Milton Friedman in Chile: Shock Therapy, Economic Freedom, and Exchange Rates

Abstract

We analyze Milton Friedman’s two visits to Chile, in March 1975 and November 1981. We rely on a number of sources, including Friedman’s archives, press archives in Chile and the rest of the world, interviews, and the papers and recollections of some of those who accompanied Friedman during his meeting with Pinochet. Although Friedman’s 1975 visit has been widely discussed, his 1981 visit has been largely neglected. However, this visit was particularly important as it preceded a severe currency and banking crisis, stemming from an overvalued fixed exchange rate. The crisis put at risk the influence of the “Chicago Boys” and the political and economic liberalization process. We analyze Friedman’s views regarding Chile’s pegged exchange rate strategy followed between 1979 and 1982, and his position on economic and political freedom.

The Brazilian Connection in Milton Friedman’s 1967 Presidential Address and 1976 Nobel Lecture

“…That included Carlos Geraldo Langoni, who finished his PhD in 1970 and, together with Harberger, accompanied Friedman to Chile in 1975. On that occasion, Langoni lectured about Brazil as a showcase of economic policies supposedly consistent with the Chicago agenda (Edwards and Montes 2018;Foxley 1980). 3 See Boianovsky (2018b) on the role of economists' traveling in the formulation of new economic hypotheses throughout the history of thought.…”

Samuelson on Populist Democracy, Fascist Capitalism and the Vicissitudes of South American Economic Development (1948–1997)

“…Accelerating inflation episodes in Brazil, Argentina and Chile played a significant role in the formulation of Friedman's (1968Friedman's ( , 1977 concept of a long-run vertical Phillips curve and of mechanisms to cope with chronic and volatile inflation (see Boianovsky 2020). 1 Whereas Samuelson never set foot in any of those three countries, Friedman paid visits to Brazil in 1973 (Boianovsky 2020) and, famously, to Chile in 1975and 1981 (Edwards and Montes 2020).…”

“…In November that year, Milton Friedman also came to Peru and was interviewed by the same magazine(Edwards and Montes 2020) Samuelson ([1980c). 1983) wrote a report for Newsweek about his travel to Peru, which was then experiencing a democratic recovery.…”

Milton Friedman and Exchange Rates in Developing Countries

“…Johnson (1969). SeeObstfeld (2020) for a modern evaluation of Johnson's views.5 See the discussion inEdwards and Montes (2020). See, also,Arancibia and Balart (2007) and DeCastro (1992).6 SeeFriedman and Friedman (1998, chapter 24).…”