The archive.

To most people inflation means rising prices in the shops, but this 1997 commentary insists the word has escaped that definition. The financial boom of the mid-1990s, Sennholz argues, is itself an inflation, one lodged in stocks and real estate rather than consumer goods and therefore invisible to journalists who read stable price indexes as proof of a Fed under control. What makes it different is its mechanism: the money stock has stayed relatively stable, while low rates, brokerage cash-management accounts, money-market funds, credit cards, and global dollar holdings accelerate the velocity and leverage of existing balances, leaving the system awash in liquidity. Sennholz sets the episode beside America in the 1920s and Japan in the 1980s, calm consumer prices over overextended speculation, and warns that the credit structure beneath such a boom must eventually break.

The Fed has not significantly increased the stock of money but managed to accelerate its use.

Stepping down in May 1997 after a decade as president of the Foundation for Economic Education, Sennholz turns his farewell into an unsentimental study of how a think tank survives. The libertarian educator, he insists, cannot live by doctrine alone: the chief executive wears two hats, scholar and businessman, and a charitable foundation is healthiest when it competes not only for the donor dollar but for the customer dollar. He reports the rejuvenation of his tenure, seventy-nine new books in five years, computerization, and a broadened Freeman carried worldwide after Soviet communism fell, and marks the 1996 Golden Jubilee with Margaret Thatcher as its high point. His succession agenda dwells on a stubborn obstacle: academic credentials function as licenses, and liberty-minded teachers are too often kept from the classroom. Mary Sennholz's counsel supplies the memoir's moral center.

"Honor can only be purchased by your deeds. You cannot quit with honor."

A budget declared balanced while the national debt keeps climbing is not fiscal discipline but disguised borrowing—the deception Sennholz sets out to expose in this March 1997 commentary. The trick, he argues, lies in spending Social Security and other trust-fund surpluses to finance current outlays, leaving future claimants government IOUs rather than assets; the Balanced Budget Amendment then before Congress would only legitimate the practice. His larger target is the transfer state itself, with Social Security as its institutional center and model. Against it he sets concrete exits: privatizing welfare functions, freezing transfer spending to shrink the system over time, and granting the young and conscientious objectors a right to withdraw—for a transfer scheme that permits its victims to leave ceases to redistribute by force at all.

They want us to believe that the annual budget deficits are declining although the national debt continues to soar.

Output rising, unemployment and inflation falling, stock prices soaring, politicians claiming credit—the late-1990s expansion had economists reaching for superlatives. Sennholz reads it instead as a credit-driven bubble in the lineage of the 1920s United States, 1980s Japan, and the 1997 Asian crisis, its danger masked precisely because consumer prices stayed stable. Conventional aggregates like M1 and M2, he contends, miss the real fuel: bank credit expansion, loan securitization, derivatives, offshore banking, the yen carry trade, and foreign central banks recycling current-account dollars into U.S. Treasuries. Rising equity values signal mergers and buybacks, not capital formation. Written in December 1997, the essay anticipates later debates over asset inflation and global imbalances, and predicts that when the bubble bursts officials will blame speculators and foreigners rather than the monetary order.

All these symptoms do not make a “new era economy” but rather a highly vulnerable “bubble economy.”

Kirzner presents his fullest single statement of a modern Austrian microeconomics, one built not on equilibrium but on the process that might produce it. Mainstream theory, he objects, treats the relevant knowledge as already given, so that Walrasian models cannot explain how mutually compatible plans ever emerge — a gap Arrow exposed in 1959, since if every agent takes prices as given, none is left to adjust them. His alternative fuses Mises's uncertainty-bearing entrepreneur to Hayek's knowledge problem: markets coordinate through alertness to profit opportunities left by earlier error, and 'sheer' ignorance is reduced not by costly search but by surprise. The framework recasts antitrust, distributive justice, welfare economics, and the Lange-Lerner socialism debate. Yet Kirzner keeps the conclusion guarded — the market tends toward coordination without guaranteeing it, so the case is against obstructing discovery rather than a proof of laissez faire.

The mathematical description of various states of equilibrium is mere play. The problem is the analysis of the market process.

Rome, the Hapsburg monarchy, the Soviet collapse—Sennholz ranges across empires to argue that ethnic and racial diversity is not inherently destabilizing. Plurality turns dangerous, he contends, only when political institutions abandon equal liberty for group favoritism, redistribution, or cultural fragmentation. Rome flourished through toleration, citizenship, and law until military centralization made it a garrison state; the Hapsburg polyglot dynasty endured through impartial reform until nationalism dissolved it. Lacking common ancestry, Americans depend instead on a shared system—Judeo-Christian values, equality before the law, individual freedom, economic opportunity—and it is this framework, he warns, that multiculturalism and the public schools erode when they teach citizens to understand themselves through separate group grievances rather than the principles that unite them.

Diversity in freedom makes for social peace, economic productivity, and great prosperity.

Europe's malaise, on Sennholz's February 1997 diagnosis, is self-inflicted—the predictable yield of welfare-state transfers, high mandated fringe benefits, and rigid labor rules dressed up as social progress. His argument is marginalist: labor costs do not cause unemployment until law and policy push total compensation above a worker's productive contribution, at which point the least productive are priced out of work. Comparing labor costs across Germany, France, Italy, Britain, and Spain, he traces stagnation and deficits to the benefit burdens heaped on business in the 1970s and '80s, then dismantles the rival explanations—computer technology as neo-Luddism, cheap foreign labor and immigrants as scapegoating, job-sharing as the fallacy that work is a fixed stock. Europe, he closes, is a warning the United States would be foolish to ignore.

Yet, no matter how high the labor costs may be, they do not cause unemployment provided they do not exceed labor productivity.

Mainstream economics can describe equilibrium; it cannot explain how uncoordinated agents ever reach it, leaving Adam Smith's invisible hand an analytical black box. Written for a general and policy-minded readership as a Hobart Paper, this study builds the missing account: a positive theory of entrepreneurial discovery drawn from Mises and Hayek, in which pure profit signals prior error and competition means freedom of entry rather than a crowd of price-takers. Textbook price theory, Kirzner charges, merely assumes the perfect knowledge it should explain. He then turns the theory loose on advertising, antitrust, welfare economics, and the socialist-calculation debate, reinterpreting the entrepreneur's profit as created gain brought into social existence by discovery, not a slice carved from a fixed pie.

The systematic character of the market process stems from the human propensity to sense (without deliberate search) where to find pure gain.

Perfect competition describes a world already purged of the uncertainty and mutual ignorance that make markets worth studying: everyone knows the prices, so no one has reason to bid differently, notice a gap, or learn from disappointment. Such a model, Kirzner argues, cannot explain price formation at all — it assumes the very outcome it should illuminate. Recovering the Austrian view, he treats competition as a discovery procedure, universal wherever exchange is not institutionally blocked, and present even in monopolized markets. Monopoly proper, following Mises, means sole ownership of a scarce essential resource; the resulting gain is a rent, not entrepreneurial profit, and even the monopolist must still discover his demand. On that distinction Kirzner defends Mises against Gerald O'Driscoll's charge of neoclassicism, and locates the market's driving force in the alertness that keeps prices, opportunities, and errors in perpetual motion.

Competitive activity is the activity which constitutes the market process.

Historically exhausted, bound up with class conflict, taxation, debt, and monetary debasement, the welfare state may linger a while, Sennholz declares, but not for long. Written after the 1996 federal welfare act, this essay reads that law's devolution to the states, work requirements, and time limits as a partial retreat rather than a genuine reform. Its central move is to shift attention from recipients' incentives to the labor market's legal architecture: even without benefits that discourage work, statutory barriers would still keep the unskilled from being hired. Chief among them is the minimum wage compounded by mandated employment costs, alongside the Davis-Bacon Act, ERISA, and EEOC liability. The result is a self-defeating contradiction, reformers ordering people into jobs while maintaining the laws that price them out. True reform, he concludes, must first dismantle the state's own barriers to work.

The welfare reformers are laboring to roll the welfare stone up the mountain to the barriers they themselves erected.

After aggregate wealth, interpersonal utility sums, and the fiction of a single social maximizer had lost their authority, could economics still say anything objective about good and bad policy? Kirzner's answer is coordination — a value-free property of social interaction that independent moral reasoning may then judge desirable. Borrowing Whately's analogy between studying wealth and studying disease, he defines a fully coordinated state as one in which each person's action correctly accounts for what others do and might do. The criterion is bounded by property rights and turned against Pigouvian and Paretian welfare economics; it recasts Mises's socialist-calculation argument as a coordination comparison and defends entrepreneurial creative destruction as coordinative rather than destructive, since the earlier calm merely masked discoordination no one had yet discovered.

That calm was a facade expressing the presence of as yet undiscovered (but very real) discoordinatedness; dynamic competition shattered that calm, replacing the earlier uncoordinated sets of activities by a better-coordinated set.

Far from being a neutral stabilizer, the International Monetary Fund is portrayed here as an internationalized extension of the very monetary interventionism that produces crises in the first place. Written in October 1998 amid the Asian financial collapse, the essay traces business cycles to political control over money and reads Bretton Woods less as a remedy than as institutionalized error. Sennholz stresses the asymmetry of a Fund supplied by a few hard-currency states and drawn upon by weak-currency debtors, and identifies its power with the United States and the dollar system. Bailouts, he argues, reward profligate governments and export welfare-statist fiscal assumptions—his Guatemala and Indonesia cases supply the evidence—while teaching borrowers and lenders to expect rescue. Against them he sets lower taxes, balanced budgets, freely adjusting interest rates, and the refusal to save failed financial managers.

In other words, only unstable high-risk debtors may apply.