The archive.

A weakly mandated president and a divided Congress could agree on little in 2002, except the pleasure of spending, which swiftly turned projected surpluses into deficits through defense, farm, and countless other outlays. That bipartisan appetite is the essay's real subject. Federal Reserve money creation is cast as the hidden enabler, adding no real resource but issuing fresh purchasing-power claims against existing goods, falsifying capital signals, and priming boom and bust. A political sociology sorts Congress into four spending blocs, social-need advocates, parochial district-servers, Keynesian full-employment stimulators, and cost-wary conservatives, who converge in a guns-and-butter front weighted toward the butter. Entitlements and mandates, in the closing movement, divide the nation into a provider class and a dependent class, trading natural rights and self-reliance for claims on government.

Stone walls do not prisons make; they are houses of care and dependency.

Aggressive Federal Reserve rate cuts, rapid dollar money growth, a yawning trade deficit, and still, in 2001, the dollar climbed as no other currency shone so brightly. Sennholz explains the paradox first through the euro cash changeover, which drove holders of old European notes, tax evaders and criminal organizations among them, to liquidate quietly into dollars. The deeper account is Austrian: the dollar sits at the narrow base of an inverted pyramid of bank credit, securitization, derivatives, Eurodollar markets, and foreign Treasury purchases, so that crises abroad only strengthen it. Reserve-currency privilege is thus both power and vulnerability. Defending inflated asset prices and mortgage credit, he warns, will bring renewed inflation, rising yields, and a deeper recession beneath the bright surface.

Recessions, after all, are the corrections of the preceding excesses and maladjustments; they may be delayed for a while, but cannot be avoided once the harm has been done.

Falling prices, the popular story runs, are an economic abyss, the mirror of inflation but worse, paralyzing output and employment. That fear is precisely what this 2003 essay overturns. Inflation, Sennholz insists, originates in monetary expansion by the Federal Reserve and the banking system; what looks like deflation is often the corrective aftermath of that expansion, or simply the effect of a rising demand to hold money in fearful, stagnant times. When uncertainty swells cash balances, official stimulus loses force and the Fed is pushing on a string. Easy money lures firms into unsustainable ventures whose eventual liquidation is painful but wholesome, while low rates that no longer signal real saving merely prime fresh malinvestment. Japan's slump, he argues, was prolonged not by deflation but by the interventions meant to cure it.

Declining prices do not call for ever more Federal Reserve money and bank credit.

Interest rates should arise from market forces, not political or central-bank manipulation, because they coordinate entrepreneurial decisions across time; so this compact essay maintains. Sennholz defines the gross market rate as three components: the pure rate rooted in time preference, the inflation component reflecting currency depreciation, and the debtor's risk premium. Against this stands the Federal Reserve, whose rates held below market levels expand borrowing unsupported by genuine saving, inflate stock and real-estate prices, and let people mistake paper gains for wealth. The boom is thereby recast as capital consumption masked by rising asset values, and the ensuing downturn as the market's forced correction of falsified signals. Central bankers may ignore the market rate, he concludes, but they cannot abolish it.

But, in the end, there is general impoverishment.

Argentina stood near civil conflict in March 2002, with banks frozen, presidents falling in quick succession, and protesters dead in Buenos Aires. The catastrophe, this essay contends, sprang not from too much market reform but from reforms that stopped short of the root: Menem's 1991 convertibility plan tied the peso to dollar reserves and tamed inflation, yet left Peronist transfer politics, chronic deficits, and IMF-financed debt untouched. The bank freeze becomes the breaking point where fiscal insolvency turns into open assault on property. Sennholz's remedy is contractual monetary freedom, citizens free to hold and contract in dollars, euros, pesos, or gold, with creditors and debtors renegotiating without new controls, taxes, or compensatory schemes, and a labor market where the unemployed may accept work on freely chosen terms after political devices have failed.

The freedom to work is an economic necessity and a moral imperative.

On the first day of 2002, roughly 300 million Europeans traded their national currencies for a common medium of exchange, and Sennholz reads the changeover as a vast political experiment rather than a technical convenience. He credits the euro's real gains, lower transaction costs, price transparency, sharper competition, then turns an Austrian critique on the European Central Bank, whose mandate defines price stability as consumer-price growth of less than two percent a year. The ECB, he insists, is a political creation bound by the same incentives as every central bank before it: pressure to rescue failing institutions, accommodate welfare-state finance, and loosen money whenever recession threatens. Statutory independence cannot withstand them. Weighing dollar pegs, commodity baskets, and gold, he concludes that no anchor a mandate alone can furnish will hold.

Unfortunately, throughout the long history of central banking no central bank has ever managed to achieve the illusive goal of price stability.