This file is a short political-economic commentary: Rothbard uses the 1990 Peruvian presidential contest to distinguish a genuine free-market politics from elite “state capitalism” and coercive anti-inflationary “shock” programs. Its central thesis is that Mario Vargas Llosa’s apparent free-market candidacy faltered because he ceased to represent the entrepreneurial, popular market liberalism associated with Hernando de Soto and instead became identified with Peru’s Criollo ruling class and with authoritarian stabilization measures like those then attempted in Brazil.
Rothbard opens with the collapse of media certainty. Vargas Llosa had been presented as Peru’s liberal savior against inflation, socialism, and Maoist insurgency, yet Alberto Fujimori—unknown, underfunded, and operating from a storefront—rose unexpectedly into contention. Rothbard frames the whole essay with a skeptical question:
What exactly happened on the road to the Peruvian free-market paradise?
The answer begins with Hernando de Soto. For Rothbard, de Soto’s importance lies in defining the market not as privilege for contractors and monopolists, but as an order of popular private entrepreneurship. Vargas Llosa’s initial promise depended on this association.
Vargas Llosa had been converted to the free market by the remarkable economist, Hernando de Soto, whose best-selling work, The Other Path, not only called for a free market, but advocated a genuine “people’s” free market based on private entrepreneurs, in contrast to Peru’s (and other Latin American countries’) unfortunate experiences with state capitalism that fosters privileged contractors and monopolists.
Rothbard’s core conceptual move is to separate “free market” from policies that merely use market language while preserving elite power. De Soto’s break with Vargas Llosa becomes the interpretive hinge of the essay:
But de Soto soon broke with Vargas, denouncing him for selling out to the very state capitalism that de Soto had spent so many years denouncing.
The political problem, then, is not simply economic doctrine but social embodiment. Vargas Llosa’s campaign appeared to Rothbard as a Criollo project: wealthy, white, elite, uncomfortable among Indian Peruvians, and tied to the very landlords and state-connected capitalists whom a popular market movement should have challenged. Fujimori’s rise is explained not as an ideological triumph but as a social and ethnic realignment against this ruling bloc.
Rothbard next turns to Vargas Llosa’s embrace of Fernando Collor de Mello’s Brazilian “shock treatment,” treating it as the final betrayal of authentic liberalism. He rejects the press’s description of the Brazilian program as free-market radicalism, arguing that its central device—freezing bank accounts and contracting the money supply—was a statist confiscation, not market reform.
De Mello’s policy may well be a “shock treatment,” but it goes far beyond any shock administered by a free market.
This distinction allows Rothbard to defend Austrian opposition to bailouts while denying that arbitrary monetary seizure is a legitimate deflationary cure. The Brazilian state, in his account, first inflates and then confiscates, punishing citizens for the consequences of its own monetary policy.
Far from being free market, the Brazilian policy amounts to first engaging in a massive printing of money, then spending this newly-created money, driving up prices drastically, and then proclaiming a cure by confiscating the largest part of that money.
The essay’s final section explains Fujimori’s appeal. Rothbard emphasizes his Japanese-Peruvian background, his family’s small-business history, and the earlier persecution of Japanese Peruvians under U.S. wartime pressure. These details allow Fujimori to appear to Indian voters as another outsider to Criollo domination. His campaign’s poverty, informality, and slogan—“Work, Honesty, Technology”—reinforce this contrast.
Fujimori, by running a non-moneyed, grass-roots campaign, tapped this favorable sentiment.
The relevance of the essay lies in its warning about market reform in unequal societies. Rothbard argues that “free market” politics collapses when it is represented by oligarchic interests or by technocratic coercion. A credible market program must oppose state capitalism as much as socialism, and must be legible to ordinary producers rather than imposed through elite austerity. His closing judgment is characteristically blunt:
If Vargas loses, it will be because he deserves it.
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