Lessons from Mises on free-market reforms

How do you get from a distorted economy to a free market without the transition destroying the reform itself?

The recent public clash between President Javier Milei and businessmen such as Paolo Rocca over a pipeline contract exposes a deeper question that every market-oriented government must eventually confront: How do you actually get from here to there? When Techint lost a USD 203 million gas pipeline contract to Indian firm Welspun—with a bid 40% higher—Milei didn’t just defend the decision. He took to social media to call Rocca “Don Chatarrín de los tubitos caros” (Mr. Scrap Metal of the expensive little tubes) and suggested that journalists, economists, and politicians defending the steel industry know “who fills their envelopes.”

Whatever the merits of Milei’s position on this specific contract, the public ridicule of a major employer by a head of state is troubling as this is not the way to rebuild institutional respect.

When theory confronts reality

It’s worth revisiting what Ludwig von Mises—arguably one of the most principled defenders of free markets in the 20th century—actually recommended when asked to design a reform program for a developing economy. In 1943, Mises wrote an economic policy proposal for Mexico at the request of a Mexican business association. The document, which remained unpublished for over 50 years, reveals how even the most doctrinaire free-market thinker recognized that transitions matter.

Mises was uncompromising in his critique of protectionism. He called import-substitution policies (what he termed “the closed door method of industrialization”) economically disastrous, arguing they made people poorer by forcing them to buy expensive, inferior domestic products while reducing their export capacity. He understood that Mexico’s competitive advantage in labor-intensive production required lower labor costs than capital-rich countries—an uncomfortable truth, but an economic reality.

Now, when it came to implementation, Mises combined a sharp shift in expectations with a phased execution. Despite his theoretical commitment to free trade, he proposed an expectation shock coupled with gradual implementation (p. 221, bolds added):

A sound industrialization program for Mexico has to repeal all import duties. But as far as products that are already produced within existing factories are concerned, the tariffs have to be abolished only by a gradual process. Every year, a tariff reduction of 10 percent has to take place. Thus the enterprises will be in a position to adjust their operations to the new system of free trade.

 

Ten years. That’s what Mises, the uncompromising advocate of laissez-faire capitalism, recommended for Mexico’s transition to free trade. Note that this isn’t “let’s see how it goes” gradualism. It’s an announced, predictable schedule. Firms know on day one that tariffs will decline 10% annually until they reach zero. A proper shock therapy is a shock to expectations; it doesn’t have to be an immediate transition from here to there. There is a conceptual distinction to be made between naive and savvy shock therapy. With a shock to expectations, everyone immediately knows that the economy is moving toward free trade and at what pace.

This distinction matters. A “wait and see” approach preserves uncertainty and encourages rent-seeking as firms lobby to slow or stop each phase due to alleged unexpected events. A credible, announced schedule creates certainty and shifts expectations: the protection is ending, the only question is how you’ll adapt. Mises wasn’t being soft on protectionism—he was being realistic about how to make a transition stick politically while giving firms the adjustment time that prevents a backlash from destroying the entire reform.

More importantly, Mises’s proposal reveals that the credibility and sequence of reforms matter. The case for free trade presupposes that domestic companies operate in a comparable environment to their foreign competitors—that they can compete because they’re working on a level playing field.

As Mises framed it: “The distinctive mark of a sound economic policy is that it aims at the establishment of a durable system resulting in a continuous improvement of the nation’s well-being.” Not a spectacular reform that collapses under its own weight. A durable system.

Yes, Milei’s government has achieved important wins: significant fiscal improvements, deregulation of numerous sectors, reduction in monetary emission, and elimination of many bureaucratic barriers. These are genuine improvements that deserve recognition.

But the deeper structural reforms remain largely untouched. The tax burden remains confiscatory for businesses trying to compete internationally. Exchange rate policy continues to generate uncertainty about the real cost structure facing exporters and import-competing firms. The legal system’s enforcement of contracts and property rights, while improved, still falls far short of what would inspire large-scale domestic and foreign investment. The recent personal attack on Rocca actively undermines the investment climate the government claims to want.

Consider Techint’s position (which, to be clear, doesn’t make their specific bid competitive). Argentine steel producers face tax rates that foreign competitors don’t. They manage exchange rate risk that adds uncertainty to every calculation. They deal with an energy cost structure shaped by years of price controls and infrastructure underinvestment.

None of this justifies protectionism. But it does raise the question Mises grappled with: How do you transition from a distorted economy to a market economy without the transition itself becoming impossible to sustain politically?

The pragmatism of principle

This credible announcement approach is fundamentally different from “gradualism” as usually practiced. A typical gradualist approach would say: “We’ll liberalize when conditions permit,” which really means “we’ll liberalize when politically convenient,” which in practice means “probably never.” Mises’s approach says: “Free trade is happening on this exact schedule. Plan accordingly.”

If immediate trade opening triggers a political reaction that brings back protectionists who entrench even worse policies, you haven’t advanced economic freedom; you’ve set it back. But if you announce gradualism without credibility—without a clear schedule and commitment mechanism—you get the worst of both worlds: continuing protection plus continuing uncertainty about when it will end.

This is where Milei’s approach becomes more complex to evaluate. On one hand, his government has made credible commitments on some fronts (at least while he is the president). On the other hand, the lack of a clear institutional framework for deeper reforms creates uncertainty. Publicly attacking individual business leaders doesn’t signal credible rules of the game—it signals that outcomes depend on the president’s personal favor or displeasure.

The path forward

Argentina needs deeper structural reform, not less. But precisely because these reforms are so important, they need credible commitment mechanisms. The sequence of reforms matters. Argentina needs to build credibility through institutions and law, not presidential tweets and personal attacks.

The transition to the ideal economic policy is not a detail. It’s the whole game. Market reformers need both the courage to commit to the destination and the wisdom to structure a credible path. Reformers who confuse ideological purity with effective reform risk discrediting the project.

And no amount of calling people “Don Chatarrín” changes that reality.

This post was written with the assistance of Claude (Anthropic).
Originally published here: https://economicorder.substack.com/p/when-free-market-reformers-forget