The 1930s, the chronicler of American poverty Michael Harrington once said, ended in 1948, when the Cold War began to call into question the idea that democracy would lead to socialism. But by that definition, perhaps the 1930s didn’t really end until 11 September 1973, when Pinochet launched his coup against Salvador Allende, Chile’s democratically elected Marxist president, and Allende committed suicide in the national palace. What came next is part of capitalist mythology. Pinochet, advised by Milton Friedman and the Chicago Boys – Chilean economists trained at the University of Chicago – applied what Friedman at the time called ‘shock treatment’, a dramatic and immediate reduction of the money supply, followed by the privatisation of state industries and government services, the reduction of tariffs and subsidies, and the extension of cheap credit to make up for rapidly falling wages. Chileans had been told the coup was intended to contain Castroism, but Friedman targeted a different enemy: the welfare state. ‘Some forty years ago,’ Friedman told Pinochet, ‘Chile, like many another country, including my own, got off on the wrong track’ by trying to ‘do good with other people’s money’.

LRB 19 July 2012 | PDF Download