The political economy of credit: The Unidad Popular and the Chilean Central Bank (1970-1973)

Abstract

This Article analyzes the political economy of credit, drawing on emerging legal scholarship that questions the neoclassical economic view of money as a neutral tool and central banks as institutions in charge of price stability, operating solely on technical grounds. In stark contrast, the experience of Chile's socialist Unidad Popular government (1970-1973) is a case where the attempt to transform the sources of monetary creation and assert public control over credit and the banking system received intense opposition that tested the limits of legality. The Chilean path to socialism envisioned a revolutionary transformation within the framework of the rule of law. Early successes in reshaping the monetary structure—leveraging private law mechanisms such as freedom of contract, private property rights, and the legal powers granted under the presidential system—ultimately precipitated a constitutional crisis, foreshadowing the military coup on September 11, 1973. In revisiting this pivotal period, this paper draws on the insights of a constitutional theory of money that emphasizes its political dimensions and the crucial role of law in shaping the economic and social orders.