Did Inflation Bring Down the Allende Government?

Allende's glasses

Roberto Frenkel, the well-known Argentine economist, gave an interesting radio interview (transcribed, in Spanish, here) in which, as always, there is a lot to learn. In that interview he tells a touching story about his experience during the Allende government. Apparently he was told by the Finance Minister Carlos Matus to make a presentation on inflation, and warned of the dire consequences of not pursuing contractionary demand policies. After that he says (I keep his Spanish version and translate below):
"Yo había explicado cómo la inflación se iba a acelerar, la situación iba a empeorar rápidamente... y entonces se me acerca Allende con quien yo había tenido la oportunidad de estar en pocas oportunidades, y me dice '¿Por qué no me lo dijeron antes?' Y es una cosa que me pesó en el corazón... al poco tiempo el hombre se suicidó en La Moneda. Y eso se lo conté a algunos que estuvieron con el gobierno de Kirchner hasta hace poco y ahora salen preocupados y tratan de abandonar el barco y no hundirse con él, y les conté esta anécdota y los insté a hablar y a hacer explícita su alarma y preocupación por la situación (...)."
"I explained that inflation was going to accelerate, and things would worsen precipitously... and then Allende, with whom I had opportunity to meet in a few occasions, approaches me and says: 'Why didn't anybody tell me?' And that sunk my heart ...not long after that he committed suicide in La Moneda [presidential palace]. I told that story to some people that were members of the Kirchner's government until recently and now leaving the boat to avoid sinking with it and encourgaed them to speak up..."
So now we know. Inflation actually brought down Allende, and Frenkel almost saved the government, but was too late to avoid the military coup. And his concerns with Argentine inflation are similar now, since we are on the verge of total collapse.

All jokes asides, the notion that inflation brought the government down is silly to say the least. As noted here, if anything the nationalization of copper, that did hurt transnational corporations and local elites was certainly more important [note also that by 1973 inflation was not a Chilean problem, but a global one associated to the oil shocks and wage resistance]. So resistance to reforms by powerful groups within the country were at center stage. The connections of Pinochet with US corporations and security and intelligence apparatus are also well documented. Even if Frenkel had told Allende in time about inflation ... Oh well.

There are other nuggets in this interview, in particular the insistence that demand has to be curtailed even when it is admitted that inflation is essentially inertial, but I'll leave those for other posts. It seems that more and more authors at the Centro de Estudios de Estado y Sociedad (CEDES) are converging to mainstream positions, like the economists at the Catholic University in Rio (PUC-RJ) and sociologists like Fernando Henrique Cardoso in Brazil did back in the 1990s.


  1. Well, I'm sure the inflation helped rally support for the coup. And Allende's economic policies were massively misled. But I sense an air of megalomania around Mr. Frenkel. And are Argentina's policies paving the way for an Allende-gasm. Categorically: no. That is absurd.

    By the way, just as an interesting anecdote, I once spoke with a somewhat famous New Keynesian who worked in the Allende central bank. When I described PK endogenous money theory to him/her they told me that this was totally confirmed by what they experienced in the Allende hyperinflation. Make of that what you will!

  2. "All jokes asides, the notion that inflation brought the government down is silly to say the least."

    There are some people who are incapable of understanding jokes...


    Nunca es demasiado tarde para aprender, Matías. Que sea ésa una lección.

    Buena suerte y salud.


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