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Revolt of the Misesians

This story of political dissent begins in Guatemala City, the capital of a country that is deeply troubled economically. The problems are familiar. There are mercantilist trade policies designed to enrich the politically well-connected at the expense of everyone else. Taxes are very high. Laws and courts are tainted and often corrupt. Labor regulations are onerous. Property rights, the very foundation of prosperity, are uncertain and often unenforced. The currency is unstable, and the freedom to be entrepreneurial and to trade is hindered.

The government is probably no more interventionist-minded than the United States, and all governments seek ever more power and are limited, as Ludwig von Mises pointed out, only by the level of public resistance. But Guatemalans do not have a long history of well-developed private enterprise, and thus they are capital starved to the point that even small hindrances to trade are felt very strongly. The annual output of the country is $16 billion, which is less than half of the new spending authorized by the U.S. government after the terrorist attack.

Last year, the U.S. and the International Monetary Fund had a look at Guatemala with an eye toward fixing up the economy, with the goal, of course, of reshuffling the country’s loan portfolio. After extensive study, the conclusion of the geniuses was the following: The country needs more financial transparency and higher taxes.

Now, the financial transparency issue is a red herring. It helps the banking class keep a close eye on the finances of a particular country, which matters for the accountants, but does little to promote prosperity. As for high taxes, there turns out to be a political problem with that. The way the U.S. sees it, the economy will be helped by higher taxes to fund infrastructure and more compliance with existing taxes.

This summer, the Guatemalan Congress passed a new consumption tax of two additional percent to the existing rate of 10 percent. But it turns out that the people were not pleased. Workers in all 22 provinces went on strike. Eighty percent of public transit stopped and the entire country, apart from the political class, joined together in outrage. Students were appalled and gathered to protest.

Five thousand people spontaneously marched on the capital. Arriving in front of the U.S. embassy, the protesters burned U.S. flags and shouted “Yankee, Go Home.” The head of the teachers’ union grabbed a bullhorn and shouted: “This protest is to inform the international financial organizations that Guatemala rejects a tax increase that will make the poor poorer.” The union there evidently has more sense than ours does. Students at the universities promised hunger strikes and crowds formed human blockades to government trucks.

The crowds continued to grow and by noon, they numbered 16,000 in Guatemala City alone, to say nothing of the rest of the country, where the business class joined with peasants to denounce the state. And there was violence – particularly against politicians. Government buildings were attacked and their windows broken. The residences of some members of Congress were burned. In a nearby farming community, the mayor’s house was torched and the local banks, said to favor the tax, were vandalized.

This was no anti-capitalist protest of the type we saw in Seattle and Genoa, but quite the opposite: a mass movement in defense of liberty and property. The government then began to act: It shut down the media and turned loose the military to pump tear gas into the crowds and arrest people. By that time, the mayhem was over, the military was running the country in a state of siege reserved for foreign invasion, while nearly 100 were injured and just as many people were arrested.

Meanwhile, the government stuck to its position on taxes: “The country needs resources to respond to social demands,” a spokesman said. “Congress, the government, and the ruling party are aware of the political cost, but it is necessary.”

After the dust settled, the American Embassy in Guatemala wrote a report on the alarming collapse of government authority. Rather than blame the politicians for attempting to loot further an already impoverished people, or dismissing the excuse as worthy of a typical socialist despot, the report blamed the people who were unwilling to obey.

The U.S. complained that “the failure to pay taxes deprives the government of the resources it needs to provide services that could create institutional confidence and support. As a result, the public has little incentive to pay taxes, and the government has little incentive to provide adequate services and thus to convince the public of the value of paying taxes.”

It sounds like a typical complaint the New York Times would make, but then the report moved on to unearth what it called the “intellectual origins of anti-statism among Guatemala’s elite.” In particular, the U.S. embassy blamed “the economic philosophy of the Austrian school economists, Ludwig von Mises and Friedrich von Hayek” which have taken root in a local university.

The U.S. embassy report continues with alarm: “These extreme views would have little practical effect if they only reflected the opinions of a few individuals. But ironically, as the threat from the left has receded, the libertarian view has gained strength and has become unquestioned dogma.”

The U.S. embassy is particularly struck that such opinions would take root in Guatemala because there is virtually no socialist threat, particularly not an academic one. “There are probably fewer Marxists at San Carlos University today,” the report observes with candor, “than at many American universities.”

But of course socialist doctrine is different from run-of-the-mill government intervention, only by degree and not kind. It is useful, in fact, to think of socialism as nothing more than complete permission for government to do what it instinctively wants to do anyway, which is order people around as much as possible.

What the Misesians have done in Guatemala is create an intellectual infrastructure that promotes a hard-core attachment to freedom among the business class, which dovetails very nicely with the working classes’ instinctive opposition to taxes.

Yes, this infrastructure sustains an abiding hatred of socialism, but it does something more: It creates a love and longing for liberty, which is the necessary precondition for economic advancement. In the end, this intellectual infrastructure is more important to the country’s future than all the natural resources or foreign aid, to say nothing of the IMF’s preposterous advice.

It is an ominous sign that the U.S. government would get behind such a rabid attack on libertarian theory and policy. Some people have chalked it up to a rogue bureaucrat named Paula Bushnell, who serves as the U.S. ambassador to this country. But I doubt that this is all there is to it.

It is hard for us as Americans to admit, but the U.S. government has become a Nottingham Sheriff of the Globe, and this is only the most recent example. It believes itself to be the indispensable nation that must maintain the civic order of the entire world, which means suppressing all forms of political instability, even the good type that stems from libertarian motivation.

And we can draw a lesson here from this incident, namely that the government fears political rebellion most of all when it is backed by a serious intellectual movement. The right combination is beginning to exist in Guatemala, and it is having a huge effect.

Credit goes to Manual Ayau, who founded the Francisco Marroquin University in Guatemala. He is a disciple of Mises who has worked to build an independent intellectual presence there.

And when his institution and ideas were blamed for raging political violence, Ayau didn’t back down. He stated very plainly that the ideas he holds are the same as those of the American founding fathers. The real scandal, he said, is that the U.S. is now trying to work against those ideas in the tax policy is it pushing on the world.

Saying such things, especially during times when all the powers of the State are marshaled against you, takes guts.