ECONOMIC TRANSFORMATIONS IN CHILE: THE FORMATION OF THE CHICAGO BOYS

Author(s): Valerie Brender

Source: The American Economist, Vol. 55, No. 1 (Spring 2010), pp. 111-122
Published by: Sage Publications, Inc.
Stable URL: https://www.jstor.org/stable/40657832
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 ECONOMIC TRANSFORMATIONS IN CHILE: THE FORMATION OF
THE CHICAGO BOYS

by Valerie Brender*

Abstract

Who were the Chicago Boys and what was their path into Pinochet's dictatorship? Speculation
abounds about the motives of these Chilean born, U.S. educated economists who came to play a
pivotal role in Pinochet's regime. This paper will examine the education of the Chicago Boys at the
University of Chicago and their subsequent rise into Pinochet's government. The Chicago Boys'
historical path suggests that their influence in Chilean politics cannot be reduced to U.S. political
motivations or ideology, but rather must take into consideration the transformation of foreign aid
policies and the economic environment of the time.

Keywords: Chile, University of Chicago, Pinochet, Monetarism, Economic history

I. Introduction that had begun in the 1970s" (Aninat 2000, 20). He

lists trade liberalization and free trade agreements,
The news reports that followed General Augusto
reforms that began under Pinochet's economic team.
Pinochet's death on December 10th, 2006, under-
(Aninat 2000, 20; also see Valdés 1995, 253-261;
Hira 1998, 37, 99; Teichman 2001, 86). He cites
scored the social divides his legacy left (Marino
2006; BBC News 2006). Major newspapers across Chile's 5.6% average real per capita GDP growth
the globe reported that groups both celebrating between
and 1990 and 1998 as an indicator of this success
mourning his passing clashed in confrontations that
as well as Chile's reduction of those officially living
were broken up by the police. The BBC noted, in poverty from 38.6% in 1990 to 21.7% in 1998 (20).
"Despite his human rights record, many Chileans
The UNDP Human Development report indicates
loved him and said he saved the country from that per capita GDP growth continued at roughly
3.3% between 2001 and 2006 (UNDP Data 2009).
Marxism, and put the country onto a path of strong
economic growth" (BBC News 2006). Others view Chile's growth has therefore become a major source
his regime through the brutal torture and "disap-
of academic interest1 (Valdés 1995, 4).
pearances" he condoned as a "cure [that] was far Amidst analysis of Pinochet's economic reforms
worse than the disease" (Plummer 2006; See also
is an interesting story of how monetarist and free
Human Rights Watch 2003; Kornbluh 332-363). market ideas made their way into Chile's structur-
For some of his retractors his death was particularly
alist and Marxist economic thought. Current litera-
painful since Pinochet died without undergoing
ture suggests that the penetration of monetarist
a trial. ideas in Chile emerged primarily from the 1955
In March 2000, Eduardo Aninat, former Chilean
partnership established between the University
Minister of Finance (1994-1999) and Deputy Direc-
of Chicago and a Chilean university, Universidad
tor of the International Monetary Fund (1999-2003)
Católica, which led to the training of over 100 stu-
dents
wrote an analysis in the IMF's publication, Finance & in Masters and PhD programs in the United
States (Valdés 1995, 191). While scholars seem to
Development, which highlights the debate on Chile's
economic success since the mid-1980s. He claimsagree on the transfer, conflicting accounts persist
that the post-Pinochet governments in the concerning
1990s the motivations and intended outcomes
of the Chicago-Católica agreements.
"deepened a wide range of 'first-generation' reforms

* Wake Forest University, Undergraduate honors thesis under the guidance of Dr. Dan Hammond,
05/01/06. Mailing address: 6902 Alder Cove Austin, TX 78750, email: vbrender® gmail.com
(preferred method of contact), phone: (512) 695-3109

Vol. 55, No. 1 (Spring 2010) 1 1 1

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 Naomi Klein's recent New York Times best mic outlook and study as ideological (Valdés
seller, The Shock Doctrine: Rise of Disaster1995,
Capi-
4). He posits that the Chicago-trained econ-
omists demonstrated this ideology through their
talism paints the university agreements primarily
as a U.S. political attempt to usurp Marxistdogmatic
and commitment to economics as a science
structuralist thought. Her account of theseand a disregard for competing ideas of economic
agree-
ments is riddled with political coercion, which
study. As his book unfolds, though, his research
she claims was guided by the coalescence qualifies
of twoelements of political coercion through ex-
events: American ideological opposition toamining
struc- the environment of international aid, uni-
turalism during the Cold War and the University ofplanning, coincidence and transformations
versity
Chicago's desire for a country in which theyincould
international economic thought.
Puryear
test their free-market ideas.2 In her analysis of the and Hira also acknowledge politically
Chicago Boys she omits analysis of generalmotivated
trends aid efforts but analyze the Chicago-
in economics, foreign aid and university training
trained economists through a broad historical lens.
programs at the time. She gives little regard
Puryearto argues that research groups with compet-
Chile's economic environment surrounding ingthe
economic ideas were eventually able to chal-
lengeby
coup, and does not consider the views held Pinochet's economic program precisely
because
those involved in the agreements towards their in- "sensitive topics were lifted out of the
tellectual activities. conflict ideology that had surrounded them for
Other academic summaries about the Chicagoseveral decades and posed in economic terms"
Boys seem to be mixed. Glen Biglaiser suggests(Puryear 1994, 101). He later states that one such
that academic analyses tend to fall into one of research group, CIEPLAN, which was linked with
several camps - those who claim that the fall of the opposition against Pinochet, developed the
structuralism or Keynesian thought led to thelevel of expertise the Chicago Boys were seen as
rise of neoclassical economics in Latin America, embodying. He summarizes, "CIEPLAN consti-
those who claim that domestic groups such as
tuted a bastion of technical expertise for the oppo-
businesses drove the transformation in economic sition. It was a serious academic institution with
impeccable credentials and could not be accused
thought in the region, and lastly, those who claim
of staking out a position for purely political advan-
the transformation was driven by a concerted U.S.
tage. ... It could, therefore, engage the Chicago
attempt to combat structuralism (Biglaiser 2002,
272). Judith Teichman summarizes, "The arrange-
Boys on their own scientific terms" (Puryear 1994,
113). Hira situates the rise of the Chicago Boys
ment has been described as 'an organized transfer
of ideology from the United States' prompted
within the failures of the Frei and Allende govern-
ments (Hira 1998, 45^6). He notes that a major
by growing U.S. concern for increasing public
pre-Pinochet structuralist group, ECLA, has, since
support in Chile for left-wing parties and the desire
the mid-1980s, "ironically turned to a stance that
to promote a belief in free enterprise and discour-
age communism" (Teichman 2002, 69). Others
accepts market-oriented policies, albeit with soft-
view the Chicago-Católica agreements through
ening social programs" (Hira 1998, 37).
a broader historical lens of aid and economic Through a consolidation of the available litera-
ture, I will show that the University of Chicago-
circumstances, which de-emphasizes U.S. interests
Universidad Católica training programs cannot
and instead casts the agreements against historical
occurrences of the period (See Patricio Silva be viewed
1991; outside the economic and international
Fourcade-Gourinchas and Babb 2002; Van Over- aid environment in which they took place and
tveldt 2007 346-355; Edwards and Edwards 2-20; therefore should not be seen solely or even pri-
94-95). marily as a U.S. attempt to fight Castroism or
Academics such as Juan Gabriel Valdés, Jeffrey Marxism. Both those directing the university pro-
Puryear and Anil Hira all extensively address grams and those trained in the programs, while
Chile's political and economic shifts during this frequently involved in creating public policy for
period but depict the Chicago-Católica agreements governments that subscribed to certain ideological
in differing lights. In his meticulous research on standpoints, maintained that economics should re-
the Chicago Boys' formation, Valdés repeatedly main detached from government politics, ideology
refers to the Chicago-trained economists' econo- and corruption.

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 IL Background III. History of United States Economic
Training Program
The group of Chicago-trained, Chilean econo-
mists has been widely called the "Chicago Boys" Philip Glick notes in his book on technical as-
for their training at the University of Chicago and sistance in Latin America that the history of mod-
collaboration with each other upon their return to ern knowledge transfer from the United States to
Chile. While the exact origin of the name is un- Latin America traces back to missionaries in the
clear, Valdés indicates that business and academic early 20th century that worked on "establishing
circles knew them as the Chicago Boys "for some schools, hospitals, clinics, social service centers,
time" before they joined Pinochet's government and demonstration farms" (Glick 1957, 3-4). Dur-
(Valdés 1995, 2). ing this period institutions and private firms also
There were two main waves of training pro- expanded to Latin America and helped transfer
grams that contributed to the formation of the technology, trade journals, training programs and
Chicago Boys. The first occurred between 1955 other services (4). Glick called this era the "first
and 1964 through a program started by the United wave" of assistance programs, to be followed by a
States Agency for International Development second (1940-1949) and third wave (1949-1961)
(AID). The original agreement consisted of 26 (Glick 1957, 3)
students, many who continued on with a PhD. In his book, Glick describes some of the found-
Many of the first wave students returned to Chile ing organizations that were central to the "second
and assumed positions in the Department of wave" of U.S. -Latin America technical assis-
Economics at the Universidad Católica; therefore tance. The Interdepartmental Committee on S
this first wave is best known for establishing mon- entific and Cultural Cooperation (ICSCC),
etarist thought in the Universidad Católica eco- operated by the Department of State, was one of
nomics department (Valdés 1995, 127). The the first technical assistance programs. Its pro-
second wave took place between 1965 and 1973 grams consisted of "agriculture, geologic investi-
with financing from the Ford Foundation and was gations, civil aviation, child welfare, and the
seen as a continuation of the original project with improvement of statistical services" (Glick 1957,
AID. In this group, about 100 students were 9). Glick suggests that the ICSCC programs were
trained. According to available documentation, 26 to foster friendly relations through knowledge ex-
received their PhD from the University of Chi- change. A second agency that preceded AID' s
cago, and 74 received an MA (Valdés 1995, work was the IIAA, the Institute for Inter- Ameri-
191). The Universidad Católica was the main Chi- can affairs. It was established in 1940 by execu-
lean university from which the Chilean economics tive order and run as an independent agency
students came and one of the two major universi- reporting directly to the President (Glick 1957,
ties in Chile at the time.
14, 25). The IIAA focused its programs on ele-
While the Chicago Boys held various positions mentary and secondary education, while the
in academia and business, they did not play ICSCC an administered post-secondary educational
integral role in Chilean politics and policy makingexchange programs between the United States
until after the 1973 coup that brought the militaryand Latin America. After World War II, these
dictatorship of General Augusto Pinochet to powertwo agencies merged into the Technical Coopera-
(Hira 1998, 89-91; Valdés 1995, 163, 192-193, tion Association (TCA) under the State Depart-
208-213). As academics at the Universidad Cató- ment and assumed an economic role (38). The
lica, the Chicago Boys emphasized monetarism TCA became the precursor to the Chicago-Cato-
and free market societies. These teachings starkly lica agreements.
contrasted with the structuralist and Marxist eco- The "third wave" (1949-1961) of technical as-
sistance programs included a major program
nomic thought in Chile and in most of Latin Amer-
ica at the time. For this reason, the presence streamlining
of in 1953 under FOA, the Foreign
these economists in Chile was never completely Operations Administration. Criticism that was later
accepted by the economic and academic commu- brought against the Chicago-Católica agreements
nities that dominated Chilean society (Valdés echoes back to this streamlining. The justifica-
1995, 162-163). tion for streamlining was to avoid duplication of

Vol. 55, No. 1 (Spring 2010) 1 13

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services during the post- World War II period when U.S.-Soviet Union war over communist ideology.
the United States was conducting both military The organization expanded into social and political
aid and technical assistance in friendly countries sectors and became a central force in Latin Ameri-
(Glick 1957, 43). The public reaction to the merger can economic identity (Hira 1998 36-37; Valdés
was negative - there was a fear that the United 1995, 131, 184).
States' interest in Latin America was political During ECLA's first years it constructed its fo-
and militaristic instead of economic (44-45). The cus around the structuralist ideas of Raul Prebisch,
United States government terminated FOA in May who became ECLA's executive secretary in the
1955, and another organization, the International 1950s. Prebisch was an Argentinean economist
Cooperation Association (ICA), emerged in its that Latin Americans recognized as one of the few
place with the State Department again serving as reputable economic advisors in the region (Hira
administrator (48-50). The ICA was AID's prede- 1998, 38; Valdés 1995, 93). Prebisch's emphasis
cessor and would initiate the Chicago-Católica on structuralism included strong support for state
agreements (Valdés 1995, 49). involvement in the economy. Hira claims that
Several important connections were made during structuralism upheld the idea of comparative ad-
these early training programs. Theodore Schultz, vantage but taught that comparative advantage
Chair of the University of Chicago Economics De- could be controlled and changed (Hira 1998, 40).
partment, became a trustee for the National Planning This viewpoint encouraged import-substitution
Association's (NPA) Project for Technical Coopera- that defined many Latin American economies for
tion. This project began in 1953 and evaluated decades (Waterbury 1999, 332). With import-
the effectiveness of technical assistance programs substitution came large industrial projects that
(Glick 1957, vii-ix). Schultz was a key contact in scholars note were criticized for their inefficiency.
the University of Chicago-Universidad Católica ECLA's policies were also later criticized for caus-
connection; his involvement with earlier programs ing an on-going crisis in the agricultural sector and
suggests that his role in the Chicago-Católica agree- with Chile's foreign exchange rate (Edwards and
ments was a logical continuation of his past work. Edwards 1987, 4; Hira 1998, 41).
The Ford Foundation also found its roots in early ECLA later contributed to the formation of
agreements; the Foundation issued a $440,000 grant another school of thought, Dependency Theory,
to the 1950s NPA project (Glick 1957 ix, 14-18). which emerged from the research and writings
Its financing of earlier programs suggests that of two ECLA academics, Henrique Cardoso and
funding the Chicago-Católica agreements was con- Ezzo Faletto. In a PBS interview, Osvaldo Sunkel,
sistent with foundation policy and development a Chilean economist who studies development
financing. issues, suggests that this theory was more of an
explanation of Latin America's situation than a
set of policy solutions (Sunkel 2001, np). For this
IV. ECLA Assistance Programs and reason, Dependency Theory, while popular un-
Influence der Allende' s government, did not have a lasting
policy impact in Chile.
During the consolidation of the TCA, another It was actually ECLA and not the United States
organization emerged in Latin America, the Eco-that was initially responsible for wide scale techni-
nomic Commission for Latin America (ECLA). cal training programs in Chile. Like those who
The organization, founded in 1948 and based inwould propose the Chicago-Católica agreements
Santiago, Chile, was a United Nations initiative.6 years later, Prebisch criticized the economics
As the name suggests, ECLA geared its training training in Latin America in a 1949 report written
and research towards economic rather than agricul-shortly after the formation of ECLA3 (Hira 1998,
tural or administrative affairs (Hira 1998, 36). 37). As a response, ECLA began technical assis-
In his analysis of ECLA, Hira states that ECLA' tance
s programs and recruited students and pro-
UN roots made Latin Americans more receptivefessionals from across Latin America to train in
to ECLA's teachings and policy recommendations. their centers (Hira 1997, 97). ECLA ran a two
ECLA' s UN affiliation allowed the organiza-year program through its policy institute, the
tion to escape suspicion of being a pawn in theLatin American Institute for Economic and Social

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Planning (ILPES), which trained thousands of tech- alienation was affecting enough to garner t
nocrats in structuralist theory during the 1960s. Christian Democratic Party's support in the 19
Trainees later acquired influential government and coup (Puryear 1994, 75). Whether there were
academic positions across Latin America (Hira herent flaws in ECLA' s economic policies o
1997, 98-100). whether other non-economic realities impeded
effectiveness of the programs is a question requir
ing further research. However, the perceived f
V. ECLA and Presidential Advising ure of ECLA' s economic solutions caused the
organization's influence to wane, leaving a vac
Chilean economic advising teams became com- um for new economic thought and policy.
monplace with President Eduardo Frei and ECLA
in 1964 (Hira 1998, 45; Teichman 2001, 66). Frei
established ODEPLAN, the Organization of De- VI. ECLA Policy
velopment and National planning. ODEPLAN was
responsible for a generation of economic policy The ECLA position on economic developmen
and remained in existence through the Pinochet was one that incorporated Prebisch's theory wi
era. The main objectives of the Frei administration its recommendations for industrialization, govern
were "buying out foreign owners in the copper in- ment intervention and inflation. Their poli
dustry and expansion of secondary imports, import recommendations emerged from both an analytica
industrialization, . . . expanding export markets by and a historical stance; analytically, they utiliz
liberalizing trade with other countries, and . . . some of the tools of macroeconomics but emph
income and land redistribution" (Hira 1998, 46). sized that their recommendations considered the
His policies closely followed ECLA economists historical and social realities of Latin America
representing the center left. Hira claims that Frei' s as well.
politically centrist policies became problematic As far as industry development was concerned,
for constituent groups. One particular case that ECLA observed that, with technological advances,
demonstrated constituent group conflict was the the value of raw materials would decrease com-
land distribution program. While the program pared to the value of finished goods. They claimed
promised to affect 100,000 farmers, it only redis- that if the periphery (developing countries) did
tributed in some capacity to 20,000. Chilean con- not industrialize and simply continued to export
servatives disliked the distribution program, while raw materials, it would inevitably face declining
liberal groups were unsatisfied with the program's prices (ECLA 1970, 29). Their observations on
reach. Constituent groups were also problematic industry coupled with declining employment led
when policies such as trade liberalization con- to two analyses concerning industrialization. First,
flicted with income redistribution efforts (Hira ECLA claimed that Latin American countries
1998, 47; Puryear 1994, 26-27; 31-32). When needed import-substitution and protection f
President Salvador Allende was elected in 1970, most of their industries to develop. Second, t
ECLA economists were again employed, but from believed that excess labor should be emplo
ECLA' s more radical wing that subscribed to through developing domestic sectors, not the
Dependency Theory. port sector.
It is important to note that many Chileans saw ECLA determined that the government sho
ECLA' s policies from the Frei and Allende periods approach inflation policy with caution and c
as insufficient or unsuccessful in answering in- examination, although they did not seem to h
flation and industrialization problems in Chile. well-designed plan to deal with the high infla
Growth rates fell from 6% between 1965-6 to present in countries such as Chile. They clai
3.2% between 1967 and 1970. Inflation rose from that if inflation came from bank credit used to
17% in 1966 to 28.5% between 1967 and 1970 finance private investments, foreign capital should
(Hira 1998, 45). Allende's policies not only alie-
cover the "inflationary expenditure of investment"
nated the traditional conservative groups,until
but the
alsosavings ratio could be raised to appropri
members of the Christian Democratic Party,ateFrei'
levelss (ECLA 1970, 113). If inflation came
former political party (Puryear 1994, 30-32). This sector investment, they recommended
from public

Vol. 55, No. 1 (Spring 2010) 1 15

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increasing taxation. If it was wage or cost related, VIII. University Contracts
they recommended "a substantial investment pro-
gram" that "[would] enable productivity and in- While Frei' s economic policies were being met
come to increase rapidly" (114). They did not with mixed results, the first wave of the Chicago
have more specific policies or formulas for infla- Boys was returning to the Catholic University to
tion, which was a deficiency in their development join the economics department. The university
policies. contracts that began with US AID in 1956 termi-
nated in 1964, so the universities sought alternative
financing sources to continue the training pro-
VII. Radicalization of ECLA:
grams. They found the Ford Foundation as a will-
Dependency Theory ing financier in the wake of AID' s completed
contract (Valdés 1995, 158).
As Sunkel suggested, Dependency Theory Theas
university contracts were a central feature
it manifested in Latin America and through in the formation of the Chicago Boys, for they
Allende' s presidency was more an explanation gave aof
legal precedent for funding educational ex-
Latin America's economic situation than a collec- change between the University of Chicago and the
Universidad Católica. Much of the controversy
tion of policies. For this reason, the Allende' s eco-
nomic policies appear less defined than those of
concerning the formation of the Chicago Boys
the Frei government. Allende continued many of
revolves around the agreements and the motiva-
Frei' s initiatives while radicalizing structuralist
tions from which they emerged. When examining
the motivations of those involved, it appears the
theories through initiatives like ambitious spending
programs. In Allende' s first year, the fiscal deficit
agreements were intended to support Chilean edu-
rose to 1 1% of GDP, up from 3% upon Frei' s exit. cational progress and scientific research resulting
By 1973 it would reach 24% with inflation spiral- in policy recommendations. It is difficult to con-
clude that the economists planned to become
ing out of control at a height of 600% (it had been
35% when Frei left office) (Edwards and Edwards
involved in the Chilean government in a way that
1987, 7-8; Valdés 1995, 249). Allende also over-
would completely transform the economic system.
saw a mass nationalization of key industries such There are several main actors who emerged in
as copper and banking (Edwards and Edwards the formation of the university agreements, and
1987, 7). many of their connections appear to be either ca-
Fernando Henrique Cardoso and Enzo Faletto reer related or circumstantial, not political. Their
state in their book on Latin American economic attitudes reiterate that they thought economics
theory, Dependency Theory, that they advocated should remain above politics and ideology and
Dependency Theory over mainstream ECLA theory should promote scientifically based policy recom-
mendations. Albion Patterson, the University of
because, "in spite of their critical nature, ECLA
economic theories and critiques were not based Chicago
on professors, the Universidad Católica and
funding agencies such as AID and the Ford Foun-
an analysis of social process, did not call attention
to imperialist relationships among countries,dation
and were all crucial in forming the agreements.
did not take into account the asymmetric relationsAlbion Patterson was a United States agricul-
between classes" (Cardoso and Faletto 1979, viii).
ture development worker in Latin America under
Latin American adherents to Dependency Theory the IIAA and was one of the initial proponents of
claimed that economic policies must includethe theuniversity agreements. Through his work in
Paraguay and later Chile, he arrived at a similar
reversal of prevailing historic relationships. They
claimed future development must come fromconclusion
the to the one Prebisch had stated in his
analysis of Chile half a decade earlier - that there
new urban class rising up to take political action
for economic gains. Dependency Theory differed was a dearth of well-trained economists and eco-
nomic research, which made other aspects of de-
distinctly from Marxism in that it did not discuss
velopment work difficult (Valdés 1995, 110-113).
international industrialization through proletariat
revolutions. It promoted national autonomy, Patterson
state created a short-term training program
in Paraguay in the early 1950s before he was
control of industry and high levels of government
spending. transferred to Chile. His job in Paraguay was to

1 16 THE AMERICAN ECONOMIST

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aid food production, but he discovered that the dean, Julio Chana, wanted to modernize the uni-
Ministry of Agriculture had no relevant data on versity with a focus on the Department of Eco-
food resources. To solve this, he trained 1,300 nomics (120).
Paraguayans in census data methods to collect the It should be noted that much of the Ford Foun-
necessary information (Valdés 1995, 110-111).dation's funding seems to be politically or ideo-
When Patterson arrived to Chile, he had a similarlogically blind. The Foundation, in addition to
desire to improve education relevant to develop-granting $552,000 to the Universidad Catolica's
ment. Patterson was in Chile during the Carlos economics training between 1965 and 1972, granted
Ibañez del Campo presidency (1952-1958), which $1,389,689.98 to the Institute of Economics at
was a time of economic turmoil. Inflation rose the Universidad de Chile between 1960 and 1973
from 12% in 1952 to 84% in 1955, the year
(Valdés
the 1995, 186). The Foundation actually gave
more aid to the Universidad de Chile's structuralist-
year before the university agreements were signed
(Edwards 2007, 292). A series of failed stabiliza-
dominated economics department than to the Uni-
tion programs were enacted between 1952 and Católica. Funding differing academic
versidad
1955 (301-303). Finally, Chile turned to programs
a U.S. in Chile seemed common for the Foun-
consulting firm, Klein-Saks, to help controldation,
infla- which likely added to its neutral political
tion. While new policies helped bring inflation posture.
down to 17% in 1957, these policies proved to AIDbeundeniably has a more conflicted history
politically unpopular and were often reversed in Chile. They reportedly pressured U.S. compa-
(308-309). With that, inflation returned to nies32%suchin as Anaconda and Kennecott copper
1958 (292). to increase investment in Chile during Frei' s
Valdés recounts Patterson saying, "'Then, one administration, ostensibly to help boost
1964-1970
day, in late 1953, T.W. Schultz walked into themyeconomy under Frei (Kornbluh 2003, 5). AID
office'" (Valdés 1995, 113). As the NPA trustee,then supposedly withdrew most of its development
financing while Allende was in power. The $110
Schultz had traveled through Latin America during
Patterson's time in the region (Glick 1957,millionvii). it had given between 1968 and 1970 fell
to $3 million from 1971 to 1973 during Allende' s
Schultz's specialty was in agricultural economics,
which had been a major focus of Patterson'sgovernment
work. (85). AID's donations were then
Patterson considered Schultz's work on agricul- increased again after the coup. However, Chicago-
tural economics and human capital to be "more Catolica agreement did not begin as a broad AID
modern" (Valdés 1995, 109-113). He laterpolicy dis-in Latin America, but rather was Albion
cussed his training ideas with Schultz, which Patterson's
led idea. The ICA (AID's predecessor)
to the proposition of linking the University of initially
Chi- gave $375,000 in grant money to the
cago with a Chilean university. Chicago-Católica agreements. By the grant's ter-
An agreement with a single university known mination
to in 1964, AID had spent $812,300 on the
instruct its students in economic thought uncom-agreements (Valdés 1995, 138). After this first
mon in the Latin American region was one wave of theof financing, AID no longer renewed its
main arguments that the Universidad de Chile, contracts;
the it was the Foundations that continued
leading Chilean university at the time, usedthe toprograms
re- into the 1970s.
ject a contract agreement with the University of
Chicago. Valdés indicates that the Universidad de
Chile was most likely not opposed to the agree- IX. University Contracts prior to 1955
ments based on American government involve-
ment but rather thought that the University of understand the Chile agreements, it is
To better
Chicago's economic emphasis (monetarism) was
useful to understand the history of university
inappropriate given the University of Chile's em-
agreements up until 1956. Prior to the Chicago-
phasis on structuralist thought (Valdés 1995, Catolica
115). agreements, the United States formed
The academic community in Chile considered the agreements through the TCA. These
university
Universidad Católica to be the more conserva- agreements included "university-to university rela-
tive of the two universities. It did not have a tionship!^] under which a United States university
well developed economics program, and the new to work directly with a university in
[undertook]

Vol. 55, No. 1 (Spring 2010) 1 17

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the host country in improving its operations as a George Shultz, the former Dean of the Business
university" (Glick 1957, 91). This structure was a School at the University of Chicago, claimed t
predecessor to the Chicago-Católica agreements. School's uniqueness came from its free marke
There were no extensive agreements with any ideas. He explains that while the post- 1930 depres
one university prior to the Chicago agreements. sion era was one where the government rel
However, Glick indicates that the university-to- heavily on fiscal policy, the Chicago Schoo
university agreements were among the smoothest emphasized monetary policy. Since its ideas we
running. This might explain Patterson's insistence not aligned with prevailing practice, he felt t
that the Chicago-Católica agreement take place with School's teachings took some time to gain acc
just one university - the University of Chicago. tance (Shultz 2000, np).
In his recent book, The Chicago School, Joha
Van Overtveldt indicates that by the late 1950s th
X. The University of Chicago economics department at the University of C
cago was frequently cited as a distinct school
Much of the tension over the university agree- thought (Van Overtveldt 2007, 4). He claims th
ments came from their single university status and after World War II neoclassical price theory ca
the implications that such agreements might have to define the department. This was largely cha
in Chilean education and politics. Mainstream Chi- pioned by Milton Friedman and Gary Becker, w
lean economists working at ECLA and the Univer- Van Overtveldt claims "consistently argued th
sidad de Chile thought the economic viewpoints neoclassical price theory - combined with empi
espoused by the University of Chicago were unde- cal verification - is true economic science" (V
sirable. In contrast, many of the University of Chi- Overtveldt 2007, 76).
cago professors and students thought their training The second aspect of the University of Chica
involved better science than what existed in Latin that made its environment unique was faculty
America at the time. Technical assistance pro- student interactions. Both students and professor
grams also sent a number of students to other uni- reported an environment of debate that was u
versities such as Harvard and Columbia for common in other university departments. For
economics training. However, there areample, Harberger remembers that faculty a
a couple
characteristics that made the University ofstudents
Chicagomet in the cafeteria to have discussions
over lunch
unique among its peers: the instruction provided at (Harberger 2000, np; see also Van
Overtveldt
the university and the intellectual environment ex- 2007, 40, 43). Shultz even described
perienced by the students. These aspects
theset the
environment as "combative" (Shultz 2000, np).
With the combative environment came the work-
University of Chicago apart from other universities
during this period and added to the impact the
shop system where students and professors could
present papers to be submitted for debate. These
University of Chicago had on the Chilean students.
George Stigler, an economist who becameworkshopsa were described as "'bullfights'" and
professor at the University of Chicago "'bloodbaths'"
in 1958, (Van Overtveldt 2007, 41). While
examines the University of Chicago environment
Friedman reportedly rejected these descriptions,
as he understood it. He claims that Chicago did
the workshop system seemed to push the students
not have a reputation of being a distinct "school"
for academic rigor with high participatory input
until the 1950s. He also confirms that the depart-
from the faculty (Van Overtveldt 2007, 40-41).
ment's focus on monetary economics and its In contrast to the University of Chicago's
treat-
environment
ment of price theory were two of the school's most of discussion and debate, Rutherford
defining characteristics (Stigler 1988,indicates
162). He
that Columbia had a very different atmo-
sphere: "By all reports Columbia was impersonal
suggests that the university further distinguished
and not
itself through its theory of public regulation. very collegiate in character. Faculty and
Stig-
students did not socialize much. One does not
ler claims that instead of viewing public regulation
normatively and asking what should get be done,
the feeling of faculty highly involved wit
the University of Chicago professors asked
their why
students, or that creating a band of faithf
public regulation was undertaken at all followers
(positivewas ever a part of the Columbia
analysis) (165). ideal" (Rutherford 2004, 70). The University of

1 1 8 THE AMERICAN ECONOMIST

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Chicago's collegiate environment may explain the to impact economics training in Argentina was
strong identification the Chilean students felt with greatly reduced. Similarly, Uruguay did not pro-
the university and why some saw this as promoting vide the necessary job market to attract returning
a Chicago ideology. graduates. Many of these students became em-
Arnold Harberger, one of the main advocates ployed at institutions like the World Bank instead
for the Chilean students, states that Chicago was of returning to their home countries where they
also unique in its extensive acceptance of Latin might have impacted economic policy through
American students. Rather than emphasizing the research (Biglaiser 2002, 280).
tight connection between Católica and Chicago as
problematic, he claims that such an agreement was
indicative of the academic culture at the University XII. El Ladrillo or The Brick
of Chicago. He recalls that other universities
such as Harvard or MIT only had five to six Latin In the introduction to its summary of twenty
American students enrolled at a time compared to years of research, ECLA admits that it was diffi-
Chicago's forty to fifty. Valdés indicates that the cult for intellectuals and policy makers to ascertain
Chilean students needed additional courses anda comprehensive policy package from the institu-
tion. In contrast, the Chicago Boys formulated a
training in order to be at the same academic level
as their American counterparts. The Universitycomprehensive
of book of economic analysis in the
early 1970s, which was published in 1973 in a
Chicago was willing to provide them with this extra
document
training and instruction, which distinguished the called El Ladrillo or The Brick. The
Chicago Boys had consolidated policy recommen-
school among its peers (Valdés 1995, 117, 137-138).
dations for the presidential candidate Alessandri in
the 1970 presidential campaign, but when Ales-
XI. Chilean vs. other Latin American sandri lost the election to Allende, they decided
economic exchange programs to publish their recommendations anyway (El
Ladrillo 1992, 8-9). Upon publication, El Ladrillo
Other countries also conducted university became
ex- the most comprehensive economic policy
change programs in economics, but the outcomedocument
of of its time.
those programs did not result in similar groups El Ladrillo opens with a description of Chile's
like the Chicago Boys. A study conducted by Glen economic problems and continues with an anal-
ysis of their creation and persistence. The major
Biglaiser on the internationalization of the Chicago
School compares Chile, Argentina and Uruguay, and problems the Chicago Boys identified were ris-
ing prices for internal goods without a rise in
shows that the Chilean students who trained at the
University of Chicago had a greater opportunityincome,
to exaggerated estimates, shortage of produc-
tive employment, inflation, slow agricultural devel-
conduct research and harness their foreign education
in Chile through government and academic posts opment and extreme poverty in important productive
sectors of society (El Ladrillo 1992, 27-28). The
than Argentine and Uruguayan students who returned
to their native countries (Biglaiser 2002, 275). Chicago Boys claimed that these problems were
Beginning in 1961, Argentina sent twenty-sevenexacerbated in part by excessive state involvement
in the economy. They claimed that state intervention
scholars to study at the University of Chicago. The
same close university-to-university ties werehurt
not the economy by manipulating economic vari-
forged, however, and perhaps without an active ables,
ad- forming a luxurious bureaucracy, ineffectively
creating state activities that paralleled private
vocate (as Harberger had been for Chile), available
activities in the commercial or service sectors,
funding was scarcer for these students. In addition,
and politicizing public institutions (El Ladrillo
the Argentine university salaries were low, and there
1992, 30). These initial analyses guided their pol-
were fewer well paying jobs for returning graduates.
Those who did find university employment were icy recommendations that encouraged free markets
later removed during the 1972 military governmentthrough a reduction of governmental spending and
seizure (Van Overtveldt 2007, 353-354). an increase in freedom of trade.
Since few university students became profes- One of the ways that the Chicago Boys' policy
recommendations contrasted with ECLA's analyses
sors at Argentine universities, the students' ability

Vol. 55, No. 1 (Spring 2010) 1 19

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was in the area of import-substitution. In El Ladrillo,
the Chicago Boys claimed that the government's
focus on import-substitution resulted in focusing
resources on industries that had a minimal impor-
tance internationally. They recommended that the
government liberalize all prices in industries that
were reasonably competent internally and externally
(El Ladrillo 1992, 88-90). They did not seem to
oppose the development of the domestic sector, but
they limited its importance in light of the enormous
deficit the country had developed between 1972 and
1973. They claimed that the only way to quickly
reverse the deficit was by rapidly developing the
export sector (El Ladrillo 1992, 74-84).
In the area of fiscal and monetary policy, the
Chicago Boys recommended that the government
facilitate policy instead of directly engaging in fis-
cal and monetary affairs. They prioritized ending
increases in printed money and fixing poor remu-
nerations management. They claimed that govern-
ment spending in Chile exceeded fiscal capacity;
the quantity of money had more than tripled be-
tween 1972 and 1973, which caused mass inflation.
The policies in El Ladrillo also advocated the
decentralization of social programs. The Chicago
Boys criticized previous social programming for its
complex operating system; there were too many dif-
ferent laws creating social benefits, which resulted
in duplicated services and poorly allocated funding
(El Ladrillo 1992, 120-122). One specific example
they analyzed was the health care system. They indi-
cated that 10% of social spending went to health
care, but 40% of health care spending went to ad-
ministrative efforts at the state-run National Service
of Health. They stated that more money needed to
go to programming, not bureaucracy (124).
The policy recommendations in El Ladrillo sys-
tematically analyzed and documented Chile's eco-
nomic problems. This was, perhaps, one of the most
appealing aspects of their policies. Their reputation
for being well educated, their economic plan and
their disassociation with leftist Chilean politics
added to their appeal to the Pinochet government.
XIII. The Chicago Boys and
General Pinochet 1973-1976
The Chicago Boys did not assert themselves
period, it seems difficult to reduce the Chicago-
when Pinochet's government came to power.Catolica
They training programs to a mere political tac-
did not even officially enter the government tic to combat Marxism and Castroism or even the
until
120 THE AMERICAN
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the end of 1974. In the initial stages of his regime,
Pinochet constructed a different economic team,
which Hira claims had nationalistic political ten-
dencies. Their policies were to reduce tariffs, free
prices, devalue the exchange rate, and privatize
companies (Hira 1998, 80). By the end of 1974,
inflation continued around 375% (down from its
600% high in 1973), and the government deficit
was 32% of receipts (Hira 1998, 80; Valdés 1995,
249). Unemployment continued to rise, and real
wages fell. Hira claims that this tepid economic suc-
cess led Pinochet to search for alternative solutions.
It was not until 1974 that Admiral Merino, the
Navy's commander-in-chief and the head of Pino-
chet's economic ministry, asked the Chicago Boys
to work with Pinochet's government (Hira 1997,
154). The navy had been charged with economic
affairs after the coup and heard about the Chicago
Boys through their connections with a Chilean pa-
per, El Mercurio, which had published articles on
the Chicago Boys' economic ideas (Valdés 1995,
18, 252). The policies that the Chicago Boys initi-
ally implemented upon entering Pinochet's gov-
ernment were shock treatment, tariff reductions
and cuts on social spending. They cut real govern-
ment spending by 27% and reduced the fiscal defi-
cit from 8.9% of GDP to 2.9%. They then cut
tariffs from 70% in 1974 to 33% by mid 1976,
which improved trade, and they cut public invest-
ment by half (Hira 1998, 81). Hira indicates that
GDP fell 15% between 1974 and 1976, and the
economy sunk into a deflationary recession. De-
spite the mixed results of their initial programs,
internal resistance was weak until the major Chi-
lean recession in 1983 (Hira 1997, 173-176).
Although Pinochet gave the Chicago Boys' the
freedom to implement their economic policies, the
Chicago Boys' involvement was not the military
government's initial plan. Hira claims, "The Chi-
cago Boys had not only the answers the military
could appreciate, but were the only group with a
concise plan which provided a clear and lasting
diagnosis" (Hira 1997, 183).
XIV. Conclusion
When reviewing the facts and perceptions of the
ECONOMIST
University of Chicago's desire to experiment with Chile: From Dictatorship to Democracy. Ann
neoclassical (or as its often referred to, neoliberal) Arbor: University of Michigan Press.
economic ideas. The agreements predated the 2. Through reading Klein's summary of the
Cuban Revolution (1959) and arose during the initial Chicago-Católica agreements, the reader is left
international aid programs. As Ambassador Beaulac with no knowledge of the Chilean economic
noted, aid has often had a diplomatic and therefore turmoil during the Chicago Boys' training. She
political face (Beaulac 1970, 57); however, many of depicts the Chicago analysis of Chilean eco-
the early aid programs were consolidated at the nomics critically, claiming "All of Chile's poli-
requests of Latin America governments. Programs cies were put under the microscope and found
such health and engineering initiatives suggested wanting . . . students were taught disdain for
strong humanitarian and diplomatic motivations. In these efforts to eliminate poverty" (74). How-
addition, the agreements must been seen through the ever, she excludes the failure of these policies in
lens of the economic situation in Chile at the time - controlling inflation (and in Allende' s case,
high inflation, unstable employment, tepid growth spark hyperinflation). Klein gives the impres-
rates and political groups strongly divided over eco- sion that the Chilean economic situation was
nomic policies. Structuralist policies continuously moving along smoothly, and would have
failed to quell inflation throughout the Frei and continued to do so, if it were not for the U.S.
Allende periods, and when the 1973 coup occurred, Cold War ideology and the University of Chica-
Chile was in an inflationary crisis. go' s desire to play with their ideas in a real-
Pinochet's authoritarian government undoubt- world environment.
edly gave the Chicago Boys the opportunity to 3. The 1949 report was "The Economic Develop-
freely carry out their policies (Hira 1998, 16; ment of Latin America and Its Principle Pro-
Valdés 1995, 29-30), but that should not imply blems." In addition to detailing structural ideas
that the United States or other actors initiated for Latin America, the report claims there was
the Chicago Boys' training with that end in mind.
a "lack of universality of economic theories,
To view the Chicago Boys' education and rise in and the corresponding need for locally trained
the greater context of their time is not to excuse
economists and locally specific theories" (Hira
whatever complacency they may have demon- 1998, 37).
strated during Pinochet's draconian political re-
pression or to excuse detrimental aspects of their
policies. Rather, it is to give a more accurate Bibliography
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