Economic Genocide in Chile: Open Letter to Milton Friedman and Arnold Harberger

Author(s): Andre Gunder Frank

Source: Economic and Political Weekly, Vol. 11, No. 24 (Jun. 12, 1976), pp. 880-888
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4364704
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Economic Genocide in C h il e
Open Letter to Mil ton Friedman and Arnol d Harberger
Andre Gunder Frank
Th is is a critique, written in th e form of an open l etter, of th e economic pol icies of th e mnil itary Junta
in C h il e.
Th e Junta's economic pr(ogramme consists of freeing al most al l prices to raise th em several -fol d
to 'worl d l evel s' and increasina th e money suppl y concomitantl y. A 'free' capital market is fostered as
wel l , wh ich beyond concentrating capital into congl omerates al so creates its own financial instrumnents
above and beyond th e control and even th e accounting of th e state, and wh ich at tne sam?e time in-
creases th e amount of monetary mneans of payment and th eir vel ocity of circul ation.
Both of th ese 'freedoms' generate a runaway infl ation wh ose consequences, anzd intended effects,
are to sh ift income and weal th trom l abour to capital and from smal l er to bigger capital .
Fortifying th e same process to th e sanme effect stil l furth er, 'freedom' must be promoted by de-
stroying or yel l ow-dog-co-opting th e organisation of l abour and el imtinating its bargaining power, and
th rough al l means preventing money wages from keeping pace with z infl ation in both private and publ ic
empl oyment. In sh ort, real wages are drastical l y reduced by bringing prices but not wages to 'worl d'
l evel s.
At th e same time, th e state divests itsel f of state sector enterprises at bargain basement prices
to C h il ean and particul arl y to foreign big capital , doing so not onl y with enterprises th at became state-
owned or control l ed under th e Al l endie governmtent, but al so with enterprises th at h ad been financed
th rough state investment for over a generation.
Simil arl y, a crash programmize of agrarian couwter-reform is instituted and some 2 mil l ion h ectares
of l and expropriated during th e Al l enzde and Frei administrations is returned to th eir former owners
and/or to new capital ist owners, wh il e repressing and expl oiting th e Peasantry anid rur2l l abourers even
more brutal l y th an th e urba'z popul ation.
Not onl y wages buit al so empl oyment and expenditures in th e publ ic sector are cut back and
much of th e most advanced social security and publ ic h eal th system of Latin America (outside of C uba)
is turned into a
private
pay-as-you-go business.
In th e 'external ' sector, th ere is repeated deval uation, tariffs and oth er import restrictions are
rel axed and every kind of favour is extended to foreign capital , incl uding payments to th e American
copper companies in excess of th e val ues of th eir former properties. Th e bal ance of payments is redress-
ed by reducing 2mports of goods necessary to meet th e essential consumption needs of th e popul ation,
wh il e exporting manufactures and even food products th at th e consurmer's reduced purch asing power
no l onger permits th emn to buy. Production is restructured and investment is redirected to
permit
th e
stil l greater promotion of 'non-traditional ' exports of food, raw material s and manufactures at th e ex-
pense of th e C h il ean consumrers, wh ose most essential needs are sacrificed more and more by an inten-
tional , cal cul ated and forcibl y imposed pol icy of economic genocide.
MILTON FRIEDMAN and Arnol d
Harberger: You wil l recal l th at,
fol l owing Harberger's first publ ic visit
to C h il e after th e mil itary coup, I wrote
you an open l etter on August 6, 1974.
After Harberger's second visit and th e
publ ic announcement of Friedman's
intention to go to C h il e as wel l , I wrote
you a postscript on February 24, 1975.
You wil l recal l th at in th is open l etter
and postscript I began by reminiscing
about th e genesis, during th e mid-
1950s, wh en I was your graduate
student, of th e "C h il e programme" in
th e Department of Economics at th e
University of C h icago, in wh ich you
trained th e so-cal l ed "C h icago boys",
w7h o nowv inspire and execute th e eco-
nomic pol icy of th e mil itary Junta in
C h il e. I th en went on to summarise
th e "rational e" of your and th e Junta's
pol icy by quoting Harberger's publ ic
decl arations in C h il e and by citing th e
Junta's official spokesmen and press.
Final l y, I examined with you th e conse-
quences, particul arl y for th e peopl e of
C h il e, of th e appl ication by mil itary
force of th is C h icago/Junta pol icy:
pol itical repression and torture, mono-
pol isation and sel l -out to foreign capital ,
unempl oyment and starvation, decl ining
h eal th and increasing crime, al l fostered
by a cal cul ated pol icy of pol itical and
economic genocide.
Since my l ast writing, worl dwide
condemnation of th e Junta's pol icy h as
continued and increased, cul minating
with th e condemnation of th e Junta's
viol ation of h uman righ ts by th e
United Nations General Assembl y in a
resol ution approved by a vast majority
incl uding even th e United States and
with th e Junta's condemnation even
by th e Human Righ ts C ommittee of
th e US-dominated reactionary Organisa-
tion of American States. Th e US
Senate voted to cut off mil itary aid and
sal es to th e C h il ean Junta (th ough th e
House of Representatives is wil l ing to
stop onl y aid and not cash sal es), and
th e Europeans voted in th e C l ub of
880
EC ONOMIC AND POLITIC AL WEEKLY
June 12, 1976
Paris renegotiaLion of th e C h il ean debt
and in th e Worl d Bank not to extend
financial aid to th e Junta any furth er
(al th ough th e US-dominated Worl d
Bank recentl y extended a new credit of
33 mil l ion dol l ars anyway - wh ich is
a matter to wh ich we sh al l h ave to
return bel ow). Opposition to th e
C h icago/Junta economic pol icy h as al so
vastl y increased inside C h il e itsel f
since my l ast writing: Th e Fascists,
Pabl o Rodriguez Grez (l eader of th e
fascist terrorist organisation against
President Al l ende, Patria Y Libertad)
and Orl ando Saenz, former President
of th e Sociedad de Fomento Fabril
(th e C h il ean Manufacturers Associa-
tion), h ave produced a constant stream
of criticism of th e C h icago/Junta econo-
mic pol icy for over a year now, arguing
in defence of medium and smal l capital .
Latel y, even former President Eduardo
Frei, first in interviews and recentl y in
a book, h as l aunch ed into an acrimoni-
ous critique of th e same pol icy, emph a-
sising not onl y th e destatisation, but
th e, l iteral l y, denational isation of C h il ean
industry, as h e says. Final l y, accord-
ing to th e Londoni Times and oth er
reports, even important el ements of th e
C h il ean mil itary, l ed by Junta-member
Air Force General Leigh , h ave demand-
ed a modification of th e past economic
pol icy.
C l oser to h ome and, as you know
much better th an I do, since I wrote
you my first open l etter, you yoursel ves,
Mil ton Friedman and Arnol d Harberger,
h ave become th e object of severe
criticism for your active th eoretical ,
pol itical and personal support of th e
C h il ean mil itary Junta. First th ere we-e
l etters to th e editor and editorial s in
th e University of C h icago student news-
paper, th e Maroon, taking you to task.
Th en a "C ommittee Against Friedman,
Harberger C ol l aboration with ' th e
C h il ean Junta" received increasingl y
widespread support from many on your
own campus, wh o righ tl y fel t th at you
are damaging th e reputation of th eir
University. Th en, an official University
C ommission of Inquiry was set up to
examine your col l aboration with th e
mil itary Junta in C h il e and its impl ica-
tions. In th e meantime, such prestigious
and far-from-radical el ements of th e
American press as th e New York Times
and even of th e conservative business
press such as Business Week publ ish ed
various very critical articl es h eadl ined,
for instance, "C h il e Is Acid. Test for
Friedman Economics -
But C risis
Worsens" (NYT/Inxt Heral d Tribune,
22/3/76). Al l of th is mounting
criticism is th e expression of th e conse-
quences - admittedl y not so much for
th e peopl e of C h il e as for business
capital , both C h il ean and international ,
wh ich most of th ese critics represent -
of th e C h icago/Junta economic pol icy
in C h il e, particul arl y since you, Mil ton
Friedman (accompanied by Ariol d
Harberger on your th ird trip), went
to C h il e in March , 1975, and pres-
cribed wh at you yoursel f cal l ed a
"sh ock treatment", wh ich , beginning
in April , 1975, was th en appl ied by
th e "super-economic Minister" C auas
h is 'economic recovery programme"
of cal cul ated and organised economic
genocide of vast masses of th e C h il ean
peopl e. Th e troubl e, of course, with
l iteral l y kil l ing of increasing numbers
of th e C h il ean popul ation and ch ok-
ing off increasing numbers of C h il ean
businesses is th at, th ough th is pol icy
affords substantial profits to th e ever-
smal l er numiber of
-
increasingl y for-
eign, as Frei compl ains - capital ists
and congl omerates in wh ose h ands ca-
pital is concentrated, th is pol icy is
al so increasingl y h armful to th e inte-
rests of ever-l arger grmups of smal l ,
medium and even (ex) l arge business.
And th is expl ains th e rising l atter-
day cXritique of th e C h icago/Junta eco-
nomic pol icy and, in some cases,
even opposition to th e Jumta itsel f of
ideol ogical and pol itidal representa-
tives of economic interests in C h il e and
abroad, wh o first comnived to bring th e
Junta to power, th en supported it or
kept convenientl y sil ent about its cri-
mes, and onl y recentl y come to agree
th at enough is enough .
Since it h as now been one year
since you went to C h il e in March
1975, to prescribe your sh ock treat-
ment (and a l ittl e l onger since I l ast
wrote you in February 1975) and
since data for 1975 are now becoming
avail abl e, th is may be a suitabl e oc-
casion to write you again and to ex-
amine h ow th e C h il ean patient h as
responded to your treatment. Th is I
sh al l do bel ow, as far as th e Junta's
avail abl e, often confl icting, and never
too trustworth y data permit. But since
your sh ock treatment was, by your
own admission, onl y th e extension and
intensification of th e C h icago/Junta
economic pol icy al ready taugh t by
you for decades and appl ied by th e
Junta since th e mil itary takeover, it
may be appropriate to briefl y summa-
rise th e essential el ements of th is po-
l icy again (th is time with out rel ying on
th e l ong quotations of my earl ier l et-
ter), and th en to review th e impl e-
mentation of economic genocide since
September 11, 1973, with out dwel l ing
again on th e, by now, universal l y de-
nounced pol itical repression and syste-
matised torture, wh ich , far from h av-
ing abated as some may h ave h oped,
h ave continued massivel y to suppress
wider and wider circl es of th e popu-
l ation as th ese increasingl y react first
to th e
C h icago/Junta pol icy and th en
to th e economic genocide and busi-
ness fratricide of th e
Friedman/C auas
sh ock treatment.
Your
C h icago/Junta economic pol icy,
of wh ich your Friedman sh ock treat-
ment is but th e extension and inten-
sification, may be summarised briefl y:
Begin by freeing al most al l prices to
raise th em
several -fol d to "worl d l e-
vel s" and -
paradoxical l y for a C h i-
cago purist -
increasing th e money
suppl y
concomitantl y. Fostering a
"free" capital market as wel l , wh ich
beyond
concentrating capital into con-
gl omerates, al so creates its own finan-
cial
instruments above and beyond th e
control and even th e
accounting of
th e state, and wh ich at th e same time
increase th e amount of monetary
means of payment and th eir vel ocity
of circul ation. Both of th ese "free-
doms" generate a
run-away infl ation
wh ose consequences and surel y al so
intended effects are to sh ift income and
weal th from l abour to capital and
from smal l er to bigger capital . Forti-
fying th e same process to th e same
effect stil l furth er, "freedom" must be
promoted by destroying or
yel l ow-dog
co-opting th e
organisation of l abour
and
el iminating its
bargaining power,
and th rough al l means preventing mo-
iney wvages from keeping pace with infl a-
tion in 1o0th private and publ ic empl oy-
ment. In a word, drastical l y to re-
duce real wages by bringing prices
but not wages to "worl d" l evel s. At
th e same time, th e state divests itsel f
of state sector
enterprises at bargain
basement prices to C h il ean and parti-
cul arl y to foreign big capital , and do-
ing so not onl y with
enterprises th at
became state-owned or
control l ed under
th e previous
government, but al so with
enterprises th at h ad been financed
th rough state
investment for over a
generation (in 1970, before
Al l ende,
70 per cent of al l investment in C h il e
h ad been
state-financed, h al f
directl y
and h al f
indirectl y, th rough subsidies
to private
capital ).
Simil arl y, to in-
stitute a crash
programmie of
agrarian
RR1
June 12, 1976
EC ONOMIC AND POLITIC AL
WEEKLY
counter-reform, affecting Y2 of th e re-
formed properties and, on th e average,
th e best 1/5 of th eir basic irrigation
h ectares and returning some 2 mil l ion
h ectares of l and expropriated during
th e Al l ende and Frei administrations
to th eir former owners and/or to new
capital ist owners, wh il e repressing and
expl oiting th e peasantry and rural l a-
bourers even more brutal l y th an th e
urban popul ation. C ut back not onl y
wages but al so empl oyment and ex-
penditures in th e publ ic sector and
convert much of th e most advanced
social security and publ ic h eal th sys-
tem of Latin America (outside of
C uba) into a private pay-as-you-go
buisiness. In th e "extemal " sector, de-
val ue r epeatedl y, reduce tariffs and
oth er import restrictions, extend every
kind of favour to foreign capital , in-
cl uding payments to th e American
copper companies in excess of th e va-
l ues of th eir former properties. "Re-
dress th e bal ance of payments" by re-
ducing imports of goods necessary to
meet th e essential consumption needs
of th e popul ation, wh il e exporting th e
manufactures and even food products
th at th e consumers' reduced purch asing
power no l onger permits th enm to buy
and th e producers' sal es no l onger per-
mit th em to dispose of oni th e domestic
market - and restructure production
and th en redirect investment to per-
mit th e stil l greater promotion of "non-
traditional " exports of food, raw ma-
terial s and manufactures at th e ex-
pense of th e C h il ean consumers, wh ose
most essential needs are sacrificed
more and m-l ore, by an intentional ,
cal cul ated and forcibl y imposed C h i-
cago/Junta pol icy of economic geno-
cide.
Mil ton Friedman
and Arnol d Har-
berger, l et iis review some of th e mo-
dal ities and consequences of th is C h i-
cago/Junta pol icy of economic genocide
using as far as possibl e th e Junta's
own data. We may begin with infl a-
tion, wh ich h as been ch ronic in C h il e
for over a generation, accel erating
every time buisiness raises prices to
stem or recuiperate a cycl ical
decl ine
in its profits and wh ich is th en "com-
batted" bv th e administration of me-
dicine, prescribed by visiting missions
of "experts"
from th e International
Monetary Fund and th e United States,
wh ich al ways boil s down to' doses of
deval uation, reduction of publ ic expen-
ditures and depression of th e wage
rate (th at is essential l y th e same me-
dicine wh ich you th en increased to
"sh ock" doses). During th e rel ative
industrial recovery of th e first h al f of
President Frei's administration,
th e
official December to December infl a-
tion decl ined from 38 per cent in 1964
to 17 per centt in 1967. But with th e
onset of th e recession in 1967, in wh ich
th e rate of industrial growth decl ined
notabl y, th e rate of infl ation moved
I)ack up to 28 per cent in 1968,
29 per cent in 1969 and 34
per cent in 1970 despite th e strength -
ening of "price control s". Al l ende
brough t th e December to December
infl ation down to 22 per cent in 1971.
With increasing economic difficul ties,
not th e l east caused by th e economic
interests th at paved th e way for mil i-
tary takeover, infl ation increased again
and took off to 163 per cent in 1972
and 165 per cent between January
and August 1973, according to data
since publ ish ed by th e Junta.
But after its mil itary takeover on
September 11, 1973, and according to
its own publ ish ed data, th e consumer
price index sh ot up to reach 508 per
cent infl ation for th e wh ol e year of
1973, th at is, rising anoth er 343 per
cent between -September and Decem-
ber, of wh ich 88 per cent in th e one
month of October 1973 al one. Oth er
estimates put th e 1973 infl ation at
over 1,000 per cent, especial l y for ba-
sic necessities; and th e Junta h as l ate-
l y sometimes itsel f used a 1,000 per
cent figure, but attributing it to th e
Al l ende Administration in order to ar-
gue by comparison th at th e Junta
"l owered" th e rate of infl ation. None-
th el ess, by its own indexes, th e Junta
raised th e rate of infl ation in its first
year, September 1973 to September
1974, to 611 per cent. Oth er estimates
put th e real rate of infl ation at 1270
per cent for th at same one-year period
of Junta rul e. For th e cal endar year
1974, th e Junta's official consumer
price index sh ows an increase of 376
per cent until December 1974. After
th e imposition (at wh at cost we wil l
examine l ater) of your "anti-infl atio-
nary" "sh ock treatment", th e rate of
infl ation was "reduced" to 340 per cent
for al l of 1975. Trtue, th e second
semester infl ation of 7 per cent and
8 per cent a month was l ower th an th e
first semester 1975 infl ation, but,
according to experience. th is is "nor-
mal " in C h il e, and during th e first
month s of 1976, th e month l y infl ation
h as again risen to over 10 per cent.
Summarising, cal cul ating from th e
Junta's own consumer price index, th e
price l evel in C h il e from September
1973 to December, 1975 h as risen 92
times (over 9,200 per cent). Th e real
consumer price l evel must h ave risen
at l east twice th at mnuch . Indeed, one
of th e few items th at is stil l subject to
price control and for wh ich , th erefore,
th ere is stil l an official price is th at
wh ich is - and now for l ack of income
al l th e more so - th e main consumption
stapl e, bread. And th e official price of
bread in December 1975, was 2.50 new
pesos, th at is, 2,500 ol d escudos, per
kil o. Th at is, th e bread puice infl ation
h as official l y be'n 227 timl es (twenty-
two th ousand seven h undred per cent)!
Th at is two and a h al f times th e offi-
cial l y cal cul ated "consumer price
index"! By comparison, th e official
month l y "l iving wage" (suel do vital )
h as risen about 10 times from about
10,000 escudos in September 1973 to
99,000 escudos = 99 pesos in Decem-
ber 1975. Th e official minimum h ourl y
wage h as risen 25 times, and th e
minimum month l y sal ary of publ ic
empl oyees between about 40 and 60
times, depending on bonuses. Th us,
official minimum wages and sal aries
h ave risen onl y smal l fractions - 1/20,
1/10, 1/5 - of th e official increase in
prices. Using Junta figures, th e fol l ow-
ing index of real wages emerges:
January 1970: 100; December 1970:
102; December 1971 : 127; December
1972: 107; March 1973: 121; June
1973: 92; September 1973: 80;
January 1974: 76; April 1974: 47;
May 1974: 62; Jul y 1974: 57. Ex-
President Frei now estimates decl ine in
wage earners' real income as at l east
35 per cent since 1969 in h is adminis-
tration, omitting
th ereby
any mention
of th e increase of workers' real income
during th e Al l ende administration, sh own
even in Junta figures. Oth er estimates
are th at, by th e end of 1975, th e poorest
urban wage and sal ary earner's real
income h as decl ined bi 2/3 to 1/3 or
even to 28 per cent of wh at it was
in 1972. Th e upper 5 per cent income
r
eceivers' sh are of national income h as
risen from about 25 per cent to about
50 per cent, wh il e th e sh are of national
income going to wages and sal aries,
wh ich was 51 per cent in 1969 under
th e Frei Administration and wh ich was
raised to 64 per cent in 1971/72 by
Al l ende, h as now been depressed or
compressed to about 38 per cent in
1974/75 by mil itary force and th e "free
market" of th e C h icago/Junta economic
pol icy.
Th e real income effects of th is com-
882
EC ONOMIC AND POLITIC AL WEEKLY
June 12, 1976
TABLE 1: ANNUALi AVEFRAGE C ONSUMPTION
(kil ograrnmes/person)
1971-73 Per C ent Decl ine
Itemn 1970 Average 1974 1974/71-73
Wh eat 176 184
170 - 8%
Rice 11.5 9.7 4.8 -50%
Beans 5.5 6.1 4.4 -28%
Sugar 33 35 28 -20%
Mil k (l itres) 132 166 127 -23%
Vegetabl e oil 6.4 7.6 6.7 -12%
Pork/mutton/ch icken 4.2 4.8
4.0 -17%
Al l meat, mostl y beef 31.3 28.8
28.3 - 2%
pression of wage and sal ary payments
may be partial l y gauged by some con-
sumption estimates - th ough even th ese
are stil l averages in an increasingl y
unequal distribution of income and
even of wage and sal ary receipts and
th ough th ey necessaril y l eave entirel y
out of account th e vastl y increased
non-receipt of income th rough unem-
pl oyment and oth er causes. C onsump-
tion estimates in kil os per person
publ ish ed in C h il e by th e Jesuit maga-
zine Mensaje (No 239, June 1975,
p 242) and wh ich unfortunatel y
onl y
go until 1974, th at is, before your
sh ock treatment again l owered mass
consumption, are summarised in Tabl e
1.
Potato consumption increased, but is
concentrated in th e South , wh ere th ey
are grown and from wh ich , for reasons
of bul k, th ey cannot be easil y exported.
Th e estimated decl ine in average cal orie
consumption to th e end of 1974 is 15
per cent. Th e C onfederation of Private
Empl oyees (C EPEC H) constructed bud-
get estimates for its members on a mini-
mum sal ary with 3 dependents (famil y
of 4). See Tabl e A.
Some oth er budget estimates are th at
45 kil os bread, 45 kil os mil k, and 100
municipal bus fares cost 17 per cent
,of
th e l owest sal ary of a publ ic em-
pl oyee in September 1973, and th e
same consumption of th e same publ ic
empl oyee's l owest sal ary in Jul y 1975,
cost 73 per cent of h is sal ary. No
wonder th at th e consumption of mil k,
l et al one of oth er "l uxuries" l ike simpl e
consumer goods and movie and foot-
bal l attendance, h as dwindl ed and th at
in Jul y 1975, bus tickets sol d in San-
tiago were 12 mil l ion, or 32 per cent
l ess th an "normal " as workers and
empl oyees are increasingl y obl iged to
wal k to work in order to earn th eir, l iter-
al l y, dail y bread. Since, oth er th an bread,
bus fares are th e oth er main official l y
priced item, it is easy to cal cul ate th at,
according to official prices and th e
official "l iving wage" (suel do vital ),
in February 1974, famil y, bread con-
sumption al one and th e bus fares to
earn it amounted to about 80 per cent
of th e "l iving wage", and th at by
February 1975, th e cost of th e bread
al one, with out th e bus, was 74 per cent
of th e "l iving wage". Indeed, from
official bread prices and official wage
and sal ary scal es, we may construct th e
measures of th e C h icago/Junta's eco-
nomic genocidal bread urge (Tabl e 2).
According to th e official price of bread
of 2.50 pesos per kil o (2.2 l bs) and
th e official minimum wage of 0.41
pesos per bour, in December, 1975,
under th e rul e of th e mil itary Junta
and with th e advice and consent of
th eir C h icago boys and of you personal -
l y, Mil ton Friedman and Arnol d
Harberger, an h our's work buys 160
grammes of bread and it is necessary
to work more th an 6 h ours to buy one
kil o (2.2 l bs) of bread in C h il e at th e
minimum wage - if you can get it!
To earn th e equival ent of th e 99 pesos
a month "l iving wage" at th e minimum
wage of 0.41 pesos per h our, it is
necessary to work 241 h ours a month
or 55 h ours a week and wal k to work
-if you can get it!
But th anks to your
C h icago/Junta
pol icy of economic genocide, fewer
and
fewer peopl e in C h il e can
get'any work
at al l . Th e official rates of
unempl oy-
ment in Santiago are th e
fol l owing:
(Per C ent) (Per
C ent)
1964-66
Aug-Sept
average 5 1973
4
1967-69
Aug-Sept
average 6 1974
8
(C onstruction 14)
1970 average 7 Dec 1974 9
Dec 1970 8.3 Jan-March
1975 12
1971 average 5
May-June
1975 15
1972 average 4 Aug-Sept
1975 16
(C onstruction 35)
Jul y 1973 3 October 1975 17.4
(Union
estimate 50)
Th e
Junta-supporting reactionary Insti-
tute of Economics of th e University of
C h il e estimates
unempl oyment in San-
tiago to be 20 per cent at th e end of
1975. Oth er estimates go up to 25 per
cent and more real
unempl oyment.
Th at is, in a popul ation of about 10
mil l ion at th e l ast census and a work
force of about 3 mil l ion,
unempl oyment
stands at 600,000 to 700,000 or over
2.5 mil l ion with famil y dependants.
And th is is not counting th e about
40,000 murdered by th e Junta, th e stil l
about
10,000 in concentration camps
(th rough wh ich about 300,000 h ave
passed at one time or anoth er since
September 11, 1973), and it l eaves out
of account th e several h undred th ou-
sand wh o h ave sough t to escape from
TABLE A Escudos
February 1974 June 1974
(publ ish ed March
1974) '(publ ish ed Jul y 1974)
Minimum sal ary 37,000
57,000
Minimum food
expenditure 36,000 67,000
Minimum total
expenditure 76,000
152,000
Deficit expendi-
ture-sal ary 39,000
95,000
(51 per cent) (63 per cent)
TABLE 2: EC ONOMIC GENOC IDAL BREAD WAGE
Date Publ ic Empl oyee's Hourl y Minimum Hours of Work at
Minimum Sal ary Wage Expressed Minimum Wage
Expressed in Kil os in Kil os of Necessary to Earn
of Bread Per
Day Bread Per Hour One Kil o of Bread
Sept 1973 22 1.45
0.69
May 1974 0.41
2.54
Sept 1974 11
Nov 1974 9
Feb 1975 0.17
5.78
March 1975 4'
Dec 1975 2.8-4 0.16
6.10
883
June 12, 1976
EC ONOMIC AND POLITIC AL WEEKLY
TABLE 3: AGRIC ULTURAL AND SEA FOOD IMPORTS, EXPORTS AND IMPORTS-MINUS-EXPORTS
(in mil l ions of dol l ars)
Year Imports Exports Imp-Exp
(1) (2) (3) (4) (5) (6) (7) (8) (9)
MinAg SeAg C entBnkPres Oth er SecAg C entBnk C entBnkPress C entBnkPres MinAg
1972 600
19
1973 800 600 700 29 25 25 575
1974 550 330 460 560 414 71 55 50 410
1975 330 130 320 255 330 110 86 100 210 120
1976 200
200 0
(1) Minister of Agricul ture Tucapel , El Mercurio, Oct 31, 1975. (2) Sub-Secretary of Agricul ture Gazmuri, El Mer-
curio, Oct 9, 1975. (3) C entral Bank President Baraona, El Mercurio, Dec 13, 1975. (4) Oth er sources and extrapol a-
tions of part-year data. (5) Sub-Secretary of Agricul ture Gazmuri. (6) C entral Bank data publ iibed by El Mercurio,
Feb 22-29, 1976. (7) C entral Bank President Baraona, El Mercurio, Dec 13, 1975 (same as No 3). (8) Same as
Nos 3 and 7. (9) Minister of Agricul ture Tucapel , El Mercurio, Oct 31, 1975 (same as No 1).
th e C h icago/Junta pol itical repression
from C h il e to al l corners of th e worl d,
but particul arl y to neigh bouring Argen-
tina, fromn wh ere th at country's new
mil itarv Junta is now beginning to send
th em back.
Th e Junta itsel f and th e Dean of
Sciences it appointecl at th e University
compl ain th at about 1/4 of C h il e's
scientific and tech nical personnel h as
al ready l eft th e country and th at from
th e Science Facul ty itsel f th e rate of at-
trition h as risen from 4 staff a month
tinder th e "total itarian Marxist" admini-
stration of Al l ende to 11 a month under
th e freedom" of th e Junta, so th at th e
l ast one to l eave wil l soon be asked to
turn out th e l igh ts. In 1974, th e C ar-
dinal of C h il e, wh ose C h urch h as been
active in orgranising th e re.fug,ee pro-
gramme, estimated th e number of emi-
grees at 120,000; but with th e continu-
ed extension of pol itical repression and
th e doubl ing of official unempl oyment
since th en, th e number of emigrees
from C h il e h as suirel y more th an dou-
bl ed since th en. Moreover, th e unem-
pl oyrment amiong th ose wh o remain in
C h il e, as every7wh ere in th e worl d, is
very unevenl y distributed, so th at C a-
th ol ic C h urch reports citing parish
sources speak of urban districts with
86 per cent tunempl oyment
- and 92
per cent mal nutrition. C ath ol ic C h urch
sources al so report frequent cases of
ch il dren fainting in sch ool from weak-
ness caused by l ack of food, of vomiting
bv smal l ch il dren wh ose starved sto-
mach s reject th e food offered in th e
C h urch 's "sch ool l unch programmes,"
and even th e few publ ic kindergartens
h ave l ow l )een orderedi to accept onl y
ch il dren wh o are -undernourish ed! Th e
C h icago/Junta economic pol icy of
"sanitation" (saneamiento), "recupera-
tion" and y-o0r "sh ock treatment", Mil -
toIn Friedman and Arnol d Harberger, is
a cal cul ated pol icy of economic geno-
cide th at is producing a generation of
peopl e suffering from mal nutrition and
retarded mental devel opment on a scal e
previousl y and el sewh ere unknown in
memorabl e peacetime h istory.
Economic genocide as a cal cul ated
pol icy is consciousl y and intentional l y
impl emented not onl y th rough pricing
and production, but al so th rough export
and import. Th us, on October 1, 1975,
El Mercurio reported th at "Raimundo
Perez, Zonal Director (of Agricul ture) in
Tal ca said th at, in h is opinion, C h il e
coul d become an exporter of rice ...
C h il e, wh ich once was a big consumer
of rice, h as now ceased being so be-
cause of its h igh price. For th e Zonal
Director of Tal ca, rice h as ceased being
a mass consumption food and h as be-
come a l uxury food". Under th e titl e
of "Export Diversification", El Mercurio
(September 22-28, 1975, International
Edition) h ad itsel f editorial ised: "Littl e
by l ittl e th e nation's agricul tu-re is be-
coming an important factor in our ex-
port trade, at th e same time as food
becomes, an ever l ess important item
in th e country's imports. Th erefore, th e
predictions sh ow C h il e as a certain net
exporter of agricul tuiral products before
th e end of th e decade." Rodrngo Zaval a
Il l anes, Director of th e Fourth Agricul -
tural Region, expl ained to El Ml ercurio
th at. in h is opinion, "for th e first time
in h istory a Government gives agricul -
tuire th e priority consideration and im,-
portance th at it deserves. Specifical l y,
th e pl ans for th e Fourth Region are to
orient agricul tural produiction for ex-
port".
Th e intent of economic genocide and
th e continuial bragging about its impl e-
mentation are cl ear. Th e data so far are
much l ess so. Th e data for agricul tuiral
and sea food imports, exports and im-
ports-minus-exports h ave recentl y been
quoted by Junta spokesmen or can be
cal cul ated and projected from th eir
decl aration (see Tabl e 3). Th e Vice-
President of th e Agricul tural Trade
Enterprise (EC A) Hernan Garcia
cites th e fol l owing figures for th e import
of wh eat in th ousands of tons: 1973:
1,270; 1975: 700 (oth er data:
650),
adding th at for th is l ast year, national
production amounted to 5.5 to 6 month s
domestic consumption, impl ying th at
total consumption was about 1,400,000
tons in 1975. In 1973, according to
Garcia, domestic wh eat production was
onl y enough for seed and noodl es. But
th e Junta's own publ ish ed data indicate
th at 1973 production was 810,000 or
746,000 tons of wh eat. Th at means th at,
according to Junta sources, total wh eat
consumption in 1973 exceeded 2,100,000
tons and th at bv 1975 it h ad been re-
duced to about 1,400,000 tons. Even if
we accept th e Junta's often publ ish ed
figure of 1,003,000 tons of wh eat pro-
duction for 1975 (wh ich is bel ied by
Garcia's cat-out-of-th e-bag revel ation),
total wh eat consumption in 1975 woul d
onl y h ave reach ed 1,700,000, wh ich is
stil l far bel ow th e 2,100,000 pl us of
1973. In 1972, wh eat production h ad
been 1,145,000 tons and imports perh aps
anoth er 1,000,000 or more. Th us, th e
l unta's spokesmen ancd even th eir con-
fl icting figures make it quite cl ear th at
th e C h icago/Junta pol icy of economic
genocide is to bal ance th e food import/
export budget th rough th e starvation of
th e popul ation. Th is economic genocidal
pol icy is cl earl y al so impl emented
th rough th e agricul tural pricing and ex-
port pol icy. Th us, th e junta cl aims suc-
cess for its agricul tural pol icv because,
betwveen th e agricul tural year 1973/74
andl 1974/75, th e area sown to and th e
production of five major crops
-
wh eat,
rice, sugar beets, raps, and oil seeds-
increased (for production) by 37 per
cent for wh eat, 122 per cent for rice
and about 70 per cent for each of th e
884
EC ONOMIC AND POLITIC AL WEEKLY June 12, 1976
th ree oth er crops. But wh at th e Junta
fail s to mention is th at th e sown area
was particul arl y l owv in th e (south ern
h emisph ere) spring of 1973 because th e
mil itary coup terrorised th e rural po-
pul ation and prevented timel y sowing.
Moreover, each of th e above-mentioned
crops h ad price supports from th e
Junta wh ich encouraged its prodcuction,
some of wh ich was subsequentl y destin-
ed for export. At th e same time, th e area
sown to and th e production of l ow-in-
come stapl es and sources of protein dl e-
cl ined by 9 per cent for maize, 27 per
cent for potatoes, 22 per cent for l en-
til s, peas and ch ickpeas, 1 per cent foi
beans, and 16 per cent for barl ey and
oats. C apital ist farmers and peasants
th us responded to th e Junta's agricul tu-
ral and pricing pol icy and reduced to-
tal sown area by) 5 per
cent.
At th e 'same time as th e popul ation
vas increasingl y suffering from h unger,
th e Jtunta - as its C entral Bank Pre-
sident and Vice-Minister of Agricul ture
proudl y procl aim
-
h as l eft no stone
untuirned to increase th e exports of raw
and processed food. Th e data are con-
fl icting, but noneth el ess reveal ing: from
29 mil l ion dol l ars in 1973 to 653 mil l ion
dol l ars in 1974 according to El Mercutrio
(June 16-22, 1975), or an increase of
120 per cent and to 40 mil l ion dol l ars
or an increase of onl y 50 per cent ac-
cording to th e US Embassy. For 1975
over 1974 scattered data indicate an in-
crease of 87 per cent in agricul tural ,
meat and seafood products and of 195
per cent of processed foods for th e pe-
riod January to Auigust of each year, and
of 60 per cent and 108 per cent res-
pectivel y for th e periods January to
November of each year. Th ese data are
not corrected for price ch anges, of
course; but th ev do refl ect th e pol icy of
restricting imports and encouraging ex-
ports th rough continuous deval uations-
of 600 per cent in 1975 al one. A more
compl ete picture of exports, wh ich h ow-
ever, confl icts in mtiany respects with
oth er scattered citations incl uding th ose
from th e C entral Bank President h im-
sel f, was publ ish ed from C entral Bank
sources by El Mercurio of February
22-29, 1976, and may h e summarised as
in th e T'abl e. Th e pol icy of exporting
more and more f?ood wh il e th e
popul ation iS increasingl y starving
(th at is, by starving th e popul a-
tion, since food production did
not simil arl y increase) is cl earl y visi-
b)l e fromi l ines 6 and 7 and th eir addi-
tion in l ine 8, wh ich indicates an ave-
rage export of al l food products of 37
mil l ion dol l ars a year from 1970 to 1973,
and wh ich th en rises to 73 mil l ion in
1974 and quadrupl es to 159 mil l ion
dol l ars in 1975, certainl y far anore th an
infl ation wh ich did not especial l y affect
th e fruit, vegetabl e and seafood export-
ed by C h il e. Indeed, th e traditional
sugar cane-importing C h il e exported its
own sugar beet production or imported
sugar cane ground in C h il e's now idl e
refining capacity and th en re-exported,
in 1975 even with fal l ing sugar prices!
In two years of Junta economic geno-
cide, th e export of food iincreased from
3 per cent of total exports in 1972/73
to over 10 per cent in 1975, and from
16 per cent to 25 per cent of non-copper
exports, according to th e junta's own
figures, wh il e domestic cal orie consump-
tion decl ined 15 per cent during th e
first year and an unknown furth er
amount during th e second year of inten-
sified C h icago/Junta pol icy of economnic
genocide.
Th e Tabl e on exports al so reveal s two
furth er important aspects, one beyond
th e junta's control and th e oth er a fur-
th er aspect of del iberate C h icago/junta
pol icy. Total export earning in 1975 fel l
drastical l y from over 2 bil l ion (dol l ars in
1974 to 1.5 bil l ion because, with th e
worl d recession induced, nearl v 50 per
cent decl ine in th e price of copper and
th e C IPEC agreed upon restriction in
TABLE: C HILEAN EXPORTS
(in mil l ions of dol l ars)
1970 1971 1972 1973 1974 1975
(1)
Total
1095 960 832 1302 2139 1535
(2) C opper 855 702 658 1085 1654 905
(3) Non-C opper 241 258 174 217 486 630
(4) Traditional 154 169 112 149 197 270
(5) Non-traditional 87 89 62 68 189 360
(6) Agric and Sea 32 29 19 25 55 86
(7) Food Industry 14 11 10 9 18 73+
(8)
Al l food 46 40 29 34 73 159
(9) Non-food industry 39 46 31 .32 114 197
(10) Non-copper mining 2 2 2 1 1 4
+ (39 sugar)
copper productioni, C h il e's earnings from
copper fel l from, 1.6 bil l ion to .9 bil l ion
dol l ars. But. th e same Tabl e al so sh ows
th at, in th e first year of Junta rul e, th e
1974 boom price of copper h ad increas-
ed total and copper earnings between
1973 and 1974 by an amount equival ent
to its subsequent renewed decl ine. Th at
is, during th e first year of its rul e in
1974, th e Junta enjoyed very exception-
al l y favourabl e copper and total foreign
exch ange earnings, wh ich cannot be
h el d responsibl e for th e C h icago/Junta
pol icy of econonmic genocide in its first
year of impl ementation. Th e oth er re-
veal ing ch ange - wh ich refl ects th e
juinta's reaction to th e copper price de-
cl ine and is th e pol icy xvh ich th e Junta
constantl y advertises as its proudest
sticcess
-
is th e six-fol d increase in non-
fo0d indtustrial exports from .32 mil l ion
to 197 mil l ion dol l ars, wh ich , with th e
above-mentioned four-fol d increase of
food exports, adds up to th e nearl y six-
fol d increase from 68 mil l ion to .360
mil l ion dol l ars of wh at th e Junta cal l s
"non-traditional " exnorts. But th is export
increase is al so th e resul t and refl ection
of denying th ese manufactures to th e
C h il ean consumer, wh ose income and
purch asing power h as been so drastical l y
reduced, and of denying th em al so as
inputs to th e C h il eani industry, for wh ose
production th e domestic demand h as
been el iminated so th at it is obl iged to
export its production
-
wh ich is th e
del iberate "pro-C h il e" C h icago/Junta
pol icy of wh ose "success" th e l atter is
so proud.
Th is rel ativel y big increase of industri-
al exports at th e cost of a quantitati-
vel y much l arger decl ine of industrial
produiction and of Gross National Pro-
dtuct may wel l pl ease th e Junta,
some
of th e exporting industrial ists (th e few
w7h o can profit more from th e rise in
exports th an wh at th ey l ose from th e
fal l in production), th e exporters and
th e foreign irnporters (th ough much l ess
so th e ul timate consumers) wh o can now
buy C h il ean manufactures produiced
Nvith starvation wages and th en sol d
abroad at stop-l oss prices with Junta
subsidies to boot. But th e same cannot
and does not pl ease th e increasing numn-
ber of induistrial ists for wh om th e C h i-
cago/Jtinta pol icv resul ts in production
at 50 per cent capacity and l ess or
bankruptcy and absorption by th e ever
fewer remaining C h il ean owners of ca-
pital and th e ever more foreign own-
ers of C h il ean capital . Nor can it pl ease
even th ose foreigtn capital ists wh ose pro-
fits and/or investment opportuinities in
C h il e are nowv eroded by th e C h icago/
Junta pol icy. Th ese gentl emen and th eir
885
June 12, 1976
EC ONOMIC AND POLITIC AL WEEKLY
pol itical and ideol ogical spokesmnen may
h ave l ent th eir fuil l support to th e C h i-
cago/juinta pol icy wh il e its economic
genocide "merel y" cut th eir workers'
wages in h al f with a bayonet, but th ey
increasingl y l ost th eir enth usiasm wh en
th e continuation and indeed th e sh ock
treatment intensification of th is same
pol icy increasingl y resul ted in th eir own
business th roats or at l east industrial
arteries being directl y and indirectl y,
th rough th e decl ine in purich asing power,
cut by th e same bavonets. And recentl y
th ey must h ave joined in th eir discontent
even by somne agricul turists wh o, with
big C h il ean and foreign capital , were
th e Junta's main beneficiaries and sup-
porters wh en th is same C h icago/junta
pol icy an(d th e 50 per cent decl ine inl
1975 in th e appl ication of fertil isers
and pesticides resul ted in l osses of up
to 40 per cent of th eir wh eat crop, as
reports h ave it from Santiago south ward
at th e beginning of th e 1976 h arvest
season. Th is woul d imp-l y a wh eat crop
near 600,000 tons for 1975/76 (com-
pared with 1,368,000 tons in 1970/71),
th at is back up to th e 1932/33 depres-
sion l ow! And th at is wh v, Mil ton
Friedman and Arnol d Harberger, your
pol icy is now l osing favour, as we al -
ready observed, even with fascists, Frei,
sectors of th e C h il ean mil itary and some
American and European economic and
pol itical interests. Littl e wonder, wh en
th e Sociedad de Fomento Fabril (wh ich
h as suddenl y al so convenientl y forgot-
ten th e Al l ende years in wh ich industrial
production; increasedl ) now estimates
industrial production in August 1975 at
72 per cent of th e pre-Al l ende year
1969
-
wh ich itsel f fel l in th e middl e
of th e th ree-year 1967/68-1970 reces-
sion period of th e Frei administration.
No wonder wh en for mid-end 1975 in-
stal l ed capacity util isation rates are re-
portedl of 45 per cent for th e textil e
industry, 44 per cent for th e sh oe indus-
try (wh ich is now exporting to th e US
and Europe), 52 per cent for th e furni-
ture industry, 13 per cent for th e gl ass
industry (wh ich refl ects th e decl ine in
construction and wh ich cannot export its
produts), .35 per cent for oth er con-
struction material s, 28 per cent for
copper products (despite a 20 per cent
increase in exports wh il e internal de-
mnand fel l from 12,000 to 5,000 tons),
and 80 ner cent for th e food-processing
industrv wh ich , as we observed, h as
been abl e to significantl y increase its
exports (th ouigh fruit canning supposedl y
decreased 40 pe r cent between 1974
and 1975). Pl annied automobil e output
for 1975 was 23,000 veh icl es and real
production was 6,000 veh icl es. Steel pro-
duction, wh ich h ad h een 450,000 tons
wh il e doimestic consumptioni was 550,000
tons, h 4d 1y 1975 decl ined to 330,000
tons, of wh ich 1.30,000 tons were
consumed domestical l y and 200,000 tons
xx7ere exported. No wonder "non-tradi-
tional l ' exports increased. But th is was
not sufficient to satisfy metal -working
firms th at reported 80 per cent, 60 per
cent, 50 per cent, 20 per cent and 15
per cent util isation of th eir instal l ed
capacity, even th ough th e export of
metal producits increased 4:33 per cent
according to th e Junta, in 1975!
We may briefl y review th is "h eal ing"
and "re(ctperation" of th e economy, as
th e juinta terms th e economic pol icy
your th eories and training inspired and
yotur personal advice promoted, Mil ton
Friedman and Arnol d Harberger. Ac-
cording to th e US-dominated Intera-
merican Devel opment Bank, C h il ean
Gross National Product (GNP) was as
fol l ows (in mil l ions of US dol l ars):
1960 : 5068, 1970 : 7820, 1971.
84_23, 1972: 8540, 1973 : 8202, and
1974, refl ecting th e jump in copper
prices: 8612. For 1975, th e US Depart-
mnent of C ommerce gives an earl y esti-
nate of a 10 per cent decl ine in GNP
and Frei a decl ine of 12 per cent. Th e
Junta-supporting Institute of Economics
of th e University of C h il e estimates th e
decl ine at 12 per cent to 14 per cent,
and, if agricul tural production decl ined
more th an th e Junta h as yet admitted,
th e total GNP decl ine was stil l greater.
Spl itting th e middl e between Frei and
th e Institute of Economics at a 1.3 per
cent decl ine of GNP woul d l eave 1975
GNP at 7,492 mil l ion dol l ars, or over
4 per cent l ower th an in 1970 and over
12 per cent. bel ow th e Al l ende year
1972! Real investment in ph ysical facil i-
ties and construction decl ined about 30
per cent in 1975. For th e, rise and fal l
of indu.strial production, th e fol l owing
figures are avail abl e from th e Sociedad
de Fomento Fabril (unl ess oth erwise in-
dicated) and from th e Government's In-
stituto Nacional de Estadisticas:
1970 to 1971 + 12%
1970 to 1972 + 17% = + 8% per
annum average)
1971 to 1972 + 4%
Jan.-Aug 1973 to 1974 -1.5%
1.973 to 1973
-2%
(INE) + 2% (SFF) = 0% average INE
and SFE
1973 to 1974 "h abitual consumption
produLcts"
(= 45% industrial production) -5%
(SFF)
1973 to 1974 construction -15%
Jan 1974 to Jan 1975 -18%
(production)
-14%
(sal es)
Jan-March 1974 to 1975 -15%
Jan-May 1974 to 1975 -17%
Jan-June 1974 to 1975 -18%
Jan-Jul y 1974 to 1975 -22%
Jan-Aug 1974 to 1975 -24%
Jan-Nov 1974 to 1975 -24%
1974 to 1975 -25
- .30% (oth er estimates)
In a word, under th e Al l ende adminis-
tration induistrial production first in-
creased verv rapidl y, particul arl y in
mass consumer goods, and th en stag-
nated as th e domestic and foreign boy-
cott became more and more stringent.
Under Junta rul e, industrial production
first decl ined markedl y for mass con-
suimer goods th at were immediatel y
affected by th e
C h icago/Junta pol icy of
wage depression and demand contrac-
tion, wh il e stil l increasing for produ-
cer goods, for an overal l "growth "
rate of 0 in th e first year. By th e be-
ginning of th e second year of Junta
rul e, industrial production h ad decl ined
by about 15 per cent of th e same
month s a year earl ier, and, after th e
appl ication of your sh ock treatment
from April , 1975 on, Mil ton Friedman,
industrial production of capital goods
al so decl ined rapidl y by 40 per cent
for 1975, so th at now 26 out of th e
.30 product sectors of C h il ean industry
sh owed decl ines (and th erewith indus-
trial opposition increased concomitant-
l y); total industrial production decreas-
ed more rapidl y to 25 per cent of wh at
it h ad been a year before.
Mil ton Friedman and Arnol d Har-
h erger, th e immediate consequences of
th e jtunta's appl ication from April 1975
on of th e sh ock treatment you pres-
cribed in your conversations with Pino-
ch et h imsel f during your March 1975
visit are al ready visibl e in th e C h il ean
economy and emerge from our general
review above of th e C h icago/Junta del i-
berate and cal cul ated pol icy of econo-
mic genocide, de-national isation, de-
industrial isation, export promotion, etc.
Noneth el ess, it migh t be good to exa-
mine furth er th e rational e and th e con-
sequences of th is sh ock treatment
per se.
Up to th e time of your visit, Mil ton
Friedman, th e
Junta h ad repeatedl y
arguied th at its C h icago-inspired and
C h icago boys-administered economic
pol icy anid its consequences
so far
were made necessary by th e
exigencies
of "sanitationi" (saneamiento) of th e
destructive wounids l eft by th e previ-
ouis Al l ende government of Popul ar
Unity. More recentl y, mention of th e
Al l ende administration h as faded in
official pronouncements, and compari-
sons with th e Al l ende years are now
studiousl y avoided by both th e Junta
and its l oyal opposition. Since th e de-
cl ine in th e price of copper and th e
rise in th e price of imported wh eat
anl d petrol eum, and particul arl y since
886
A V--
th e deepening of th e 1974/75 recession
in th e wh ol e industrial ised capital ist
worl d, th e Junta h as l aid al l th e bl ame
for th e consequences of its economic
pol icy on th e worl d economic crisis.
Wh en you arrived in C h il e, Mil ton
Friedinan, you tol d th e Junta th at th e
h eritage of Al l ende and th e crisis are
al l very wel l , but th at th e time h ad
come for th e Junta to assume respon-
sibil ity for its own and your C h icago
boys' actions, and to recognise th eir
own mistake - and th en to proceed
quickl y to correct it. Wh at, according
to you, Mil ton Friedman, was th e
essence of th eir mistake? Th e Junta l h ad
made th e C h il ean patient swal l ow your
C h icago medicine al l righ t, as Har-
berger h ad observed in previous visits.
But it h ad not stuffed enough of th is
medicine down th e patient's th roat, or
doine it quickl y and forceful l y enough .
Th erein l ies th e Junta's essential res-
ponsibil ity and mistake, according to
your argument. Th e Junta answered
th at it h ad done as wel l as it coul d
in th e circumstances, and th at you,
Mil ton Friedman, were not being rea-
l istic in asking for so much more and
in arguing th at circumstances (Al l ende,
crisis and al l ) coul d not bel ie your
th eory. Indeed, after l etting prices
l oose to cut wages and concentrate in-
come and weal th as we observed, and
printing money at th e rate of 350 per
cent to 370 per cent more per annum
wh il e th e vel ocity of circul ation (or
spending) of th is money h ad increased
from 9 to 18 times per annum bet-
ween 1970 and 1974, and witnessing
bank account turnover doubl e from
January/February to September/Octo-
ber, 1974, th e Junta al ready turned
th e screws on before you arrived and
reduced th e annual rate of increase of
mnoney to 200 per cent after October
1974 and from January to March ,
1975, increased th e money suppl y by
onl y 40 per cent (as against 52 per
cent during th e same month s a year
earl ier). But despite your quantity
th eory of money, prices continued tr
rise
-
indeed, accel erated as al ways
during th ese moul th s in C h il e
-
to a
60 per cent increase during th e first
th ree month s of 1975, just prior to
your arrival , Mil ton Friedman. More-
over, th e Junta h ad al ready begun th e
C h icago/Junta pol icy of reducing pub-
l ic empl oyment th e year before, pro-
mising to reduce it by anoth er 20 per
cent til l th e end of 1975; and furth er-
more, th e Junta h ad al ready divested
itsel f of many publ ic enterprises and
h ad al ready incorporated a 10 per cent
across-th e-board cut in th e general
budget (th ough , real istical l y speaking,
"circumstances", of course, required a
vast increase in th e mil itary budget).
But th e C h icago medicine h ad not
worked wel l enough to stein th e tide
of infl ation, now th at it h ad done its
job of cuttiing wages and concentrat-
iing income and weal th and now th l at
its continuation was becoming troubl e-
some. Your diagnosis, Mil ton Fried-
man, was, of course, not th at your
medicine is no good, except for th e
fewer and fewer beneficiaries; but th at
th e patient h ad not taken enough of
your medicine. According to you, th e
Junta's pl eas of extenuating circumstan-
ces were real l y irrel evant and it
faced -th e simpl e ch oice of continuing
th e same dose of your medicine at th e
cost of prol onged infl ation with pro-
l onged unem.pl oyment, or of m.aking
th e C h il ean patient swal l ow down a
super dose of th e same medicine, th e
sh ock of wh ich woul d undoubtedl y inl -
crease unempl oyment stil l furth er in
th e sh ort run, as you publ icl y admitt-
ed, Mil ton Friedman, but wh ich
woul d al so quickl y cure th e patient of
h is infl ation
- if it did not kil l h im
off outrigh t first!
So you prescribed a "sh ock treat-
treatment" of reducing publ ic expeni-
ditures by a Lurth er 25 per cent at onie
fel l swoop, reducing wages and sal aries
stil l more drastical l y, coupl ed with your
expected increase in unempl oyment; and
an "antidote" to "manage" th e patient
in h is anticipated state of sh ock,
you and th e Junta agreed to create
'emergency" "minimum" unenmpl oyment
by th e state and municipal ities with out
th e security and bonuses of ordinary
publ ic empl oyment and to "promote"
"new` empl oyment by private enter-
prise by permiting it not to pay th e
normal social security contributions and
offering it oth er subsidies. Th e resul t
h as been, of course, th at th e publ ic
agencies, municipal ities and private
em.pl oyers h ave increasingl y fired th eir
former empl oyees wh o were entitl ed to
certain bonuses, social security, h eal th
services, etc
-
al l of wh ich your
C h icago/Junta pol icy wants to abol ish
as a viol ation of "freedom" of th e mar-
ket, anyway
-
and h ave partial l y re-
pl aced th em with "new" empl oyees wh o
were sometimes th e very same persons,
doing th e same work at stil l l ower pay
and reduced benefits. Th us, th is
"antidote" real l y serves to strength en
th e second el ement of your sh ock medi-
cine, th at is, to reduce wages and sal a-
ries. In a word: super-expl oitation of
l ab)our.
Bul t to return to th e fir.st el ement of
your sh ock treatment, Mil ton Friedman,
th e Junta argued th at it h ad al ready
cut its budget by 10 per cent so th at
anoth er 25 per cent was asking too
much . Th e compromise, you wil l recal l ,
was to cut th e foreign exch ange expen-
ditures by 25 per cent - drastical l y
cutting iml ports
-
but to cut th e
domestic escudo budget by "onl y" an-
oth er 15 per cent assuming th e promis-
ed reduction of infl ation to 50 per cent.
In th at case, even with out th e Keynesean
mul tipl ier, a 15 per cent or 25 per cent
(th e original 10 per cent pl us th e niew
15 per cent) reductioin in government
expenditure in an economy in wvh ich
government spending accounts for 30
per cent to 40 per cent of national in-
come can be predicteid to produce (tak-
ing, say, a spl it in th e difference 20 per
cent reduction of a 35 per cent sh are) a
7 per cent reduction in national income,
with its concomitant effects on unem-
pl oyment and production. Wh at h ap-
pened? Wel l , th e rate of infl ation did
not decl ine to 50 per cent as promised.
Instead, as we h ave observed, th e aver-
age month l y infl ation was onl y 0.8 per
cent l ess in 1975 th an in 1974, and th e
annual rate onl y decl ined from 376 per
cent to 340 per cent. Th is meant th at
th e sh ock treatment-budgeted nominal
15 per cent/25 per cent decl ine in pub-
l ic escudo expenditures h ad a real val ue
variousl y estimated as a decl ine of 30
per cent to 40 per cent of previous eal
publ ic expenditures, and a stil l greater
decl ine of perh aps 65 per cent of pub-
l ic expenditures on goods and services
(oth er th an payments to publ ic em-
pl oyees). Th at is, at th e real rate of in-
fl ation, th e real decl ine of, say, 35 per
cent in publ ic expenditures th at account
for some 35 per cent in turn of na-
tional income can be cal cul ated to
generate an immediate decl ine in
national income of th e order of 10 per
cent or more. No wonder th at GNP
decl ined 13 per cent ancd perh aps more
in 1975. So th is decl ine cannot be
bl amed entirel y or even principal l y on
th e decl ine in earnings from copper
exports. No wonder th at th e sh ock
treatment accel erated th e decl ine of in-
dustrial production froml 15 per cent
bel ow a year earl ier before th e super
dose of your medicine, Mil ton Fried-
man, to 25 per cent a few month s aifter
its administration
-
al l of xvh ich proves
th at you wvere righ t, Mil ton Friedman,
in tel l ing th e Junta th at not Al l ende
or th e worl d are to bl ame for th eir
pol icy and its consequences: No, th e
Junta itsel f is responsibl e for swal l owing
your th eory h ook, l ine and sinker and
for administering your medl icine and
sh ock treatment to th eir C h il ean-
887
June 12, 1976
EC ONOMIC AND POLITIC AL WEEKLY
patient at th e points of th eir bayonets.
Final l y, wve mtay inquire furth er wh at
th e reception of and reaction to th e
C h icago/Junta pol icy of economic
genocide anl d your sh ock treatment, as
wel l as to th e pol itical and mil itary
repression necessary for th eir adminis-
tration, are abroad, in word and in
fact. As we h ave observed, th e United
Nations General Assembl y, th e United
States C ongress, several West European
Governmiients, and th e press and publ ic
opinion h ave condemned th e Junta and
somietimes you personal l y, Mil ton Fried-
ml an and Arnol dc Harberger, in mul tipl e
resol utions and publ ish ed statements.
Yet, th ough th e Janta l oudl y compl ains
about th e "international Marxist" camp-
aign to discredit it, th e Junta's super-
Minister, C auas, wh o is in ch arge ot
administering your medicine, Mil ton
Friedmutan, cl ainms (interview in El Mer-
curio, January 18, 1976) th at "noneth e-
l ess, th eir [th e detractors] success h as
been very l imited. Todaty our economic
pol icy is ampl y supported in al l of th e
international forums and because of th at
w\e can enjoy a situation in our bal ance
of paynments th at al l ows us to l ook to th e
future with optinmisin despite th e l ow
price of copper... Abroad our economic
pol icy is appreciated as correct and it is
considered very difficul t th at a serious
al ternative coul d be generated... Th e
tech nical reports of th e special ised in-
ternational agencies are categorical in
supporting our pol icy... We do not h ave
probl ems with any international financial
institution. On th e contrary, we can
count on ampl e foreign support as l ong
as we mainitaini a coh erent and rational
economic pol icy, wh ich does not affect
our bal ance of payvnents situation. As
is obvious, if we were to adopt anoth er
more expansive pol icy, we woul d rapidl y
h ave probl ems with th e international
financial media, wince th ese woul d cease
th eir support of a country th at woul d
h ave to end up stopping its foreign
payments as a consequence of such an
expansive economic pol icy ... " And
h ow righ t you are on th is score, Fried-
inanite Super-Minister C auas!
Wh il e th e United Nations General
Assembl y condemns th e Junta for viol a-
tion of h uman righ ts, th e President of
th e Worl d Bank, McNamara, says th at
h e uses onl y economic and no pol itical
criteria in deciding on l oans and, with
US support, overrides th e objections of
h is European board members to extend
a new l oan of 33 mil l ion dol l ars to th e
Junta. For th e same "economic" reasons
al so citedl biw C anas, McNamara h adl not
l oaned a singl e new penny to President
Al l ende. But in two years of Junta rul e
and C h icago economics, McNamara h ad
al ready l oaned th e Junta 100 mil l ion
dol l ars before h e added th e above-men-
tioned 33 mil l ion. His sister institution,
th e International Monetary Fund, h as
l oaned th e Junta 420 mil l ion dol l ars, and
th e Interamerican Devel opment Bank
anoth er 400 mil l ion, so th at th e cate-
gorical support of th e internationial fin-
ancial institutions of wh ich C auas spoke
h as amounted to 920 (now more th an
950) mil l ion dol l ars. By comparison,
Al l ende received 65 mil l ion.
Simil arl y, wh en US C ongressman Il ar-
rington cal l ed real US pol icy a mockery
of th e US C ongress, wh ich l istens to
C IA and ITT testimony about US
sch emiiing against Al l ende and passes
resol utions against th e Junta, h e no
doubt knew more th an most wh at l h e
wvas tal king abouit. But even according
to th e publ ic financial record, th e Junta
h as received 680 mil l ion dol l ars in l oans
from th e United States
-
380 mil l ion or
56 per cent of wh ich were destined to
pay off th e American copper companies
in turn, for, as C auas observed, a country
th at stoppedn making foreign payments
woul d soon h ave probl ems with th e fin-
ancial agencies! Th e 920 mil l ion
dol l ars from th e US-control l ed inter-
national financial institutions pl us th e
680 mil l ion from th e United States and
its bankers itsel f add up to 1,600 mil l ion
dol l ars in l oans to th e Junta from
th ese sources. Adding 120 mil l ion from
Latin American sources primaril y in
Brazil and Venezuel a, and anoth er 280
mil l ion dol l ars from West European and
Japanese sources brings th e total of
l oans to th e Junta in th e 27 month s
before December 31, 1975, to a tidy
sum of 2,000 mil l ion dol l ars, or about
3 mil l ion a day and nearl y 100 mil l ion
a month . At th e same time, no doubt
so th at C ongressman Harrington does
niot cry mockery in vain, th e United
States h as del ivered more arnmaments
to th e C h il ean Junta th an to any oth er
Latin American country except Brazil ,
and veiy much more arms per capita, in
wh ich th e Junta is exceeded onl y by
countries such as Israel , Iran and Soudi
Arabia. Since on Edwvard Kennedy's
amendment th e US Senate recentl y
voted to cut off arms aid anid sal es to
th e Junta
-
but th e House of Repre.
sentatives did not pass a simil ar mea-
sure supported by Harrington, th e joint
committee ch arge(I with finding a com-
promise h as now proposed to el iminate
aid but to maintain cash sal es of arma-
ments of th e C h il ean Junta
-
wh ich is
now reported to stand ready to pay 132
mil l ion dol l ars cash on th e l ine for
armnaments, th at is, 83 per cent of its
1975 earnings from food exports and
just a bit more th an th e 125 mil l ion
dol l ar 1973 to 1975 increase in th e ex-
ports of food wh ich , th rough th e use ot
now perh aps obsol ete or insufficient
armaments, th e Junta squeezed out of
th e starving popul ation of C h il e th rough
its Friedman Il arberger pol icy of eco-
nomic genocide!
Bih ar Al l oy Steel s
BIHAR ALLOY STEELS coul d pro-
duce onl y 6,815 tonnes of al l oy, tool
and special steel s during 1975, th e first
year of production, as against th e
instal l ed capacity of 40,000 tonnes.
Out of th e output, onl y 2,849 tonnes
coul d be sol d owing to th e l ow demand
on account of th e recession. Sal es
amounted to Rs 1.64 crores, and th e
outcome was a cash l oss of Rs 1.25
crores. After providing Rs 1.46 crores
for depreciation, and Rs 10 l akh s for
expenses written off and earl ier l osses,
gross deficit of Rs 2.81 crores h as been
carried to th e bal ance-sh eet. No provi-
sion h as been made for devel opment
rebate reserve of Rs 5.12 crores. In
addition, arrears of dividend on prefe-
rence sh ares amounted to Rs 36 l akh s.
Among th e contingent l iabil ities is th e
income-tax l iabil ity of Rs 10 l akh s not
accepted by th e company and not
provided for pending appeal s. Interest
of Rs 56 l akh s on l oans from Birl a
Jute upto April 30, 1975, h as not been
provided for, as th e company is seeking
its waivement. On account of a serious
accident in mid-Jul y l ast, both arc-
furnaces ceased to operate from th atf
date. One of th e two furnaces coul d
be recommissioned after about five
weeks of repairs. Th e company expects
to receive, sh ortl y, imported parts and
to compl ete th e repairs to th e oth er
furnace, wh ich is expected to be recom-
missioned by Jul y next. Th e directors
point out th at th e continuous casting
process in al l oy steel making is general -
l y accompanied by teeth ing troubl es
and requires patience in setting up and
devel oping various casting parameters
for production of different grades of
al l oy steel . Th ey add th at, after initial
rel uctance on th e part of customers,
th e company's products are now being
wel l received in th e market.
888