Hans F. Sennholz, “Turmoil in Argentina” (2002)

This single-author policy essay, published as a chapter-like piece in Foreign Maladies, diagnoses Argentina’s 2001–2002 collapse through an Austrian/free-market framework. Its scope is both historical and programmatic: Sennholz reconstructs the path from the Menem-era convertibility plan to bank freezes, default, riots, and the Duhalde presidency, then turns to the monetary and labor reforms he believes Argentina must adopt.

It is hard to exaggerate the economic and political turmoil in Argentina.

The essay’s central thesis is that Argentina’s crisis was not caused by too much market reform, but by reforms that stopped short of the “root” problem: fiscal irresponsibility, politicized money, regulated labor, and a public ideology of entitlement sustained by international credit. Sennholz begins with the apparent success of the 1991 “stability and convertibility plan,” which replaced the austral with the peso and tied monetary issue to dollar reserves. Inflation fell, GDP rose, and privatizations reduced deficits. Yet the argument quickly reverses the reform narrative: Menem’s government retained Peronist transfer politics, raised taxes, expanded public works, and relied on IMF-backed debt rather than expenditure restraint.

Sennholz then follows the deterioration through external shocks and domestic interventions: the Mexican peso crisis, Asian financial crisis, the Brazil trade war, tax increases, IMF conditionality, union resistance, and de la Rúa’s failed mix of tax hikes, spending cuts, and limited labor-market liberalization. The bank freeze becomes the political breaking point because it converts fiscal insolvency into a direct assault on property. For Sennholz, the riots and presidential turnover are symptoms of a deeper institutional disorder.

The Argentinian crisis presents not only great dangers to the country's political and economic order but also an opportunity for a new beginning.

The essay’s most important conceptual move is to distinguish surface reforms from causal reform. Menem and de la Rúa, in Sennholz’s view, treated symptoms—exchange-rate instability, deficits, unemployment—without abandoning the political expectation that the state should provide benefits financed by others. This is where the work’s polemical center appears.

They merely hacked at the branches of the evil, but did not strike at the very root which is a pervasive entitlement ideology, that is, the common conviction that everyone is entitled to economic benefits at the expense of others.

From this premise, Sennholz recasts “austerity” not as cruelty but as the unavoidable end of deficit finance. He is sharply critical of the IMF, arguing that its loans enabled continued peso issue and postponed adjustment until debt became unmanageable. His monetary remedy is not another managed peg or rescue package, but contractual monetary freedom: citizens should be free to hold and contract in dollars, euros, pesos, or gold, while banks, creditors, and debtors renegotiate without new controls, taxes, or compensatory schemes.

Reform must come from within; it cannot be imposed by a creditor.

The second half extends the same logic to unemployment. Sennholz argues that mass unemployment arises when labor costs are held above labor productivity by law, taxation, union power, and regulation. His discussion of labor is not merely technical; it is moral. In a poor country, barring people from accepting work on terms they choose is, for him, both economically destructive and ethically indefensible. Hence his proposed reform is deliberately minimal: do not first cut existing wages or benefits; simply allow the unemployed to contract freely.

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

The essay’s relevance lies in its uncompromising interpretation of the Argentine collapse as a failure of interventionist politics rather than market liberalization. Sennholz treats money, credit, labor, and fiscal policy as connected expressions of the same problem: government power repeatedly substitutes coercive redistribution and regulation for voluntary contract. The closing appeal is therefore not to technocratic stabilization, but to freedom after the exhaustion of political devices.

It is the very last hope short of despair.