Hans F. Sennholz, “The Economy and the Great Society Boom” (1966)

This 1966 American Opinion essay is a topical monetary polemic on the Johnson administration’s “Great Society” economy. Sennholz opens with a public dispute among Harry Truman, Lyndon Johnson, and Walter Heller over tight money, inflation, taxes, and recession, then recasts it as a deeper confusion about inflation itself. His thesis is that Kennedy-Johnson prosperity is an artificial credit boom generated by the Federal Reserve, masked by Keynesian “stop-and-go” policy, and moving toward recession, controls, and enlarged federal power.

The inflation of the last six years could not have been perpetrated on the American people if it were not for a dense cloud of semantic confusion that is hiding the issue.

The first move is semantic and causal: inflation means expansion of money and credit, while rising prices are merely effects. By narrowing the term to prices, officials shift blame from monetary authorities to business and labor, the visible agents of price adjustment. Since only the state’s monetary apparatus can legally create paper money and central-bank credit, remedies aimed at businessmen, unions, or consumers evade the source.

The Federal Reserve Banks fathered the Great Society boom through vast injections of money and credit.

The essay then turns quantitative, citing Federal Reserve credit, Treasury currency, demand deposits, time deposits, and total bank credit to make the boom appear as a measurable monetary construction. Sennholz’s statistics serve as forensic evidence: the central bank buys government securities, expands high-powered money, and thereby feeds bank credit. Price increases are not an independent social pathology but the delayed and uneven result of prior monetary expansion.

An economic boom is created every time large quantities of newly created money and credit are first thrown on the money market. The new money artificially lowers interest rates, which fact induces businessmen to launch expansions, modernizations, and other improvements. The feverish activity that ensues is the boom.

Here Sennholz gives the essay its Austrian business-cycle structure. The boom is not proof of strength; it is a distortion of calculation caused by easy money. Artificially low interest rates signal savings that do not exist, encouraging projects that cannot be sustained once real costs rise. This also explains his hostile reading of Johnson’s popularity: voters enjoy the immediate effects of spending and cheap credit while blaming business for the later effects.

The middle section, “The Zigzag Course Of 1966,” narrows the analysis to the Federal Reserve’s reversals. Sennholz presents 1966 as brief monetary stabilization, renewed credit injection, sharp contraction, and renewed easing. Stock prices, construction, car sales, mortgage finance, and profits become symptoms of a policy regime reacting to its own distortions. The central bank, he argues, is trapped between two incompatible political demands: suppress price increases and lower interest rates.

In short, both objectives, lower goods prices and lower interest rates, require policies that are diametrically opposed. A central bank that would aim at a realization of both objectives in this late stage of a boom would probably steer a zigzag course to nowhere, like that of the Federal Reserve in 1966.

The final section, “The Johnson Program,” extends the monetary critique into a theory of political escalation. Sennholz argues that inflation must continue because the economy has become dependent on it: malinvestment, labor legislation, union wage pressure, taxes, and federal borrowing all depress profits and require new credit stimulation. Tax increases cannot cure inflation, because they do not address its monetary source; indeed, he argues, they may worsen prices by reducing production.

It is obvious to every student of economics that the creation of money by the central bank can in no way be offset, neutralized, or alleviated by higher tax levies on the people.

The article’s relevance lies in its concentrated critique of mid-century Keynesian stabilization and of the Great Society as a fiscal-monetary order. Sennholz treats “public sector” growth as parasitic on the “people’s economy,” and he reads wage-price controls not as emergency technique but as the logical endpoint of inflationary management. The business-cycle diagnosis thus becomes a warning about planning, rationing, and coercive control.

The ration book is President Johnson's ultimate weapon. To his millions of followers it probably signifies enlightened and progressive economics and paternal care. To us it signals bankruptcy of the Great Society and evolution of unadulterated socialism.