Whether you agree or disagree with Milton Friedman's brand of Laissez-Faire Capitalism one thing that should be pretty obvious is that major investors can see that if his policies were implemented this would really help their return rates. When Friedman joined the University of Chicago in the 40's his views weren't carrying the day. But when the richest people in the world like what they are hearing your chances of carrying the day improve.
Between 1957 and 1970 about 100 select students from Chile received their education from the University of Chicago under Friedman's tutelage. The Rockefeller Foundation, the US Government, and other groups with major corporate interests provided grants to fund it. These newly trained economists returned to Chile and ran the Economics Departments at their respective schools. They of course advanced Friedman's theories in hopes of changing minds. (Source for these claims is this excellent though lengthy article.)
The election of 1970 though made it appear that this effort was waste. The Socialist Salvador Allende was elected. The first year of his presidency saw a GNP increase of 8.9%. Unemployment fell from above 8% to 3.8%. Even inflation was coming down (scroll to the bottom of this article for my source).
Not only had the Chicago Boys failed to persuade, but Allende, who was their economic opposite, was having a lot of success. So pressure was applied to persuade the Chilean people that an Allende administration was not in their best interest. Nixon's famous orders were to "make the economy scream." Edward Korry, US Ambassador to Chile would say "not a nut or bolt will be allowed to reach Chile under Allende. Once Allende comes to power we shall do all within our power to condemn Chile and the Chileans to utmost deprivation and poverty, a policy designed for a long time to come to accelerate the hard features of a Communist society in Chile." In addition to economic warfare massive propaganda was implemented.
The US and corporate economic warfare did have some effect. Inflation soared. The mid term elections arrived in March 1973. The result? Allende gained seats in the legislature.
Persuasion, even via deception and trickery, still hadn't worked. So the next option was violence. On Septermber 11, 1973 the coup was initiated. Soon Salvador Allende was dead. Thousands of unhappy civilians were herded into the stadium. Military walked throughout the stands with hooded collaborators that would point out the various leftists. These people would be taken away and tortured. Dead bodies were strewn about the stadium. Concentration camps were set up throughout the country. Thousands were murdered.
The "pink" economists at the University of Chile, the ones the Chicago Boys were unable to defeat on the field of ideas, were fired. Andre Gundar Frank was one of the 100 students sent to study at the University of Chicago (**Correction on 4/20/12-Gundar Frank was not a Chilean Chicago Boy, but a German that was schooled at Chicago while Chilean Chicago Boys were being trained, and would later move to Chile to see what all the fuss was about.**), but he would later repudiate Friedman's teachings and write angry letters to his former dissertation superviser (see for instance here). He was fired, and would report that during the coup 6 students were shot on sight at the main entrance to the School of Economics as a lesson to the rest.
The military dictator, Pinochet, stocked his ranks with Chicago Boys, who implemented the policies they had learned. Despite the fact that US economic warfare immediately ceased the economy tanked. Friedman was flown in in 1975 with the economy a shambles to try and save them. His advice was to actually apply his free market principles more intensely. And so they did, slashing government expenditures even more and removing government imposed limitations. Unemployment soared, above 20%. Freer capital movements would lead to speculative bubbles not unlike our recent housing bubble. This produced a brief euphoria between 1979 and 1981. But in 1982 the bubble burst and the economy collapsed in ruins and had to be bailed out by the state.
The connection between violence and Friedman's so called "freedom" endorsing economic policies was not lost on many. One such person was Allende's former Ambassador the the US, Orlando Letelier. He made this connection and detailed the state of Chile's economy in this 1976 article for The Nation.
On month later he was assassinated in Washington DC. Three weeks later Friedman's Nobel Prize in Economics would be announced.