The remedy flowed from the diagnosis, ominously. “Democracy may become its own Leviathan,” Buchanan warned darkly, “unless constitutional limits are imposed and enforced.”88 The hope he had held in his early career, expressed in The Calculus of Consent, that deliberations among citizens of good faith could produce rules for a political economy that all would find acceptable, now appeared naive.
There seemed no way to reconcile robust individual property rights with universal voting rights. For how could the cause ever persuade a majority to agree to rules that might radically disadvantage its members in a society fast growing more unequal? Buchanan implored his readers to face facts: “how can the rich man (or the libertarian philosopher) expect the poor man to accept any new constitutional order that severely restricts the scope for fiscal transfers among groups?” What poor man in his right mind would ever consent to rules that would keep him poor?89
But if not by willing consent, then how could the cause stop citizens from turning to government? Buchanan wanted to see, somehow, a “generalized rewriting of the social contract.” America needed “a new structure of checks and balances,” well beyond that provided for in its founding Constitution, itself already a very pro-property-rights rulebook, as he well knew. He advised “changes that are sufficiently dramatic to warrant the label ‘revolutionary.’” The time when it seemed as if normal adjustments might be enough had passed. Buchanan closed with “a counsel of despair” that troubled him. “Despotism may be the only organizational alternative to the political structure that we observe.”90
There was no sense glossing over it anymore: democracy was inimical to economic liberty.
One reviewer, a historian of economic thought, sounded an alarm about where Buchanan was heading. “His analysis strikes at the heart of self-government,” said Warren J. Samuels. He granted that Buchanan was an original thinker and that the book contained some dazzling points. But in its overall case, The Limits of Liberty constituted an “extreme and antidemocratic” departure from the constitutional thought of James Madison and Alexander Hamilton, who had, after all, built in plenty of safeguards against possible tyranny by the majority. Buchanan’s scheme, by contrast, would empower “a private governing elite” of corporate power freed from public accountability. “I shudder at the uses to which his ideas are capable of being put,” Samuels concluded, with unknowing prescience.91
Some of Buchanan’s and Koch’s fellow Mont Pelerin Society members agreed with the book’s foreboding analysis and reached conclusions that would have shocked their fellow citizens—if they had been shared widely. Henry Manne thought the book’s message so important that he invited Buchanan to give seven distinguished lectures at his center, which awarded the book a law-and-economics prize.92 The society’s then president, George Stigler, the venerable University of Chicago economist, pushed the matter into discussion at the 1978 invitation-only Mont Pelerin meeting in Hong Kong. Facing the reality that he and his assembled allies were destined to remain “a permanent minority” whose ideas were “widely . . . rejected,” Stigler pushed on to an “uncomfortable” question: “If in fact we seek what many do not wish, will we not be more successful if we take this into account and seek political institutions and policies that allow us to pursue our goals?” He did not equivocate, adding that this might mean “non-democratic” institutions and policies. One “possible route” Stigler suggested for achieving the desired future was “the restriction of the franchise to property owners, educated classes, employed persons, or some such group.”93
Willy-nilly, faced with the inescapable reality that they could not win by persuasion, these globetrotting scholars were sounding more and more like the southern oligarchy that had authorized Buchanan’s first program.
There is a photograph of Jim Buchanan from the late 1970s that he was said to like. It shows him at his mountain farm, Dry Run, in a fenced ring alongside two animals in a peculiar pose: a dog is riding a donkey, looking scared. The founder of the Virginia school of political economy walks alongside them, riding crop in hand, training the animals to perform this utterly unnatural act. Sometimes, as the old saying goes, a picture is worth a thousand words. Where persuasion failed, the lash might work.
CHAPTER 10
A CONSTITUTION WITH LOCKS AND BOLTS
On September 11, 1973, General Augusto Pinochet led a successful coup that overthrew the elected socialist government of President Salvador Allende in Chile. Ruling in the name of economic liberty, the Pinochet junta became one of the most notorious authoritarian regimes in recent history. With mass killings, widespread torture, and systematic intimidation, Pinochet’s forces crushed the trade union movement, vanquished the rural farmers seeking land reform, stifled student activism, and imposed radical and unpopular changes in schooling, health care, social security, and more. As Orlando Letelier, the soon-to-be-assassinated Chilean ambassador to the United States, explained in The Nation, the economic program and the repression were inseparable: social and political “regression for the majorities and ‘economic freedom’ for small privileged groups” went together.1 The military coup obliterated the citizen-led organizing that had made Chile a beacon to the rest of Latin America of what might be achieved by democratic, electoral means.2
To grasp the significance of the Chilean story for our own world today, it is important to remember that the reforms did not begin with Allende. His predecessor, the anti-Communist Christian Democrat Eduardo Frei (whose government lasted from 1964 to 1970), proudly oversaw what he called a “Revolution in Liberty,” a kind of Chilean New Deal, supported by the U.S. presidents Kennedy and Johnson, that included support for labor rights, expansion of voting rights, and land redistribution in rural communities. Frei’s opening up of Chilean democracy helped encourage the popular mobilization that led to the election of Allende. The military officers who led the coup concluded that, once in power, not only did they have to reverse the gains that had been made under elected governments, but they also wanted to find a way to ensure that Chileans never again embraced socialism, no matter how strong the popular cries for reform.3 The solution they came up with was to rewrite the nation’s constitution to forever insulate the interests of the propertied class they represented from the reach of a classic democratic majority.
As the Pinochet regime became a fulcrum of human rights activism in the 1970s and a cautionary tale thereafter, many critics indicted leading thinkers of the Mont Pelerin Society for abetting the despot. Milton Friedman was widely condemned for advice he provided on a visit to Santiago in 1975 about how to bring down the country’s soaring inflation. That advice resulted in draconian policies that inflicted mass hardship, to be sure. But Friedman was a monetarist. Whether or not one approved of the painful “shock treatment” he proposed, what Friedman recommended was ultimately reversible policy. The society’s aging founder, F. A. Hayek, also visited Pinochet and shared with the dictator his own distaste for “unlimited democracy.” Such moral support from scholars helped the junta weather the international storm of condemnation. But while Hayek became an apologist for the regime, there is no evidence that he left a lasting mark on Chile, either.4
The same cannot be said of James Buchanan. His impact is still being felt today. For it was Buchanan who guided Pinochet’s team in how to arrange things so that even when the country finally returned to representative institutions, its capitalist class would be all but permanently entrenched in power. The first stage was the imposition of radical structural transformation influenced by Buchanan’s ideas; the second stage, to lock the transformation in place, was the kind of constitutional revolution Buchanan had come to advocate.5 Whereas the U.S. Constitution famously enshrined “checks and balances” to prevent majorities from abusing their power over minorities, this one, a Chilean critic later complained, bound democracy with “locks and bolts.”6
• • •
The first phase was a series of structural “reforms�
�� devised by a young devotee of the Virginia school, Minister of Labor José Piñera. Piñera had been working toward his doctorate at Harvard University when the coup occurred; elated, he came home “to help found a new country, dedicated to liberty.” His contribution was a series of deep alterations in governance, collectively dubbed “the seven modernizations.” Their common threads were privatization, deregulation, and the state-induced fragmentation of group power.7
Under the new labor code Piñera promulgated in 1979, for example, industry-wide labor unions were banned. Instead, plant-level unions could compete, making one another weaker while their attention was thus diverted from the federal government (“depoliticizing” economic matters, in Buchanan terms). Individual wage earners were granted “freedom of choice” to make their own deals with employers. It would be more accurate to say that they were forced to act solely as individuals. “One simply cannot finish the job,” Piñera later explained to would-be emulators, if workers maintain the capacity to exercise real collective power.8
Piñera designed another core prop of the new order: privatization of the social security system. This freed companies of the obligation to make any contributions to their employees’ retirement and also greatly limited the government’s role in safeguarding citizens’ well-being. Ending the principle of social insurance, much as Barry Goldwater had advocated in 1964, the market-based system instead steered workers toward individual accounts with private investment firms. As one scholar notes, it “was essentially self-insurance.” Fortunately for the plan, the regime had full control of television. At a time when three of every four households had televisions, Piñera made weekly appearances over six months to sell the new system, playing to fear of old-age insecurity owing to “this sinkhole of a bureaucracy,” the nation’s social security system. “Wouldn’t you rather,” he queried viewers, holding up “a handsome, simulated leather passbook,” see your individual savings recorded every month in such a book “that you can open at night and say, ‘As of today I have invested $50,000 toward my golden years?’” The junta overruled the suggestion that Chileans might decide which system they wanted in a referendum—after all, “who could say where such a precedent might lead?”—and imposed Piñera’s plan by military decree. In short order, two private corporations—BHC Group and Cruzat-Larrain, both with strong ties to the regime—acquired two-thirds of the invested retirement funds, the equivalent, within ten years, of one-fifth of the nation’s GDP. (José Piñera, for his part, went on to work for Cruzat and then promoted U.S. Social Security privatization for Charles Koch’s Cato Institute.)9
Other “modernizations” included the privatization of health care, the opening of agriculture to world market forces, the transformation of the judiciary, new limits on the regulatory ability of the central government, and the signature of both the Chicago and Virginia schools of thought: K–12 school vouchers. In higher education, the regime applied the counsel of Buchanan’s book on how to combat campus protest. As the nation’s premier public universities were forced to become “self-financing,” and for-profit corporations were freed to launch competitors with little government supervision, the humanities and liberal arts were edged out in favor of utilitarian fields that produced less questioning. Universities with politically troublesome students stood to lose their remaining funding.10 Through these combined measures, education, health care, and social insurance, once provided by the state, ceased to be entitlements of citizens.
With the seven modernizations in place, Pinochet’s appointees could now focus fully on drafting a constitution to entrench this new order behind what they hoped would be impassable moats. In preparation, the BHC Group’s management translated James Buchanan’s recent book, The Limits of Liberty, into Spanish.11 So, too, the founders of a pro-regime think tank, the Centro de Estudios Públicos (CEP), translated several works of public choice, including a basic primer by Buchanan.12
Buchanan then visited for a week in May 1980, a pivotal moment, to provide in-person guidance. A few months earlier, the regime had begun a mass purge of teachers from the nation’s public universities, firing those considered “politically unreliable,” reported the New York Times.13 Dozens of other, less prominent citizens were simply found guilty of breaching a prohibition on political activity and banished to faraway villages, with no chance of appeal.14
As a result of the assassination of Ambassador Letelier and an American associate in rush-hour traffic on Washington, D.C.’s Embassy Row, Chile faced U.S. sanctions for having carried out a terrorist act. This meant that the economists’ visits had to come on the invitation of private actors—in Buchanan’s case, from the Adolfo Ibáñez Foundation’s business school. Its dean, Carlos Francisco Cáceres, and Buchanan had had a long conversation at the 1979 Madrid meeting of the Mont Pelerin Society. Cáceres, one of the most vehemently antidemocratic members of the Council of State, a body created in 1976 to advise Pinochet, was eager to bring Buchanan’s “opinions” into the regime’s discussions of the new constitution. It worked. The Virginian’s true host, in fact, was the Chilean minister of finance, Sergio de Castro, the regime’s leading thinker and an economist indebted to Pinochet for enabling him and his colleagues to expunge a “half century of errors” when “public opinion was very much against [us].”15
Which is why de Castro and others saw a pressing need for a new constitution that would make public dissatisfaction irrelevant—or at least sharply curtail the public’s ability to reverse the transformation he and his junta colleagues had imposed by force. When Cáceres set up a meeting for Buchanan with the BHC Group, he told him directly that “our main interest in your visit” was to explore how public choice economics might help inform the “new Constitution which will define our future republican life.” They sought input on questions from “the way to elect the political authorities” to “the economic matters which should be included” in the document.16
Buchanan responded with detailed advice on how to bind democracy, delivered over the course of five formal lectures to top representatives of a governing elite that melded the military and the corporate world, to say nothing of counsel he conveyed in private, unrecorded conversations. He spoke plainly and in the imperative mode, suggesting the government “must” and “should” do this or that. He defined public choice as a “science” (even though he, of all people, knew that there was no empirical research to back its claims) that “should be adopted” for matters ranging from “the power of a constitution over fiscal policy” to “what the optimum number of lawmakers in a legislative body should be.” He said of members of his school of thought, “We are formulating constitutional ways in which we can limit government intervention in the economy and make sure it keeps its hand out of the pockets of productive contributors.”17
Buchanan understood what his hosts were asking for: a road map. He thus explained that the constitution needed “severe restrictions on the power of government.” He instructed that “the first” such restriction “is that the government must not be free to spend without also, at the same time, collecting the necessary taxes to offset expenses”—Harry Byrd’s sacred pay-as-you-go principle. “It must have a constitution that requires a balanced budget”—no more Keynesian deficits under any circumstances. Also, “the independence of the Central Bank should be enshrined in the constitution”; the government should be denied the authority to make “monetary policy because doing so would surely lead to inflation.” A last restriction he urged was to require supermajorities for any change of substance. “It must be ensured that a system exists in which only a large majority,” he said, “2/3 or 5/6 of the legislative body, can approve each new expense.”18 With this formula the scholar overshot the mark even with the junta’s members, just as he had in his proposal for a fire sale of public schools to Virginia’s legislature in 1959: none had the nerve to float a five-sixths requirement.
So intrinsic was the influence of economic libertarians that Chile’
s new constitution bore the same name as Hayek’s classic The Constitution of Liberty.19 “It promised a democracy,” remarked the leading American historian of the Pinochet era, Steve Stern, “protected from too much democracy.” The new constitution guaranteed the power of the armed forces over government in the near term, and over the long term curtailed the group influence of nonelite citizens. The document guaranteed the rule of General Pinochet and his aides until a 1988 plebiscite that might extend his term to 1997, when “a new generation,” as Stern notes, “would have learned the role of the citizen in a restrictive democracy.”20
The devil is in the details, goes the old adage, and it is true: the wicked genius of Buchanan’s approach to binding popular self-government was that he did it with detailed rules that made most people’s eyes glaze over. In the boring fine print, he understood, transformations can be achieved by increments that few will notice, because most people have no patience for minutiae. But the kind of people he was advising can hire others to make sure that the fine print gets them what they want. The net impact of the new constitution’s intricate rules changes was to give the president unprecedented powers, hobble the congress, and enable unelected military officials to serve as a power brake on the elected members of the congress. A cunning new electoral system, not in use anywhere else in the world and clearly the fruit of Buchanan’s counsel, would permanently overrepresent the right-wing minority party to ensure “a system frozen by elite interests.”21 To seal the elite control, the constitution forbade union leaders from belonging to political parties and from “intervening in activities alien to their specific goals”—defined solely as negotiating wages and hours in their particular workplaces. It also barred advocating “class conflict” or “attack[ing] the family.” Anyone deemed “antifamily” or “Marxist” could be sent into exile, without access to an appeal process.22
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