In 1920, Ludwig von Mises put forward a fundamental idea in an essay that would transform the economic debate of the twentieth century: an economy that lacks private ownership of the means of production cannot have market prices for capital goods and, therefore, lacks a rational criterion for deciding how to allocate them. Many decades later, Hugo Chávez’s government initiated an experiment in Venezuela—a country that possesses one of the largest proven oil reserves in the world—that pursued the opposite approach.
This experiment was subsequently deepened by his successor, Maduro, and maintained through an autocratic and coercive dictatorship. The resulting collapse cannot be explained solely as a product of “mismanagement” or corruption, both symptoms of the Venezuelan political system, but rather as a foreseeable consequence—widely anticipated by economic theory—of a system that sought to replace prices with imposed decisions and voluntary cooperation with obedience.
The socialist project also had an external point of reference. Following the failed coup d’état of February 1992, Chávez was arrested and subsequently imprisoned. In 1994, he was released from prison and, shortly thereafter, the former convict received an invitation to travel to Cuba, where he was received in Havana by Cuban dictator Fidel Castro, whose relationship with Chávez had a significant influence on the latter’s political orientation.
In 2000, the “Comprehensive Cooperation Agreement” between the two countries made it possible to supply Venezuelan oil under preferential terms to a Cuban dictatorship established on an impoverished island that was still suffering the consequences of the “Special Period” following the dissolution of the Soviet Union. In this way, the Venezuelan economy came to serve as the support for a model that had already failed in other parts of the world.
This model reflected not only a particular political orientation but also a specific conception of how the economy functions. For the libertarian-liberal tradition, price is not merely an administrative instrument, but an expression of condensed knowledge. Hayek explained that the price system makes it possible to coordinate dispersed, tacit, and local information that no central authority can gather on its own. From this perspective, when the regime imposed prices on food and medicine by decree, it did not protect consumers, but distorted the signals that guided producers and importers in their decisions about how much to produce, how much to import, and how much to invest. Mises had already masterfully developed this problem in his economic treatises: when a maximum price is set below the level necessary to equilibrate the market, the good does not become sustainably cheaper; on the contrary, its supply tends to decrease and shortages emerge, a phenomenon that manifested itself tangibly in the daily lives of Venezuelan citizens.
The authorities’ response to the scarcity they themselves had generated was to persecute merchants. With the entry into force of the 2011 Law on Fair Costs and Prices, Venezuela expanded the price controls that had applied to certain essential products since 2003 to a much broader range of goods and services. In this context, it can be argued that the law’s punitive apparatus contributed to criminalizing merchants, business owners, and entrepreneurs who were attempting to replenish their inventories, while official discourse labeled the very agents who could help alleviate the shortage as “hoarders” and “economic warriors.” The episode reproduces the fallacy that Bastiat illustrated through the distinction between what is seen and what is not seen: the official displays what is distributed in the queues but omits what ceased to be produced as a consequence of his intervention. In Venezuela, what remained unseen was the lost supply of an entire country.
The Hugo Chávez government presented the measure under the fallacious pretext of protecting the population, curbing inflation, and combating what it considered market abuses. The regulations also required multinational companies to report their production, import, distribution, and marketing costs so that the state could set prices. Chávez even described it as a mechanism for protection against “capitalism,” while numerous observers at the time believed that the law was leading the country toward an increasingly centralized and planned economy.
Earlier, in 2003, the government had established a foreign exchange control system whose administration was placed in the hands of an official commission and which later came to operate with multiple exchange rates. From an Austrian and free-market perspective, this system constituted an institutional mechanism conducive to the creation of privileges: by politically determining the price of foreign currencies, it granted the bureaucracy the authority to allocate a scarce resource outside the market’s signals. Access to dollars at preferential exchange rates became a source of economic rents whose allocation, to some extent, can be interpreted as having been linked to political loyalty.
The overvaluation of the Bolívar encouraged the progressive replacement of the national currency with foreign currencies considered to be of higher quality and greater stability, while the Venezuelan economy underwent a process of de facto dollarization, characterized by its informal nature and by foreign exchange restrictions. International indices of economic freedom and human freedom reflect the country’s institutional deterioration: Venezuela recurrently appears in the lowest positions of various rankings, particularly in areas related to the protection of property rights, legal insecurity, monetary stability, and trade restrictions.
The government incurred expenditures exceeding its revenues and financed the resulting deficit through monetary expansion. Austrian theory does not merely describe this phenomenon; it also analyzes its distributive consequences. The Cantillon effect—formulated by Richard Cantillon in the eighteenth century and subsequently developed by the Austrian tradition, particularly by Murray Rothbard—holds that the injection of new money initially benefits those who receive it before prices have fully adjusted, while disadvantaging those who gain access to it at later stages.
In the Venezuelan case, the first beneficiaries were the state and its circle of associates, while those who bore the effects last were workers, teachers, and retirees, whose incomes lost purchasing power before they could spend them in the market.
To understand the magnitude of this phenomenon, it is essential to examine the period between 2016 and 2021, when Venezuela experienced one of the longest episodes of hyperinflation in modern history, according to Cagan’s conventional threshold. To describe it simply as a “monetary crisis” is an understatement: it was, in essence, a regressive tax imposed by the monopolist controlling monetary issuance, a tax that pulverized savings and destroyed one of the principal mechanisms through which households preserve their purchasing power over time. A government that sacrifices the purchasing power of its currency to finance its own hold on power does not manage the economy; it erodes it, dismantles it, and ultimately preys upon it.
The prosperity of a society rests on its capital structure: a heterogeneous network of intermediate goods, knowledge, exchanges, and contractual relationships that make labor productive, as Lachmann argued. The systematic expropriation of businesses, land, and industrial facilities, together with the expansion of state control over hundreds of productive enterprises, did not transfer wealth to the population; rather, it destroyed capital and undermined the foundations of production. A business is not merely a collection of physical assets: it embodies tacit knowledge, organizational capabilities, and legal certainty, all of which deteriorate disastrously when the state arrogates to itself the power to confiscate and control by political decree.
The Austrian School never separated economics from politics: unable to acquire the knowledge necessary to direct the economy, central planners have structural incentives to suppress information and dissent that challenge their ideological vision. In Venezuela, the dictatorship persecuted opponents and promoted legislation targeting so-called fascist and neoliberal thought, restricting peaceful demonstrations and the activities of organizations and political parties associated with these currents. Independent international missions documented judicial subordination, political persecution, and serious human rights violations.
In 2024, electoral authorities declared a winner without publishing official tally sheets, despite the opposition presenting its own, undermining international standards of electoral integrity. A system unable to secure legitimacy through ideas or results resorts to coercion: repression is not an accidental deviation, but a fundamental mechanism of its survival.
According to estimates from various sources, approximately 7.8 million Venezuelans have left their country in one of the largest exoduses in recent history, a figure equal to roughly one-quarter of Venezuela’s population in the mid-2010s. A state does not accidentally lose a quarter of its inhabitants: the political and institutional order governing it can become a force of expulsion. The scale of this migration crisis is also reflected in the hundreds of thousands of Venezuelans who risked their lives crossing dangerous migration routes, such as the Darién Gap, where migrant crossings intensified beginning in 2021 and peaked in 2023.
The social and economic indicators reveal the magnitude of Venezuela’s disaster. By undermining private property and distorting prices, the regime destroyed wealth and weakened the mechanisms through which a society coordinates its economic decisions. Mises explained the impossibility of rational economic calculation without markets, while Hayek highlighted the limits of central planners’ knowledge. Venezuela demonstrated both theses with brutal clarity: shortages under price controls, privileges under exchange controls, impoverishment through monetary issuance, and capital destruction through expropriations. The concentration of power completed this process by eroding individual freedoms. The laws of human action operate even when ideology ignores them, and those who challenge them do not repeal them: the people pay the price. Finally, it is important to remember that those who destroyed these conditions should not be remembered as failed reformers, but rather as the architects of a socialist authoritarianism that impoverished Venezuela and sacrificed fundamental freedoms.
