182/YOUR MONEY OR YOUR LIFE!of money, lest unemployment rise in the same proportions. He
proposes a constitutional amendment whereby the money supply
should change at a constant rate, equal to the long-term rate of
growth of national production (Beaud and Dostaler, 1995). His
contention that increases in the rate of inflation automatically lead
to a corresponding increase in unemployment has been disproved by
events. Indeed, in the Europe of the 1990s, the drop in inflation has
gone hand in hand with an increase in the rate of unemployment (or
its remaining at high levels). Nevertheless, Friedman's theory has
inspired neo-liberal policies implemented since the beginning of the
1980s and accentuated by the Maastricht Treaty.
Following in the footsteps of J.B. Say, Friedman argues that the
free functioning of the market is enough to ensure the optimum
allocation of resources and the full use of production capacity. This
view has been refuted by events, but this has not stopped it from
gaining wide currency as a matter of 'common sense'.
Friedman did not remain aloof from politics; he put himself
squarely in the reactionary camp. In 1964, he was economic adviser
to Republican presidential candidate Barry Goldwater. He held the
same post alongside Richard Nixon in 1968 and Ronald Reagan in
1980.
After the government of Salvador Allende was overthrown by a
military coup in Chile in 1973, he advised General Pinochet. He
supported the repression that was carried out and called for measures
of extreme austerity. Hayek also expressed support for the general's
dictatorial and bloodthirsty methods. In response to a Chilean jour
nalist's questions in 1981, he said: 'A dictator may rule in a liberal
way, just as it possible for a democracy to rule without the slightest
liberalism. My personal preference is for a liberal dictatorship rather
than a democratic government thoroughly lacking in liberalism'
(quoted in Salama and Valier, 1994). After ten years during which
his economic prescriptions were followed, Chile entered a recession
that saw GDP plummet by 15 per cent in 1982-83, with unemploy
ment at 30 per cent (Ominami in Urriola, 1996). Indeed, Chile was
only able to become something of an economic success story in the
1990s by breaking cleanly with the approach of the Chicago Boys.
While Ronald Reagan was inspired by Friedman, Margaret
Thatcher is a disciple of Hayek: