The archive.

Germany's early-2000s stagnation, on this diagnosis, is no passing downturn but the accumulated weight of decades of welfare-state expansion, heavy taxation, labor-market rigidity, and subsidy. Beginning with German opposition to the Iraq War, the essay reads Schroeder's antiwar stance chiefly as electoral maneuvering that distracts from unemployment and malaise. The history runs from the freer conditions of the postwar Wirtschaftswunder through the Social Democratic turn after 1968 to Kohl's accommodation with intervention and the fiscal burden of reunification; the Red-Green coalition appears not as rupture but as another stage on the same trajectory, its tax cuts outweighed by energy levies, union power, and pension obligations. What Germany lacks, Sennholz concludes, is not technical knowledge but the political capacity to dismantle privilege and recover the market freedom he ties to the postwar miracle.

The official German position must be viewed in the light of politics, which is simple strife of party interests masquerading as a contest of principles.

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.

Not all borrowing is alike, and the distinction is where this October 2003 essay begins. Sennholz separates productive debt—which finances investment that earns future income and raises labor productivity—from consumptive debt, which finances spending and leaves no capital behind once the good is gone. Rising American household, mortgage, and federal obligations, he argues, reflect a love of spending propped up by artificially low Federal Reserve rates that distort entrepreneurial calculation and conceal the true burden. His chain of consequences is bleak: cheap credit invites malinvestment; public deficits invite currency depreciation as a hidden tax on creditors; depreciation threatens the dollar's reserve role; and debt-driven transfer politics corrode civil peace until, he warns, a society that can no longer cooperate submits to a strong president armed with emergency powers.

Private debtors may find it difficult to pay for bread that has been eaten.

Poverty, stagnation, and authoritarianism across the Muslim world are usually blamed on rulers or resources; Sennholz asks instead whether they follow from religiously grounded rules about income, credit, family, and authority. Reading the Koran and Shariah as sources of economic organization rather than private belief, he builds his case around a fourfold division of income - wages, interest, profit, and transfers - and argues that Islamic doctrine accepts labor and redistribution while restricting the categories capitalism most needs. The prohibition of riba, he contends, chokes credit markets, banking, and the conversion of savings into productive capital, much as medieval Christian usury doctrine once did. Extending the critique to Baathist Iraq's transfer economy, to population growth pressing against stagnant capital, and to the exclusion of women from market production, he treats these constraints as mutually reinforcing causes of underdevelopment.

American observers are dismayed about the dreary economic conditions in most Islamic countries.

IBM's announcement that it would relocate thousands of programming jobs to India and China opens this January 2004 commentary on outsourcing—and Sennholz immediately turns against the popular verdict. The exodus, he argues, springs not from employer greed, foreign predation, or disloyalty but from domestic American policy. Two causes carry the weight: a monetary regime of low interest rates and vast trade deficits that sends capital abroad, and an accumulation of labor-cost mandates—Social Security, Medicare, unemployment insurance, workers' compensation, health insurance, pensions, litigation, regulation—that lifts the total cost of employment far above take-home pay. Productivity alone, he insists, cannot save a job whose full cost is raised to inflict losses on employers. Citing a National Association of Manufacturers study, he warns that tariffs, currency pressure, and fresh regulation would only hasten the very departures they mean to halt.

Even the most productive labor in the world can be rendered uneconomical and unproductive, if its costs are raised to inflict losses on employers.

With most American economists singing happy days are here again after the market's recovery from the early-2000s slump, a minority marched to a different drummer, forecasting falling asset prices, recession, and depression. Sennholz sides partly with these deflationists—granting that they grasp bubbles and overvaluation better than the optimists do—then reverses course. The danger in February 2004, he argues, is not pure deflation but dollar weakness, rising prices, and stagnation, because Federal Reserve inflation, federal deficits, and the dollar's reserve-currency role make inflationary pressure decisive, especially if China and Japan stop absorbing dollars through Treasury purchases. He rereads the Great Depression as the handiwork of Hoover-Roosevelt intervention—Smoot-Hawley, tax hikes, farm controls, the Wagner Act—rather than Fed inaction, and likens Japan's prolonged stagnation to the same obstruction of readjustment. His forecast: controls and dreary stagflation.

They plan the future by the past, by the Great Depression and the Japanese recession.