2
Ideas Are Weapons

In 1974, the year after the founding of the Heritage Foundation, the Nobel prize for economics was awarded jointly to Swedish social-democrat Gunnar Myrdal (1898- 1987) and Austrian conservative Friedrich August von Hayek (1899-1992). This double consecration marked the last moment of precarious equilibrium between the declining fortunes of Keynesianism and the ascent of the new monetary orthodoxy developed in particular by the University of Chicago, where von Hayek had taught for 12 years before being employed by the Hoover Institution at Stanford. Just two years later, in 1976, the Nobel was awarded solely to Milton Friedman, one of von Hayek's disciples. From this moment on, the so-called Chicago boys (including Gary Becker, Ronald Coase, Eugene Fama, Robert Fogel, Lars Peter Hansen, Robert Lucas, Theodore Schultz and George Stigler) were showered with Nobel prizes.

The wind had changed irrevocably, the Zeitgeist shifted from the Keynesian orthodoxy of the period immediately following the Second World War, to the point that in his first State of the Union address in 1977, Democratic President Jimmy Carter launched an attack on the welfare state using words von Hayek had written for him: 'Government cannot solve our problems [.] Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy [.]'.1

One of the factors that contributed to this change in direction was the very creation of the Nobel prize for economics, which is . not a Nobel prize. As we know, these prizes were the legacy of the inventor of dynamite, Alfred Nobel, who established in his will that, after his death (in 1896), his fortune should be used to assign five prizes (just five) a year for literature, chemistry, medicine, physics and peace. The prizes for chemistry and physics are assigned by the Royal Swedish Academy of Sciences, the prize for literature by the Swedish Academy, the price for medicine is decided by the Norwegian Karolinska Institutet, and the Norwegian Nobel Committee assigns the prize for peace.

Economics was not mentioned anywhere. It was not until 1968 that the prize was invented out of thin air by the Swedish Central Bank, as the 'Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel', in order to commemorate the bank's 300th anniversary. Or rather, with hindsight, to delegitimize Swedish social-democratic politics and destabilize their governments, particular that of Olof Palme. As such, it is a prize that cloaks the economic policy pursued by a central bank in the prestige of a Nobel. The fact that over the following 30 years the overwhelming majority of prizes were awarded to the Chicago Boys and their acolytes is not due to the superior quality of the theories and studies of those economists, but the result of wilful political action. In a certain sense, this is yet another manifestation of the politics of the reactionary foundations, in this case embodied by a central bank. It is worth mentioning that Gunnar Myrdal himself, Sweden's leading economist, a social democrat, recommended that the prize for economics be abolished.

The Nobel prize for economics was used, therefore, to legitimize extreme neoliberalism, not unlike that of the DOC labels used on wines or the UNESCO seal of 'World Heritage' given to sites, monuments and cities.

A second, less bombastic way of spreading the teachings of the Chicago School was the Chilean coup d'état of 11 September 1973 by the armed forces led by general Augusto Pinochet against the democratically elected government of President Salvador Allende, who died during the attack on the presidential palace (the bodies of 11 of his advisors and assistants were exhumed in 2010). This coup of unprecedented ferocity was the prototype and example for all successive coups and 'Condor plans' for annihilating the left in Latin America. Supporters of the opposition were corralled in sports stadiums, where at least 2,130 are reported to have died, 1,248 disappeared and 28,459 were tortured, including 3,621 women (3,400 raped by their incarcerators), 1,244 minors and 176 children under the age of 13 (these numbers are those given by the official commissions and do not take into account the murders witnessed but not recorded, including the other thousands of miners killed by the military).2 It was in Chile that the technique of throwing opponents from aeroplanes was first used, a technique later employed in Argentina and Brazil. At least 150,000 dissidents were exiled.

As soon as it had taken power, the military acted with maximum urgency on the economic programme laid out in a report known as El Ladrillo (the Brick), of which a bard of neoliberalism, Arnold Harberger, said 'I do not think it an exaggeration to say that the studies and debates leading up to El Ladrillo played for the subsequent revolution in Chilean economic policy a role not unlike that of the Federalist Papers in shaping the constitutional framework of the United States.'3

El Ladrillo was based on the work of a group of economists at the Pontificia Universidad Católica de Chile who had studied under professors from the University of Chicago and/or had studied in Chicago since the end of the 1950s as part of a scholarship system. It was these Chilean economists who were called the Chicago Boys, a name that was then extended to the entirety of the American neoliberal school. It was this 'handful of heroes', as Harberger refers to them, who were able to enact the economic reforms thanks to the actions of the military. As one of these 'heroes', Pablo Barahona, who was minster for the economy under Pinochet, said himself: 'I have no doubts that [.] in Chile an authoritarian government - absolutely authoritarian - that could implement reform despite interests of any group, no matter how important, was needed.'4

But while the genealogy of Chilean military neoliberalism leads us to Chicago, that of US-Chicago neoliberalism can be traced back to two (aristocratic) Austrian economists who emigrated to the US and deeply influenced conservative thought in the country: Ludwig von Mises (1881-1973) and, in particular, Friedrich von Hayek, whose book on the dangers of state intervention in the economy, The Road to Serfdom (1944), was popularized by the abridged and simplified version published in the Reader's Digest in 1945 with a circulation of a million copies. Von Hayek's political position was made clear in his statement that 'social justice [is] entirely empty and meaningless',5 a judgement that foreshadowed Margaret Thatcher's famously apodictic statement that 'There is no such thing as society.'6 Even clearer was the justification given by von Hayek for his personal visit to see the Chilean dictator Augusto Pinochet in 1981: 'Personally, I prefer a liberal [meant here as "neoliberal"] dictator to a democratic government that is lacking in this regard' (interview with El Mercurio, 12 April 1981).

And yet von Hayek was considered too moderate by his supporters at DuPont de Nemours when he founded the Mont Pelerin Society in 1947 to promote the free market, so much so that for the society's second conference they forced him to involve the older Ludwig von Mises, who was considered more reliable when it came to neoliberalism.7 Among the founders of Mont Pelerin were Walter Lippmann, the philosopher of science Karl Popper and two of the so-called Chicago Fathers, Milton Friedman and George Stigler. Schweizerische Kreditanstalt (today Crédit Suisse) paid 93% of the conference's total costs, some 18,062 Swiss francs).8

In the 1960s, Friedman (1912-2006) would be the only named economist to openly support Barry Goldwater's economic plan (in his New York Times article of 11 October 1964). After that, from 1968 onwards, his column in Newsweek would bring him to prominence among a much broader audience. It is worth highlighting that he was awarded the Nobel prize by the Bank of Sweden in 1976, after he voluntarily offered himself as an economic advisor to general Augusto Pinochet in 1975, whose politics were defined by Friedman as 'the Chilean miracle'.

As a result of the Nobel prize and his work with Pinochet, Friedman became the official guru of the American extreme right. When the president of the Olin Foundation, William Simon (the one who said 'ideas are weapons') published A Time for Truth in 1978, he asked Milton Friedman to write the preface and Friedrich von Hayek to provide the introduction. As payment, in 1980 the Scaife Foundation contributed $650,000 to produce the TV version of the book by Milton and Rose Friedman, Free to Choose, which had been financed by the Olin Foundation. Friedman was not only the most trusted economic advisor of Reaganism (and Thatcherism), but, as we will see, his ideas also inspired the conservative revolution in other fields.

In its two guises - German ordo-liberalism and US neoliberalism - neoliberalism has been the object of much criticism and little understanding. I will not delve into the differences between the two schools;9 in the following pages (except for the odd reference) I will concentrate on US neoliberalism, which is generally considered to be simply an extreme...