[The story of the University of Chicago Economics Dept's involvement with Latin American students] began with Theodore W. Schultz, who was a very great economist, won the Nobel Prize, was president of the American Association and so on, and he, in the early '50s...I.e., long before either Salvador Allende or Augusto Pinochet had any power in Chile.
...he had a major project entitled Technical Assistance to Latin America.... On a visit to Santiago, he had dinner with the then-AID [Agency for International Developlment] director, Albion Patterson...and when Patterson heard Schultz talk, he said, "This is the kind of idea that Chile needs,"....so Patterson got the idea of a university-to-university link between a Chilean university and the University of Chicago....we trained under that program itself around 30 Chileans, many who became later ministers and Central Bank presidents and things like that. But that set in motion a whole tradition of Chilean students coming to Chicago.... Meantime, we had a similar program started by the same Albion Patterson in Argentina. ...afterwards we had a continuing flow of Argentines, and by this time Mexicans, Brazilians, and so on were mingling in so that Chicago, in its heyday, had 40 to 50 Latin American graduate students out of a total stock of, say, 150 to 180, so they made up a very important part of the program. ... Now Latin American students can get in almost anywhere because they have shown how good they are, but in those days, they were viewed with such suspicion that it was lucky if you could find three or four at Harvard at any one time or five or six in MIT, when you could find 40 or 50 in Chicago. That is what gave Chicago such importance in the Latin American scene.
Gee, the name Milton Friedman hasn't even come up yet. So let's skip to the entrance from stage left of the Castro-dolator Salvador Allende;
INTERVIEWER: Tell me a bit about Chile.... Allende gets elected....
AL HARBERGER: Well, Allende...as a politician of the Socialist Party, and he ran as the candidate of a left-wing coalition. Many people were surprised at the degree to which his policies, once in power, were policies that might have been explainable if he'd had a 65 percent majority, but [not when he only got a little over a third of the vote in a three way contest]....That's how 'democratic' Allende's election was. The Chilean people split the majority of their vote nearly equally between two non-socialist parties, and the socialist (actually Castroite Communist) snuck in to office.
What happened [after Allende was in office] was a huge move toward socialization of the economy. There were many actual expropriations of enterprises, including the major mines, but in addition to that, there was a thing that they call intervention, which is a little bit like what we have as receivership for a bankrupt firm [where] the court appoints a person to run the firm and it isn't the owner. Well, in the Allende system, you could do that on any firm, whether it was bankrupt or not. (laughs) And by the time the Allende period was halfway through, about 90 to 95 percent of the main Chilean industrial sector had been either nationalized or intervened.I.e., Allende expropriated the property of ordinary Chileans and, though Harberger doesn't say this, when he couldn't legally accomplish the abolition of private property he encouraged mobs to rampage throughout Chile to intimidate landowners into abandoning their property (source; Georgie Anne Geyer's Buying the Night Flight).
INTERVIEWER: ... And what was happening to the huge inflation?
AL HARBERGER: All the things got way out of hand. I don't know how things would have been if the Allende government had had decent economic advice, but they did kind of silly things. They put controls on all the prices while mounting a monetary policy that led to enormous inflationary forces. There was a point in time when there were 13, I believe, official exchange rates to the dollar. The cheapest dollar was 25 escudos, and the most expensive official dollar was 1,300 escudos, but the black market was like 1,800 at that time. You see, it was just a crazy world. The black-market prices of goods, which are usually quoted about a 20 percent premium or a 10 percent premium over the official price, they never talked that way, six times the official price, seven times, 10 times, five times. That's how it worked, and so the market was just out of function, you see. It was not working at all.
INTERVIEWER: So one other question: The CIA intervened, particularly with the [strikes].... Would you say that the economy was sabotaged by the U.S.?
AL HARBERGER: The U.S. was on that side, [and] I don't think there can be any doubt that the majority of Chileans were on that side at that moment in time.Which means that Augusto Pinochet came to the rescue of the majority of Chileans--and after being invited to do so by Chile's Chamber of Deputies. But we're still not finding Milton Friedman playing any role here, so let's skip ahead;
INTERVIEWER: Tell me about that time Milton Friedman made his famous visit to Chile?
AL HARBERGER: Oh, Milton Friedman's visit took place in March, I believe, of 1975, and his judgment about the economy was not in any sense unique. I mean, it was what any good economist, looking at the Chilean economy at that time and seeing that kind of a mess, would say. But I think that Milton's presence probably helped to maybe stiffen the spine of people who were trying to insist on better economic policies. Maybe his remarks convinced some people that would otherwise not be convinced that this kind of change was needed.Pinochet's coup deposing Allende took place in September 1973. So, the needed change Harberger is talking about is away from the policies of the Pinochet military government. Harberger's description of the status quo at that time being;
...inflation...was like 400 percent in 1974-'75, and it got down under 100 percent, I think for the first time, by '78 or '79, and it got down to 10 percent only in '81.....
INTERVIEWER: Of course Milton Friedman especially then became a kind of a kind of hated figure, didn't he? ....Why do you think people [hated] him?
AL HARBERGER: Well, it's a hard story there. The left wing of the world loved Allende. Allende was the first socialist elected in a Latin American country as I remember, that actually took office anyway, and he was the darling more of the European left than the American left, but we always in the United States had what we call radical student groups like SDS [Students for a Democratic Society] who took their cues from the European left, so these are the people for whom Milton Friedman then became a figure of hate. They organized demonstrations against him wherever he went, and this went on for a period of years, and I see nothing that he did to deserve that. (laughs) And he [faced it] with such courage and such strength of character, I marvel to this day at the way he took that.Again, Harberger doesn't mention this (he may not be aware of it) but most of the demonstrations against Friedman were instigated by Yuri Andropov's KGB; it was disinformation swallowed, hook, line and sinker, by the likes of Anthony Lewis and Jack Anderson back then (and still, now, by Jamie Galbraith).
INTERVIEWER: But going back to those demonstrators, still [there's a sort of] question on Milton Friedman, because of this association. I'm not saying that it's right or wrong, but just why do you think their people are so horrified?
AL HARBERGER: Well, as I say, I think that the whole response picture to Chile has to be linked to somebody loving Allende and somebody being terribly disappointed when Allende was put out of office. Now I think if you look at human rights violations or political violations, you will find them in any Asian country almost at that time, in multiples of whatever was happening in Chile and in Latin America. You would find many other countries in which the same sort of thing was happening and was not getting that treatment, so my question, and the reason for my answer in connection with Allende, is... Allende is what distinguishes the Chilean case from all these others. I mean, Milton Friedman went to Chile for one week. You can take the top 100 economists in the country of that time, and probably 85 of them had been working seriously in places like Korea, Taiwan, Pakistan, Bolivia, Paraguay -- you name it -- and were not getting any demonstrations.
INTERVIEWER: One of the points Friedman was making was that these kind of free-market policies ultimately lead to a freer political system. In other words, was he sort of suggesting that the free-market policies would ultimately undermine Pinochet's [regime]?
AL HARBERGER: Oh, I think he always said that. He said that that you cannot have a repressive government for long within a genuinely free economic system and that the freedom is going to have to pass over to the political side, and that of course, is exactly what did happen in Chile. The evolution took quite a number of years to make, but it happened, and in that sense, Chile is an example of a peaceful transition from [authoritarianism] to a civilian democratic government.So, the only role Friedman played with regard to Chile was to first briefly advise the government (about a year and a half after it took power) how to control a virulent inflation, and to argue that Chile needed freedom and democracy. Chile should put up a statue of Friedman in their most prominent plaza.