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MILTON FRIEDMAN IN CHILE: SHOCK THERAPY, ECONOMIC FREEDOM, AND EXCHANGE RATES

Published online by Cambridge University Press:  04 February 2020

Sebastian Edwards  and
Leonidas Montes
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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.

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Articles
Information
Journal of the History of Economic Thought , Volume 42 , Issue 1 , March 2020 , pp. 105 - 132
Copyright
© The History of Economics Society 2020

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Footnotes

Sebastian Edwards is the Henry Ford II Professor of International Economics at the University of California, Los Angeles; and Leonidas Montes is the director of Centro de Estudios Públicos (CEP) and professor at Universidad Adolfo Ibáñez (UAI), Chile. This paper has much benefitted from detailed comments from three referees. We are grateful to the editors for helping us produce a more focused final version, and to one referee for the challenging comments. We also thank Douglas Irwin, Edward Nelson, Deirdre McCloskey, and Rodrigo Vergara for help and comments, and Arnold Harberger, Rolf Lüders, Sergio de Castro, and Carlos Langoni for sharing with us their recollections of Friedman’s first visit, including his meeting with Pinochet. This paper is dedicated to the memory of Craufurd Goodwin, who encouraged this research.

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