Two centuries ago, Adam Smith asked a very fundamental question: what are the nature and causes of the wealth of nations? Note that Smith did not ask what most people today ask — that is, what are the causes of poverty? Smith understood that poverty had always been the natural state of mankind. He wanted to know something much more vital — what is it that causes certain nations to be wealthy and prosperous?
The history of Argentina provides the answer that we are seeking to this vitally important question.
Argentina declared its independence from Spain on July 9, 1816. For several decades after that, the country was plunged into a series of disastrous civil conflicts, which culminated in “order” being established under a brutal tyrant by the name of Juan Manuel de Rosas. In 1852, Rosas was overthrown and forced into exile.
The outcome was one of the most unusual periods in the history of man. Nothing like it appears anywhere else in all of Latin American history. The period from 1850 to 1930 in Argentine history is a model — a beacon shining through the darkness of history — a confirmation that what Adam Smith had discovered was true.
In his great treatise — An Inquiry into the Nature and Causes of the Wealth of Nations — Smith asked, what have been the traditional means of combating poverty throughout history? The answer, of course, was government. People had always believed that governmental policies were necessary to ensure that people did not starve to death or suffer lives of impoverishment. Yet, despite the best efforts of governmental officials throughout the ages — such as with the English Poor Laws, the Corn Laws, price controls, and antispeculation laws — people had continued to suffer deep privation.
Smith’s conclusion was a revolutionary one — and one that did not find a ready audience among public officials. Smith concluded that throughout history, it had been governments’ attempts to defeat poverty that had prevented nations from becoming wealthy and prosperous . That is, government itself — through its taxing and interventions into economic activity — was the source of the privations and sufferings that had afflicted mankind throughout the centuries. If government was prevented from attacking poverty, Smith argued, people would prosper! In other words, once the heavy burden of taxation, subsidies, and interventions were lifted, a nation would enjoy wealth and prosperity.
There were a few countries in the 1800s that put Smith’s ideas to the test. Among them was Argentina.
Upon Rosas’ ouster, a new constitution for Argentina was drafted. The man most responsible for the new constitution was Juan Bautista Alberdi — one of the greatest men in Argentine history. Alberdi had been strongly influenced by the ideas of the Founding Fathers of the United States. Like Thomas Jefferson and James Madison, Alberdi believed that individuals had inherent rights of life, liberty, and property with which no government could legitimately interfere. He believed that the primary purpose of government was to ensure the protection of these unalienable rights.
Alberdi’s book, Bases for the Political Organization of the Argentine Republic , first published in 1852, the year of Rosas’ defeat, became the framework for the new Argentine constitution. The spirit of liberty still lives in the words of Juan Alberdi:
“Today we must strive for free immigration, liberty of commerce, railroads, the navigation of our rivers, the tilling of our soil, free enterprise, not instead of our initial principles of independence and democracy, but as essential means of assuring ourselves that these will cease being mere words and will become realities. . . . Our revolutionary wars sought to establish liberty from outside oppression . . . what we now need is liberty within. . . . Our leaders want both glory and liberty, and the two are contradictory. . . . As South America has contributed nothing to world civilization except its wars and the victory in its struggle for independence, the only glory which exists among us is martial glory, and our great men are all military heroes. Not a single invention like that of Franklin, like that of Fulton, like the telegraph, and many others which the civilized world owes to North America, has been contributed by our America of the south.”
The Argentine constitution that Alberdi crafted was modeled on that of the United States. The result: for the only time in all of South American history, government’s power over the citizenry was extremely limited. With various exceptions (land grants to railroads being among the most notable), people were free to engage in any economic enterprise without governmental interference and to accumulate unlimited amounts of wealth. There was no income taxation, and indirect taxation was extremely low. Enterprise, by and large, was free — very few licenses, permits, regulations, and other governmental barriers interfered with people’s ability to earn a living. There was virtually no governmental welfare system.There were few barriers to trade and investment. And, perhaps most striking, there were no barriers to immigration!
Sound familiar? Well, it should to Americans — because these were the principles that once guided the American people!
And what were the results of this unusual way of life? They are almost unbelievable. The data is set forth in a book entitled Argentina: 1516-1987 by David Rock:
“By 1890 the British had inundated Argentina with an estimated £157 million of investment capital. The great symbol of the new British connection was a burgeoning railroad system . . . most of it in the hands of private British companies — over which were transported 10 million passengers and 5 million tons of cargo. Foreign trade similarly expanded: in 1861 total foreign trade, both imports and exports, was valued at 37 million gold pesos; by 1880 at 104 million, and at more than 250 million by 1889.”
“Meanwhile, the nation’s population increased from an estimated 1.1 million in 1857 to approximately 3.3 million by 1890. . . . Immigrants arrived in enormous droves: between 1871 and 1914 some 5.9 million newcomers, of whom 3.1 million stayed and settled. Altogether between 1830 and 1950 Argentina absorbed some 10 percent of the total number of immigrants from Europe to the Americas.”
“By the outbreak of World War I Argentina had experienced almost twenty years of prodigal expansion. Per capita income equaled that in Germany and the Low Countries, and was higher than in Spain, Italy, Sweden, and Switzerland. Having grown at an average annual rate of 6.5 percent since 1869, Buenos Aires had become the second city of the Atlantic seaboard, after New York, and by far the largest city in Latin America. . . . Except entrepôts like Holland and Belgium, no country in the world imported more goods per capita than Argentina. By 1911, Argentina’s foreign trade was larger than Canada’s and a quarter of that of the United States.”
The Argentineans had proven Adam Smith correct. By using their constitution to strictly limit the power of their government to interfere with their economic activities, the result was one of the most prosperous periods people had ever experienced.
However, it was not to continue. In the 1930s, a military coup ousted the popularly elected government. Unfortunately, the new Argentine rulers rejected the Smith-Jefferson-Madison-Alberdi philosophy of economic freedom; instead, they turned to the socialist, fascist economic philosophy of people such as John Maynard Keynes, Benito Mussolini, and Franklin D. Roosevelt.
Income taxation was instituted. A central bank was created, and the gold standard was ended. Exchange controls and trade restrictions were imposed. Price supports and controls were instituted. Regulatory boards were put into place.
Economic prosperity in Argentina came to an end. The nation was plunged into a series of financial and economic crises. The culmination was the election of Juan Perón in the 1940s. Perón, together with his wife Evita, carried the welfare-state philosophy followed by Franklin Roosevelt (and his wife Eleanor) to the extreme: they gave “bread to the masses” by using the state to plunder the wealthy.
Perón’s administration lasted from 1946 to 1955. Like Roosevelt’s New Deal, his governmental attempts to wage war on poverty only made a bad situation worse. By the time he was ousted in 1955, the glory days of Argentine liberty and prosperity were gone.
Since then, Argentina has become just another Latin American country, perhaps more prosperous than others, but with the same basic premise as the rest — that a welfare state and a regulated economy are the way to attain wealth and prosperity. The results, of course, have been the opposite.
The year 1958 will ultimately go down as a momentous one in Argentine history. That year, a small group of Argentineans, led by a man named Alberto Benegas Lynch, who was running an organization named the Centro de Estudios sobre la Libertad (CESL), invited two Americans to deliver a series of lectures in Argentina. The two men were Leonard Read and Ludwig von Mises. Read was the founder of The Foundation for Economic Education (FEE), which had been established in 1946 with the express aim of reestablishing economic liberty in the United States. Mises, who had immigrated from Austria and was then teaching at New York University, was the acknowledged leader of the Austrian school of economic thought.
Read’s lectures were published in a book entitled Why Not Try Freedom? In his introduction to the book, Read writes:
“To everyone’s amazement, the 160 seats in the lecture room were filled the very first evening and 25 people were standing. The same was true for the entire series — testifying to an intense interest in liberty.”
Mises’ lectures were ultimately published in a book entitled Economic Policy . In the introduction to the book, his wife Margit Mises wrote:
“We arrived in Argentina some months after Perón had been forced to leave the country. He had governed destructively and completely destroyed Argentina’s economic foundations. . . . Ludwig von Mises spoke without any restraint about capitalism, socialism, interventionism, communism, fascism, economic policy and the dangers of dictatorship. . . . The audience reacted as if a window had been opened and fresh air allowed to breeze through the rooms. . . . I remembered how vividly the singular enthusiasm with which those Argentineans had responded to my husband’s words.”
In subsequent years, Alberto Benegas Lynch fanned the embers of liberty he had so carefully lit in the 1950s. Through his center, he published a series of booklets entitled “Ideas Sobre La Libertad,” which contained essays that FEE was publishing and, later, original essays written by a new generation of Argentine liberals.
Today, Alberto Benegas Lynch — now in his 70s — continues to toil in the vineyards of Argentine liberty. It was this man — and the small group aligned with him — that laid the foundation for a renewed era of Argentine liberty and prosperity. His legacy is found in the large number of free-market institutions in Argentina that now exist to promote “ideas sobre la libertad” all over the Argentine nation. The most prestigious — Escuela Superior de Economía (ESEADE) — is a post-graduate program with an emphasis on Austrian economics; it was founded and is still run by his son, Alberto Benegas Lynch, Jr. Other Argentine institutions that are leading the way to liberty are Centro de Estudios Macroeconómicos de Argentina; Fundación Republica; Fundasud; Fundación Libertad; Fundación America; and Fundación Alberdi.
And the movement toward liberty in South America is not limited to Argentina. Thanks in large part to an organization located in Fairfax, Virginia — The Atlas Economic Research Foundation, founded by an Englishman named Antony Fisher — there are now free-market institutions all over South America.
Throughout the world, people are still suffering the privation, misery, and destitution that have resulted from the age-old belief that government should wage war on poverty. Today, public officials everywhere — supported by their citizenry — continue traveling the same road to “ending poverty” — taxation, regulation, welfare, public housing, subsidies, price controls, and thousands of other forms of socialism and fascism.
But Argentina from 1850 to 1930 serves as a real beacon to all who wish to crack the never-ending cycle of poverty and misery: “To all who wish wealth and prosperity, remove the heavy hand of the state from your pockets and your economic activities.”
Today, the South American liberals are leading their respective nations to liberty and prosperity. Perhaps they will lead the world — including the United States — as well.