THERE ARE MANY PEOPLE Arnold Harberger loves in Chile. He married a Chilean. By his count, 100 to 150 of his students are economists there. He consulted for the Central Bank of Chile during Alessandri Frei's rule in the '60s, and for the Pinochet government's electric company in the past two years. His ties with Chile go all the way back to the '50s, when the University of Chicago, his home base, started an exchange program with Catholic University in Santiago. Arnold Harberger sincerely loves Chile.

The story of his inability to see the truth of what his ties with the Pinochet dictatorship mean for the people of Chile is one of naivete, myopia and poignance. It is also the story of a man's deeply flawed moral judgement. In essence, Harberger puts the welfare if the people he knows and loves before the welfare of an entire people; he fails to imagine the suffering of people he does not know.

The personal consequences of the Pinochet government's systematic repression of its opposition have touched even Harberger's life. His wife's brother, who served as Allende's cultural attache, is now a Chilean poet in exile. He publishes a literary magazine out of Los Angeles-- Literatura Chilena en El Exicilio-- and organizes efforts against the Pinochet government there. Harberger says the government branded his brother-in-law's passport with an L, which means that he can never return to his homeland while the Pinochet junta is in power.

Yet not once during any of his visits to Chile has Harberger publicly spoken out against the government's policy of torturing, exiling, jailing or executing its opposition. He has never raised a word of protest about the silenced voices of many of his colleagues.

"People that I love are in high positions in that government. Am I going to pull them down? Will that help Chile?" he asks.

He also points out that he has expressed his disapproval of the political repression in private at numerous cocktail parties. But what about the people who weren't at the cocktail parties, the people who were imprisoned on Dawson's Island, the people who lay in the gutters of Santiago? He said he counseled at least 20 generals that they should give their power back to the people.

And what did the generals answer? They smiled and nodded their heads, says Harberger.

HARBERGER CANNOT see himself as other people see him, yet the way other people see him would be critical if he became director of the Harvard Institute for International Development (HIID). "I'm totally identified with the notion of constitutionality in Chile," he says. But throughout Latin America and within the community of American scholars who study international development, Harberger and his Chicago school of economics symbolize economic policies that require brutal tyranny.

By failing to speak out against repression in Chile and by praising the Pinochet regime's economic policies, Harberger strengthened the government's reputation with foreign credit institutions and foreign investors, for whom the word of the chairman of the economics department at a very prestigious American university carried great weight. On each trip of Chile, Chilean newspapers--notably EL Mercurio--ran huge spreads on what the American economist said.

Harberger also implicitly justified the repression. He felt the socialistic economic policies of the Allende government had helped destroy freedom in Chile; he still subscribers to the 19th-century belief that a free market in the economic and political realms are interdependent. "The restoration of political freedom is impossible without a restoration of economic health," he wrote (Wall Street Journal, December 10, 1976). The paradox is that Harberger promulgated with missionary zeal his belief in the free economic market in a place where the free marketplace of ideas had been decimated.

THE ROLE OF Harberger's approach to economics in causing the repression is, however, a much more serious issue. The field of international development is now in a state of intellectual crisis. One of the reasons is the failure of market economics to solve the economic problems of developing countries. In the '50s and '60s economists were confident they could get the economies of poor countries moving if only their governments would follow a good economist's advice.

Many economic advisers, however, have come to believe that these policies tend to foster repression rather than progress. Because of the enormous gap between rich and poor within underdeveloped countries, and because of the gap between rich and poor nations, a policy intempered by considerations of equity, promoting unfettered competition, would tend to widen the income gap. Any advantages that did come about would flow to the small group which already own land and capital.

Market-oriented policies are not apolitical in underdeveloped countries; they consolidate the power of an elite, creating discontent among the poor. In order to continue the polices, the government must resort to repressive measures. For example, when the Chilean government went full throttle on the "shock treatment" which Harberger's and Milton Friedman advocated on their 1975 visit to Chile, the Christian Democratic Party criticized the approach and called for alternatives that would ease its dire social consequences. In March 1977, the Christian Democratic Party was outlawed.

ALBERT O. HIRSCHMAN, professor at Princeton's Institute for Advanced Studies, long had faith in "economic development." In 1963, he wrote the highly influential Journeys Toward Progress. In an essay published last year, though, he epitomized contemporary disenchantment with the field, changing Toqueville's famous epigram from "A close tie and necessary relation exist between these two things: freedom and industry," to "A close tie and a necessary relation exist between these two things: torture and industry."

Harberger has never questioned his faith in the market economy as the solution to the problems of poor countries. "I preach an approach I call good economics," he says. His approach measures success with the ledger of an accountant; questions of who gets what have no place in the economist's calculus.