2. Historical examples which refute pessimism

However, there are several historical examples which illustrate how it is possible to promote radical reforms, even when the circumstances are very adverse. Thus, referring almost exclusively to the best-known cases since World War II (2) , we should mention, in the first place, the liberalizing reform put into practice by Ludwig Erhard in Federal Germany after the Second World War, which constituted head-on defiance of the interventionist “recommendations” of the economic advisors (Galbraith, etc.) whom the victorious powers in the conflict had sent. Erhard’s liberalizing decrees were issued in one stroke, by surprise, in 1948 and led to the spectacular wirtschaftswunder or “German economic miracle”.(3)

Thirty years later, the “conservative revolution” in the United States, promoted by Ronald Reagan in his two presidential mandates (1980-1988) also had a great impact. During this period, Reagan carried out an important fiscal reform which reduced the marginal income tax rate to 28 per cent and dismantled, to a great extent, the governmental regulation of the economy and the weight that the Federal Administration had acquired in the United States, resulting in an economic upsurge that materialized in the creation of more that 12 million jobs there.(4)

Closer to us, we can mention the conservative revolution which Margaret Thatcher carried out in the United Kingdom, which stimulated, over a period of almost 12 years, the most ambitious program for the privatization of nationalized corporations carried out in the world to date. Thatcher sold millions of council houses to their tenants, thus converting extensive social classes into small proprietors. Likewise, she carried out a profound reform of the tax system, reducing the marginal income tax rate to 40 per cent, and initiated a program of moral regeneration which provided a strong impetus to the country’s economy, which had been affected by the decades of interventionist policies applied since the Second World War, not only by Labour governments, but also, in particular, by several Conservative governments that committed the strategic error of “pragmatism”.(5)

Finally, in view of its great historical importance, we must refer to the fall of real socialism in the Eastern European countries which, as a result of a series of, in general, bloodless revolutions, took place from 1989 onwards, to the astonishment of the western world and surprise of its main intellectuals and political leaders. The reforms carried out in Latin America, particularly in countries such as Chile, Argentina, Mexico, Bolivia, Peru and Ecuador, led by “populist” politicians who, however, have been able to promote measures in the right direction, will, in the long run, acquire a similar level of importance.(6)

It is clear, therefore, that, as opposed to the above mentioned nihilist temptation, these and other historical examples illustrate how it is possible, even in very adverse historical circumstances, to surmount the barrier of the “politically impossible” which apparently always arises when an attempt is made to undertake free market reforms and put them successfully into practice. We will now study the strategies and measures it is necessary to adopt and execute in order to make what today seems very difficult, or even politically impossible, viable from a political standpoint.

Jesús Huerta de Soto
Professor of Political Economy
King Juan Carlos University of Madrid, Spain


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(2) We could enumerate many other previous liberalizing reforms and even go back to the failed reform attempted by Turgot in the 18th century. However, for our purposes, we feel the examples we put forward in the main text to be sufficient.

(3) On Erhard’s reform, see the book by Ludwig Erhard himself, Wohlstand für alle, Econ-Verlag, Düssledorf 1957, together with the compilation of his works included in Ludwig Erhard, Deutsche Wirtschaftspolitik: Der Weg der Soizialen Marktwirtschaft, published by Econ-Verlag, Düsseldorf and Vienna 1992; and, likewise, the work by Samuel Brittan and Peter Lilley, The Delusion of Income Policy, Temple Smith, London 1977, Chapter IV.

(4) On Reagan’s reforms and their philosophical foundations, see Martin Anderson, Revolution, Harcourt Brace Jovanovich, New York and London 1988; and Bruce Bartlett, Reaganomics, Arlington House, Westpool, Connecticut 1981.

(5) On the meaning and impact of the Thatcherist revolution, see, above all, Margaret Thatcher’s own books The Downing Street Years, Harper Collins, London 1993, and The Path to Power, Harper Collins, London 1995.

(6) This is the case, for example, of Carlos Menem in Argentina. The liberalizing measures in Chile have been very successful and served as a model for the rest of the Latin American countries, even though they were initiated under the dictatorship of General Pinochet. The Chileans, however, have been wise enough to maintain and even reinforce the liberalizing reforms initially promoted by Pinochet, now that democracy has been re-established in their country.