethics field” (p. 153). In this boosting the high growth rates during that way, “considerations, relative both to moral period. The economic miracle came to an end principles and to economic efficiency, far from in 1958. That year marks the beginning of
Diagramação e XML SciELO Publishing Schema: www.editoraletra1.com.br | [email protected] MISES: Revista Interdisciplinar de Filosofia, Direito e Economia 671 David Chávez Salazar democracy, whose redistributionist policies of the policies against private property undermined economic freedoms. As a result, institutionalized by Chávez and Maduro, the average growth between 1960 and 2000 and the “curse of natural resources”. was negative. Regarding the first myth, Faría shows Diminished prosperity (due to that the economic policies of Chávez and interventionism) created the conditions for Maduro adopt are a more advanced version the emergence of a populist leader, Hugo of those that have been employed since 1950. Chávez, who falsely blamed capitalism The second myth is refuted by the fact that for the people’s impoverishment. Once in the institutions and policies that prevailed in power, however, Chávez continued with the Venezuela since then are typical of socialism nefarious policies of his predecessors, taking and mercantilism. Therefore, they are them to unsuspected levels, namely: inflation, doctrines that were already well established price controls, exchange controls, interest rate before Chávez’s arrival. Evidence of socialism controls, nationalizations, labor regulations, before Chávez is the state property of the among others. main companies and the means of production; Faría picks up an idea that had already evidence of mercantilism is restrictions on been approached in his article “The Tyranny imports and other protectionist measures of Minorities”, that a transition towards a to favor business elites to the detriment of market economy is frustrated by several society. None of these elements characterizes factors: problems with collective action, the capitalism. existence of a government that bribes its As for the third myth, we find that people, and the lack of business and political mercantilism helped business elites benefit leadership. By this last point, Faría recognizes from interventionist policies that eliminate the responsibility of the political and business competition. A few entrepreneurs have even elites allied with the government for the collaborated closely with the regime. institutional deterioration of the country. Finally, the “curse” the fourth myth speaks of is not explained by the existence 10. Comments to Faría´s of a certain natural resource (in the case of “Hugo Chávez in the context Venezuela, oil), but by the regime’s ownership of Venezuelan economic over it. According to Navarro, ownership over and political history” oil has allowed the government to implement policies that caused the growth disaster and Comments on “Hugo Chávez in the context of undermine one of the citizens’ natural rights: Venezuelan economic and political history”. their property rights. By Carlos E. Navarro 11. A new narrative for a new This article deals with four myths Venezuela about the socialist period in Venezuela: the Socialism of the 21st century as the cause The author, Humberto J. Andrade, claims of the Venezuelan economic disaster, the that the Socialism of the 21st century is the existence of a capitalist Venezuela before 1999, natural conclusion of more than 40 years of the existence of efficient and independent state interventionism, which progressively state entrepreneurship that has been victim weakened individual liberties. For him, each
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previous government contributed to the (EFW), that addresses a set of economic growth of Leviathan. policies that set the rules in the market game. This article pays special attention to the In their turn, non-formal institutions, or myth of capitalist Venezuela before the rise culture, are measured by two indicators: the of Chavismo, which has fostered the belief level of trust in society and the individualism that the country’s misfortunes began with / collectivism gap. Hugo Chávez. Hence, the need to create a Faría shows that, historically, institutions new narrative that exposes the real causes of prone to be part of the free market have the disaster that Venezuela is experiencing. not flourished in Venezuela, and since The axis of this alternative narrative 1959, the country has followed the path of would be that Chavismo did not invent interventionism. His analysis suggests that anything, just used the old socialist and in the years 1980, 1990, 2000, 2005, 2010 and mercantilist formulas. The only “novelty” 2013, institutions in Venezuela deteriorated introduced by Chávez was the addition of a systematically in all areas measured by the repressive and authoritarian component to EFW: legal system and property rights, solid currency, freedom to trade, and regulation. the formula. The only exception occurred in the 1990s In this regard, we could observe that due to increase in the last three areas; lower, repression is an intrinsic characteristic of any however, than those in Latin America. interventionist project, and authoritarianism Once he finishes analyzing formal existed before Chávez. A well-known case institutions, Faría studies the informal is the Caracazo, in 1989, which consisted of ones. His research on the level of confidence violent repression towards protests against (confidence level) found that Venezuela the government of Carlos Andrés Pérez. appears in the quartile of the countries whose inhabitants distrust each other most, which 12. The Critical Role of Economic negatively impacts economic growth. Freedom in Venezuela’s Regarding the individualism/collectivism Predicament gap, it is necessary to explain: individualist societies are those that privilege personal Here Faría and Montesinos propose that a freedom, achievement and innovation, growing number of countries see an increase and are distinguished by a strong respect in per capita income basically associated with for individual rights. On the other hand, the quality of formal and informal economic collectivist societies are based on conformism institutions - the latter, known as culture. and the notion of the individual as part of a Following Douglass North, Faría explains large® group, which discourages dissent and that formal institutions are the rules and laws prominence. Venezuela falls into the lowest promulgated by a government, while informal quartile of the individualism measurement. institutions are rules of conduct and social Two factors are added to this hostile conventions (not written) that are transmitted institutional environment: a legal system intergenerationally. based on the French tradition - evidence In order to present a quantitative analysis suggests that countries governed by this of formal economic institutions, Faría resorts tradition are more prone to government to the Economic Freedom of the World Index interference in many aspects of life in society
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- and a low level of education among the ispresented as the example of a rich country population. that became poor. The economic freedom enjoyed by Venezuela between 1920 and 1957 13. Socialism of the 21st century: allowed it to maintain high levels of growth. tears, sweat and blood Economic prosperity led to the return of political freedom in 1958, year that also marks According to the author, María Lorca the beginning of a gradual impoverishment. Susino, the economic and political history To this well-known story, Parada adds an of Venezuela is branded by the existence of interesting idea: the regulatory framework, “oligarchic capitalisms”, in which private defined by formal and informal institutions, property is highly concentrated, and by a is the product of the ideas of most of the “state capitalism”, in which states plan the population. From there emerges a logical economic life. This historical legacy has scheme that takes the following form: ideas- laid the foundations for the emergence of institutions-freedom. 21st century Socialism, an impoverishing ideological project that presents itself as the 15. Comments on the article adaptation of classical socialism to the reality by Hugo Faría and Hugo of the new world. Montesino: the critical role of However, no matter the century, Lorca Susino believes that socialism not only ruins economic freedom in Venezuela’s countries economically, but denaturalizes predicament democracy and genuine liberal policies. The author, Leonor Filardo, makes a brief Perhaps what Lorca-Susino failed to historical account of the liberal philosophy mention is the reason why socialism fails and its influence in the world. completely where it is implemented: the impossibility of economic calculation. The author quotes Ludwig von Mises, who The first to explicitly address the issue said that liberalism supported the Industrial was MISES (1962), who explained that in a Revolution, and the countries that joined socialist system, there would be no prices it by applying liberal principles achieved (as we know them), because they arise from prosperity and welfare never seen before the voluntary exchanges that take place in a in history. For the Austrian economist, “the context of private property. Obviously, this greatness of that historical period between the institution is absent in socialism. The result Napoleonic Wars and the First World War was is that the market would not have the signals that the most eminent people aspired not to that ensure its proper functioning. Instead, implement a system of free trade in a peaceful we would have “prices” defined arbitrarily world formed by independent nations.” by the central planners. In the late nineteenth and early twentieth centuries, most of liberalism’s achievements 14. The Institutions and the Ideas: were distorted by schools of thought that The Sources of Well-being paved the way for the triumph of socialism and communism. This article, written by Dakar Parada, In the twentieth century, communism offers some reflections on poverty. Venezuela and socialism spread throughout Europe and
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Latin America, and were consolidated as a 16. Should we be surprised? political system in some countries. Finally, the author says that two great liberal movements The author, Rafael J. Ávila, points out emerged in the 1980s, somehow reversing the that, before 1999, the economy was going bad. dangerous trend of communism: Reaganism, The therapy used in the previous nineteen in the United States, and Thatcherism, in the years exacerbated the mistakes of the past United Kingdom. instead of correcting, them. Therefore, it is not surprising that the results are worse than I disagree. The truth is that Reaganism at that time. It is impossible that a “therapy” and Thatcherism were “free-market rhetoric based on inflation, controls, regulations, masking statist content” (ROTHBARD, 2013, disrespect for private property, legal and s/p). Both Mr. Reagan and Mrs. Thatcher personal insecurity, and obstacles to business increased the percentage of government activity can yield good results. spending to GNP, raised the tax burden, kept monetary inflation, and introduced regulations of all kinds (ROTHBARD, 2011) 17. As a preface (ROTHBARD, 2013). The author, Daniel L. Bennett, exposes So, instead of representing advance for the background of the theory that positively the free-market philosophy, these political correlates economic freedom with economic movements meant a setback. The worst is that growth and development. He says the idea many freedom advocates were (and many that “economic institutions are crucial to still are) deceived by these two characters. economic progress because they generate Filardo says that, at the same time the necessary incentives for productive (the 80´s), a debt crisis exploded in several investment” can be traced back to the writings Latin American countries, forcing their of classical economists. However, it was only governments to reach agreements with recently that it became possible to test this international organizations (International theory through quantitative tools, such as Monetary Fund, World Bank) to receive aid. the Index of Economic Freedom. Until then, In return, they promised to introduce liberal there was no econometric evidence to verify economic policies. After the collapse of the the relationship between both variables. Soviet Union in 1991, its former member states The work of Hugo Faría has helped to made similar agreements with the same fill this gap. His research has demonstrated, organizations. once and for all, that economic freedom is At this point, it is necessary to present the first determinant of long-term growth. another objection: the last thing the Other factors, such as human capital (widely organizations cited by author defend is the debated in growth theories), play a secondary free market. Paraphrasing Hazlitt, they only role, which consists of improving the quality aid governments and banking at the expense of institutions, generating a virtuous circle of the poor (ROCKWELL, 1988, p. 187). that translates into greater well-being.
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18. Reflections of a Silenced Teacher “reducing all income tax rates to 10 percent, while at the same time keeping all existing This final reflection, by Professor Faría, deductions, credits, and exemptions” (s/p). addresses three issues: a series of reform Naturally, this is just a proposal that proposals for the Venezuelan economy, the could be modified in some aspects to fit obstacles to be faced and how they could be the Venezuelan reality. In any case, the overcome, and a thank-you for the tribute. fundamental idea of “oppose all rate increases The institutional changes proposed by or exemption decreases” (ROTHBARD, 2017, Faría are: return oil (and other resources) to s/p) should be maintained in order to “remove citizens through the distribution, in equal the blight of taxation as much as possible” parts, of all taxes paid by oil companies , and (ROTHBARD, 2017, s/p). citizens’ shareholding in stated-owned oil After presenting his reform proposal, enterprises; monetary freedom, that is, the Faría poses that the greatest obstacle to abolition of legal tender laws; international implement the suggested changes is the trade freedom; restructuring of the judicial resistance of the socialist-mercantilist alliance, system; and establishment of alternative that is, of those minorities that would see their fiscal rules, such as personal taxes that privileges threatened. Instead of giving in to impact burden spending, limitation of state it, Faría insists on the need to give democracy debt, limitation of consolidated government a great communication battle in order to win spending, and regulatory simplification. the public opinion. I think the reform package proposed by It is inevitable to feel a strong Misesian Professor Faría would lead to a substantial accent in this strategic approach. Let us recall increase in freedoms in Venezuela. Of the that this Austrian economist considers the points presented by him, there are only two “course of a nation´s economic policies is that deserve objection: the first is to return always the economic ideas held by public oil (and other natural resources) to citizens, opinion. No government, whether democratic and the other one is that refers to tax reforms. or dictatorial, can free itself from the sway of As for the former, a true liberal reform the generally accepted ideology” (MISES, 1998, would consist of abolishing “public property” p. 850). If the policies formulated would result over natural resources, including the subsoil. in disaster, it was not because citizens have In this context, oil would belong to those rational ideas deliberately ignored by policy- companies that have discovered it first and makers, but that the opposite happened: that that have “mixed” it with their labor. On the the the average citizen’s generally irrational other hand, if we want be fair, taxes should ideas are heeded (CAPLAN, 2005). be returned only to the companies taxed, not In a culture prone to interventionism, as to all citizens. it is the Venezuelan case, it is not strange that With respect to tax reform, from a strict this preference is manifested at the political libertarian position, any tax is theft, so an level, with the disastrous results that we ideal situation would be to reduce them all to all know. That is why it is so important to 0%. Nevertheless, while this is not possible, fight an ideological battle, in order to move Rohtbard (2017) suggests considering a the opinion of the majority towards the temporary solution originally formulated by defense of freedom. In this regard, it is worth Ron Paul, a variant of the flat tax proposal: remembering the words of Mises himself: “the
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flowering of human society depends on two CAPLAN, Bryan. Mises and Bastiat on How factors: the intellectual power of outstanding Democracy Goes Wrong, Part I. Published by The Library of Economics and Liberty on November 3, men to conceive sound social and economic 2003. Available at:
Referências KEYNES, John Maynard. The Collected Writings. London: The Royal Economic Society, 1981. BENEGAS-LYNCH, Alberto. Bienes públicos, externalidades y los free riders: el argumento MISES, Ludwig von. Socialism: An Economic and reconsiderado. ESTUDIOS PÚBLICOS, n. 71, Sociological Analysis. New Haven: Yale University invierno, p.203-218, 1998. Press, 1962.
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MISES, Ludwig von. Human Action: A Treatise on ROTHBARD, Murray. Mrs. Thatcher´s Poll Tax. Economics. Auburn: Ludwig von Mises Institute, 1998. Published by the Ludwig von Mises Institute on April 10, 2013. Available at
ROCKWELL, Llewellyn H. The Free Market Reader. ROTHBARD, Murray. Rothbard: The Myth of Tax Auburn: Ludwig von Mises Institute, 1988. Reform. Published by the Ludwig von Mises Institute on October 20, 2017. Available at:
David Chávez Salazar
B.S. in Economics. Founder and president of the Larry Sechrest Institute. Director of the “Miguel Samper Agudelo” Collection on Free Banking (Unión Editorial, S.A.). E-mail: [email protected]
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