RUPRECHT-KARLS-UNIVERSITÄT HEIDELBERG FACULTY OF PHILOSOPHY THE AMERICAN PHILOSOPHICAL FOUNDATIONS OF THE CHILEAN FREE MARKET REVOLUTION BY AXEL KAISER BARENTS- VON HOHENHAGEN A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY ADVISOR: FIRST ADVISOR: KATJA PATZEL-MATTERN SECOND ADVISOR: MARTIN THUNERT HEIDELBERG, GERMANY JULY 25, 2014 Acknowledgments This work would not have been possible without the vital support provided by generous people and institutions. I want to thank the Friedrich Nauman Stiftung für die Freiheit for granting me a scholarship financed with means of the Bundesministerium für Bildung und Forschung. I thank my research assistants Juan Lagos and Eduardo Gomien for their valuable contributions to my investigation and Nicolás Ibañez and Dag von Appen for having encouraged me to go on with the project. I also thank my supervisor Professor Katja Patzel-Mattern for her permanent feedback and supervision and Miriam Rabinovich for making sure this work is written in proper English. Last but not least, I thank Luana Hoffmann for her kind and generous support during these last three years. 1 Contents Introduction..........................................................................................................................................4 Chapter I: Beliefs and economic change...........................................................................................19 Economists and the importance of ideas........................................................................................19 North’s integral approach..............................................................................................................23 Two revolutions: Chile and the Soviet Union................................................................................26 The beliefs behind the Chilean free market revolution: British-American liberalism...................31 French versus British- American liberalism: the importance of negative liberty..........................35 Conclusions to Chapter I................................................................................................................42 Chapter II: The intellectual antecedents of neoliberalism in Chile...................................................44 The emergence and impact of British-American liberalism in Chile's early republic...................44 Courcelle-Seneuil’s classical liberal economic and political philosophy.....................................49 Andrés Bello’s British -American liberal legacy...........................................................................54 Conclusions to Chapter II..............................................................................................................59 Chapter III: The rise of the Chicago Boys.........................................................................................61 The ideological reaction against Chile’s early neoliberalism.......................................................61 The Cold War, political disorder and the ultimate attack on British-American liberalism...........69 The failed free market revolution of the Klein & Saks mission and the rebirth of neoliberalism..77 Promoting British-American liberalism: the Point Four program and the University of Chicago- Universidad Católica agreement...................................................................................................85 Heirs of classical liberalism: the Courcelle-Seneuil−Smith−Chicago connection.......................90 Milton Friedman and the fragility of Chilean freedom..................................................................97 2 The Chicago Boys on democracy and political liberty................................................................105 Constructing a libertarian and democratic society: Bardón’s memo to General Pinochet and Büchi’s classical liberal government program............................................................................109 Spreading British-American liberalism: the creation of the Centro de Estudios Públicos and the Mont Pelerin Society meeting in Viña del Mar............................................................................112 Conclusions to chapter III............................................................................................................119 Chapter IV: Institutionalizing neoliberalism: Jaime Guzmán and “The Constitution of Liberty”..122 The military Junta, Jaime Guzmán and the shift to American liberalism....................................122 Hayek on institutions, liberty and the economic order................................................................127 The dangers of unlimited democracy and the case for “transitional dictatorship”....................132 Guzmán's reception of neoliberalism...........................................................................................138 The Chilean “Constitution of Liberty”........................................................................................145 Conclusions to Chapter IV...........................................................................................................152 Chapter V: José Piñera and the promotion of American liberalism.................................................154 Piñera and Economía y Sociedad on liberalism and fundamental rights....................................154 Economía y Sociedad on democracy, government and liberty....................................................165 The intellectual origins of the free market revolution according to Economia y Sociedad.........171 Piñera’s defense of American liberalism in the aftermath of the military regime.......................179 Conclusions to Chapter V............................................................................................................183 Conclusions......................................................................................................................................185 Bibliography.....................................................................................................................................194 3 Introduction This is a study on the philosophical foundations of the Chilean institutional transformation that took place in the 1970s and 1980s and which is commonly referred to as Chile’s “free market revolution”. Its primary goal is to determine if a comprehensive version of classical liberalism, rooted in the American ideas of liberty, including ideas of political liberty and democracy, was behind the process of economic and institutional change that led Chile to become the most prosperous country in Latin America. Puzzling in Chilean history is the fact that a harsh military regime made economic and political reforms that undermined its own power leading, despite increasing inequalities, to sustained economic growth and also to the reintroduction of a stable democracy. By analyzing the philosophy that inspired the actors in charge of elaborating and implementing these reforms, this work contributes to clarify that puzzle and draw lessons with regard to the relation between beliefs and institutional change as well as the interplay between economic freedom and authoritarianism. A proper understanding of both factors requires taking into account the historical and ideological context in which the Chilean reformers, known as the Chicago Boys, defined and applied their set of beliefs. It also requires considering the influence of liberalism on the institutional and intellectual development prior to the free market revolution. Accordingly, this study integrates institutional history, economic history and political history to the philosophical analysis since all these elements are necessary to explain why the set of beliefs known as “neoliberalism” made so much sense to the Chicago Boys both as a normative vision and as an interpretation of the economic and social reality. The main assumption behind this study is that there is a permanent feedback between beliefs and reality. This means that not only are beliefs a force of institutional change but also that the practical results of those changes have an impact on belief formation. In other words, the beliefs, ideas and actions of the Chicago Boys cannot be understand independently from their historical, political and economic context for it is the feedback offered by reality that largely defines a set of beliefs. The particular theoretical framework used for this analysis will be Douglass North’s contribution to understanding economic history as an evolutionary process where ideologies and ideas define the formation and transformation of the economic and political institutions and where in turn feedback from reality modifies these ideas and ideologies.1 Institutions are in turn essential to explain how a given market works and why some 1 The term evolutionary in this context is applied in a cultural sense such as Adam Ferguson and the Scottish Enlightenment thinkers understood it. It means that over time societies select and develop norms, values and systems that prove useful for the wellbeing of their members. Thus the institutions that are responsible for economic 4 economies perform better than others. Given the focus on beliefs as a force of institutional transformation, this work will use the Northean approach as a helping tool to understand the liberal reforms of the Chicago Boys, their institutional success and their connection with Chile’s transition to democracy. It is interesting to