Hans F. Sennholz, “Boom, Bang!” (1967)

Hans F. Sennholz’s 1967 essay is a warning that the apparent return of prosperity is not recovery but an inflationary boom. It begins with contemporary signs—rising manufacturing orders, retail sales, employment, wages, profits, and consumer prices—but immediately reverses the optimistic interpretation. The acceleration is, for Sennholz, the visible effect of expansionary money and deficit finance, not evidence of economic health. His main thesis is that federal policy has manufactured a boom whose costs will appear as dollar depreciation, redistribution, malinvestment, and recession.

In fact, monetary policy has been extraordinarily inflationary during the past nine months.

The article’s first conceptual move is to translate official policy language into monetary mechanics. The Federal Reserve’s Keynesian aim of keeping markets steady is presented not as prudence but as intervention designed to suppress interest rates while the government borrows heavily. Sennholz reads the policy of an “even keel” as a commitment to monetize public deficits so the Treasury can obtain funds without allowing interest rates to reflect scarcity.

This “even keel policy” boils down in practice to an attempt at stabilizing interest rates at a time when they would normally reflect an extraordinary demand for loan capital.

From this point the essay develops its causal sequence. Federal borrowing should raise rates; if the Fed prevents that rise, it must create money and credit. That new money temporarily sustains expansion, but it cannot abolish the economic pressures it conceals. Indeed, Sennholz argues, the effort to hold interest rates down eventually produces the opposite result, because rising prices and inflation expectations push rates upward.

In the end a “run-away inflation” will cause both prices and interest rates to soar.

The proposed Johnson Administration tax surcharge receives little weight in Sennholz’s analysis. Even if enacted, he argues, the deficit would remain large, and additional revenue would likely finance further Great Society spending rather than reduce inflationary finance. The essay thus treats taxation and borrowing as secondary to the deeper political problem: a government unwilling to restrain expenditure will rely on the central bank to sustain its commitments.

Sennholz then shifts from mechanism to moral economy. The boom has beneficiaries—government employees, contractors, welfare recipients, and industries linked to federal spending—but its costs fall on those who hold money claims. Inflation, in his account, transfers wealth while appearing as prosperity.

The inflation that generates the boom is a hidden tax on all money holdings.

This is one of the essay’s central interpretive claims. Sennholz emphasizes widows, fixed-income families, savers, insurance holders, bondholders, and pensioners because they experience inflation as a loss of purchasing power rather than as a boom. His analysis also stresses uneven price movement: inflation redistributes before it appears as a general rise in the price level.

Prices do not rise evenly and uniformly.

That unevenness is essential to his account of profit and loss under inflation. Those who sell at newly inflated prices while still buying at older prices gain; those whose incomes lag behind rising costs lose. The boom is therefore not a collective improvement but a pattern of gains and losses determined by proximity to new money and by the timing of price adjustments.

The final economic movement of the essay is explicitly business-cycle analysis. Artificially low interest rates and inflation-induced profits encourage investment projects that would not have appeared viable under undistorted market conditions. The boom therefore contains the next downturn within itself.

The new boom will cause new malinvestments and maladjustments that breed another recession and depression.

Sennholz’s closing sections reject efforts to blame Vietnam, business, labor, or other external forces for rising prices and instability. For him, legal money creation and credit policy make inflation a state responsibility. The essay’s causal attribution is direct: deficit finance, central-bank accommodation, and political promises are treated as a single inflationary system.

Let us bear in mind that no one but the federal government can inflate and depreciate our money.

“Boom, Bang!” is thus structured as a compressed Austrian-style critique of late-1960s macroeconomic management: first the boom’s surface, then the monetary source, then the social victims, then the inevitable bust. Its title captures the whole arc. What looks like prosperity is already the opening sound of a later collapse.