The tendency of these managers is to fabricate a view of cause and effect that conforms to what they would like to do. In the war on terror, we were told that the 9-11 attacks came about because shadowy bad guys from afar resent our freedom. If you believe that, the answer is more militarism and killing as a preventative measure. If, however, you realize that these attacks grew out of a desire for vengeance against American military policies, the implied policy solution looks radically different.

So it is with the economy and the proper policy response to recession. If you believe that there is no good reason for an economic downturn other than a wave of animal spirits and flagging public confidence, your response is to inject optimism via the printing press. Surely, nothing makes folks happier – temporarily – than for them to find themselves awash in newly printed bills. This will lead to internal joy, consumer spending, and thus recovery.

So believes the silly political class.

Consider a different view of cause and effect. If the recession is a correction to an overly pumped economic boom, matters change. The recession, then, is not an aberration crying out for correction; it is itself the correction for the unsustainable economic bubble that preceded it. It should be welcomed in the same way we welcome a sober day after a drunken evening, or the detoxification of an addict after a period of addiction.

But here again, government begins with a view of cause and effect that conforms to its institutional wishes. The recession is the problem, and the only problem, and it can be corrected through the usual means: issuing orders, passing laws, and giving more power to the right people.

It gets worse. A recession contains at least one feature that turns out to be a saving grace for consumers who are hit with economic instability. In the midst of layoffs, tighter lending standards, and a riskier entrepreneurial environment, at least there are some sectors that have declining prices. At least in some areas, the purchasing power of money is rising. This makes life a bit easier. In times when there is very little good news, this is something to hang on to.

But instead of seeing falling prices as the silver lining in the recessionary cloud, government (and the media as an echo) sees them as the cause of all other problems. So, wouldn’t you know, government sets out to stamp out falling prices on the theory that if this succeeds, the entire economy will rise like a phoenix from the ashes.

This was the view during the Great Depression. Herbert Hoover’s and then FDR’s economic team was convinced that falling prices represented not a saving grace but a mortal economic sin. They spent more than ten years trying to make all prices rise. This, they believed, would cause recovery. They tried inflating the money supply. They tried wage and price floors, with vigilante enforcement, and even all-around industrial price planning. Finally, FDR tried the ultimate sand-in-your-face tactic: he went to war, and sent all those unemployed folks to foreign lands to kill and be killed, or to make-work jobs in the military-industrial complex, the CCC on steroids.

What did we learn from that debacle? Let’s make it official: we have learned nothing from our experience during the Great Depression. Even now, people are under the impression that falling prices cause recessions. Here is proof from the lead to this New York Times story: “With sinking home values continuing to drag down the economy...”

Sorry, but it just isn’t true. Falling house prices are not good news for homeowners who believed that they had purchased an asset that would forever go up in price. But they are wonderful news for people who are shopping for homes. They can buy more for less, and avoid frightening levels of mortgage debt in the process. In macroeconomic terms, the housing bust is also a welcome event since it was precisely this sector that was wildly ballooned during the boom. Unsound investments (or consumption goods masquerading as investments) must be leveled out before economic recovery can begin.

But it is really true that an economy can survive and thrive with falling prices. Falling computer prices didn’t drag down the economy in the ’90s. Nor did falling clothing prices. And consider the Gilded Era, the most prosperous until that point in all of human history. The consumer price index fell from 47 in 1864 to 25 in 1900 – nearly by half. That’s another way of saying that money became twice as valuable. And where was the calamity? Savings and pay packets zoomed in value. This period is called the Second Industrial Revolution because of the astounding increases in productivity, population, and technology. Falling prices and sustainable economic expansion are positively related in all of economic history.

If government and the Fed succeed in propping up home prices or preventing them from falling as much as they might otherwise, what will be the result? Homes will continue to be overexpensive and, on the margin, unwarranted purchases. This will not bring about economic recovery. This will force American consumers to spend more at precisely the time when they should be saving and getting out of debt.

There are lessons here. One is never to permit the government to discern the relationship between cause and effect. Government invariably rules out the possibility that the structure of the public sector itself is to blame for the problem, whether that problem is terrorism or recession.

Another lesson is that we need to shut down the machinery that allows government to enact its plans. If there continues to be a slice of the population that gets its kicks from issuing orders and trying to make the world conform to them, these people ought to be given a video-game console to play with. The game can be called Grand Theft Society. The stakes are too high to permit them to play their games using real wealth and real lives.

Llewellyn H. Rockwell, Jr.
for The Daily Reckoning Australia

• The Country is Going into a Recession with its Finances in the Worst Shape Ever
• The Challenge of a Balance Sheet Recession
• They Say the Stock Market ‘Looks Ahead’
• Oil and Gold Prices Linked for Most of Recession Period
• Largest Spike in U.S. Wholesale I/S Since 80s Recession

I ask you to consider the absurd discussion of a stimulus package designed to rescue the U.S. economy from recession. The idea is that the U.S. government will inject funds into private markets to stimulate them to the point that they will run on their own. Not once in this debate have I heard anyone ask the core question: where is this money going to come from?

It seems that Washington wants us to believe that they have some magic machine that can turn up $150 billion in new assets without anyone having to do anything to make these assets appear. One wonders, then, why we need to wait until a recession to stimulate the economy. Why not magically create hundreds of billions every day, and not just for this country but for the entire world? Why are we holding back?

Now, the ideas of the stimulus package are not 100% awful. Some people are talking about tax cuts, which is a good thing but rather pointless without spending cuts. I'm particularly intrigued by the underlying assumption here that taxes work as a drag on an economy whereas tax cuts fuel expansion. If that is the case, and is indeed true but for different reasons than Washington gives, why wait until the recession to cut taxes? If taking less from us is good for the economy, we should institute this as a universal policy.

One great lesson of political economy, emphasized for centuries, is that the government creates no wealth of its own. Everything it has it has to get from you and me, one way or another. It can tax. It can borrow. And, finally, it can inflate by means of credit market manipulation. This third option is the most disguised. When people hear the words monetary policy, they figure that this is something they will leave to experts. And central bankers have an astonishing talent for obfuscation to the point that no one knows with certainty precisely what they are doing.

The whole show is designed to make us go to sleep and not think about what is really going on. The unvarnished truth is that when the United States Federal Reserve artificially lowers rates, it is creating new money that waters down the value of the existing money stock, yielding a lower purchasing power for the dollar. That's another way of saying that it creates inflation - perhaps not right away, and perhaps not across all economic sectors, but eventually and certainly.

This, my friends, is a form of breaking windows. It is wealth destruction. It matters not that there will be more dollars to spend, because prices will be higher and wealth has been drained out of the private sector, and redistributed within it. It is Bastiat's fallacy reinvented in a new form.

New money also distorts production structures. At the very time when the market is pressuring long-term investment to pull back, the lower rates encourage expansion in ways that prolong the crisis. It only delays and worsens the inevitable. The Great Depression taught us that government is capable of doing this to the point that the crisis can last for 17 years. So this is no small matter. A government determined to prevent recession is a government that might end up sustaining one to the point of the collapse of civilization itself.

It is a perverse belief, but pervasive nonetheless. It is believed by both political parties. It is held by the president, the media, and the congress (except for Ron Paul). It is a reflexive belief, one that reflects a failure to think between stages and see the unseen effects of government intervention.

One reason that Bastiat's example has power is that it applies not just in one area of policy but all areas. If it isn't true that breaking windows creates wealth, it is not true that government spending and inflating is a boon to the economy. It only ends up draining wealth from the private sector, which is the only source of wealth creation.

It doesn't matter what the government spends money on. For example, building pyramids with tax dollars is not good for the economy, despite what Keynes claimed. But neither is waging war good for us or the victim country, despite constant claims to the contrary.

It is surely one of the most deadly myths that the Second World War ended the depression. As Robert Higgs has shown, it further prolonged it, all phony data aside. And consider the spending on the war on terror. If government spending were capable of stimulating the economy, the U.S. would not have recession right now.

Chris Westley assembled some data on the last seven years of U.S. economic conditions, and it is sobering indeed. Since 2000, tax revenues are up 25%. That's wealth destruction. Government spending is setting records for expansion, with $1 trillion added to the annul budget, with military spending up $250 billion each year over the egregious $400 billion spent annually in 2000. That's wealth destruction. The national debt is up 59%. That has to be paid. More destruction.

Social security liabilities are up 60%. That too is the promise of future destruction. The money supply is up 72%. More destruction. Inflation itself has risen 20%, so the dollar of 2000 is now worth 80 cents. The gas price alone is up 118%, so that too is wealth destroyed. As an indication of economic trouble, the gold price is up 206%.

Here is the story so far of the government's great stimulus. It has led to hard economic times. More of the same will create more of the same and worse. The unemployment rate is rising. Savings are falling. Prices are rising. We are less secure, less prosperous, and we have fewer opportunities than ever to dig our way out of this mess.

Government expansion has actually created the absurd scenario mentioned above. The boy threw the rock, the crowds in Washington believed the sophist, and now they are plotting to raze all homes on the block, in the name of economic recovery.

Have we learned from the Great Depression? Ben Bernanke believes that he has learned something. He believes that the key problem of that period was a failure of the central bank to pump in enough money and credit. He has never absorbed the critical observation of Rothbard that the Fed did attempt to pump up the money supply from 1929-1934. They used every mechanism, but the credit markets found few takers, and without their cooperation, the money supply does not expand.

The real lesson of the Great Depression is that there is nothing that the central bank can do to forestall a recession whose time has come, and nothing government can do to improve the situation once the recession has arrived. Everything it attempts to do - except shrink - only ends up making matters worse.

So it is in our time. We must ask ourselves what Washington is capable of doing this time around. I believe that the answer is anything and everything. Bernanke will attempt to flood the economy with money. Washington is perfectly capable of imposing price and wage controls on the entire economy. It is capable of terrifying levels of protectionist legislation. New taxes are less likely but taxation through debt accumulation is probably inevitable. There might be rationing, spending mandates, anti-hoarding legislation, and more.

The assumption that driving up consumption is the key to prosperity is particularly dangerous, and also pregnant with irony. During good economic times, we are hounded constantly by the intellectual elites for our consumption habits. It is said that we are a greedy nation, buying ever more fripperies and not looking after the long term. The American public is decried by the intellectual elites as materialist, consumerist, and short sighted.

Then recession hits and the tune changes completely. Reliable leftists, fresh from having complained about the egregious spending habits of the American consumer, suddenly turn on a dime and tell us that more consumption is the key to economic growth. They favor policies that would get us to fork over ever more of our money, under the belief that the core problem is a lack of demand!

A recent example is Barack Obama, who said last year that the problem with popular culture is that it "saturates our airwaves with a steady stream of sex, violence and materialism." But only this week, he seemed to endorse one of the three. "If the economy continues to decline in the coming weeks, we should send checks to people," he said. "This is the quickest way to help people pay their bills and get them to start spending."

In fact, less spending and more saving is what is called for during a recession, which is nothing but a market correction writ large. Attempting to coerce spending threatens the value of the dollar itself.

Here we face a very dangerous situation. If the dollar ever ceases to be the international currency of choice, and this could happen, we could face roaring inflation. And with dreadful legislation that prohibits any kind of choice in currency, Americans will be stuck. Here is a problem that could cause near panic in Washington.

The irony here is that after a century of failed interventionism and socialism, Washington is no less likely, and probably far more likely, to take the path of least resistance and accumulate ever more power unto itself, at our expense.

We are in an election season, so of course people ask who would be the least bad person to head the state in the years ahead. The answer here is not at all clear, if it is not Dr. Paul. As with the 1930s we face a choice between militaristic fascism and Keynesian-style socialism combined with environmentalism. These are two very grim choices.

I tell you this not to spread gloom but merely to be realistic about the prospects for the future of American politics. But there is also good news to be considered. The private sector has raced so far ahead of the state, and is so global, that it is far more resilient than before. There are safety valves available in the form of international capital markets.

The U.S. government is so much bigger now than in the 1930s, but, paradoxically, that also makes it less effective than it once was, which is very good news. It is a massive, lumbering giant, whereas the markets are a speed racer.

I might also point out that the U.S. government enjoys nowhere near the respect it once had. Once the governing elite consisted of the nation's elite, coming from the best families and the best schools. Today, the governing elite has never been more transparently ridiculous and even freakish. Gone are the aristocratic public servants of yesterday; today, the government is made up of a class of hucksters and gangsters that inspires no confidence.

This is all to the good, for as Mencken said, it is always great when we do not get all the government we pay for.

On the intellectual level, the teachings of economics in the Austrian School tradition have never been more available to the world, or more frequently cited and discussed. And a recessionary environment guarantees more attention to the Austrian theory of the business cycle simply because this is the only model that makes sense of our current problems.

We should never underestimate the power of ideas to make a difference in the world. During the Great Depression, the resistance to the state was present but weak. Today we have built up a mighty intellectual army that extends across the globe. We are prepared in ways that they were not. We have thousands of students and faculty, and men and women of affairs who know real economics. We have the internet. We have new books that put the whole problem in perspective, such as Jesús Huerta de Soto's work on business cycles. We have the biography of Mises now, and it illustrates the heroism of political dissidence. The works of Rothbard on the Great Depression and central banking have never been more widely circulated and available. This time our masters in Washington will not go unopposed.

At the Mises Institute, now in our 26th year, we tried to maintain a careful balance between serious and fundamental scholarly work, and public advocacy. We must never lose sight of the need for research and detailed work. It is not enough to merely repeat slogans. At the same time, there are some foundational lessons of economics that must be taught again and again with each new generation. The fallacy of the Broken Window is one of them, and its implications are truly radical.

Both Bastiat and Hazlitt saw that the government is the great window breaker, that destroyer of wealth that drives the economy backwards. The engine of creativity, recovery, and expansion is the private sector, completely unencumbered by state intervention. Ron Paul's newest book is called Pillars of Prosperity: Free Markets, Sound Money, and Private Property . The title nicely sums up the message of the economics of freedom.

It bears repeating in every age, in all places, for we will never be completely free of the great threat of the window breaker. So long as there are governments with stones ready to throw, there will be a need for someone to point out that destruction is never productive, never beneficial, and never a path to the good life that we all seek.

Regards,

Lew Rockwell

• None Found

What brought about economic growth, inflation, or the business cycle in China 300 BC are the same institutions that drive phenomena in the United States in AD 2008. The circumstances of time and place change, but the underlying economic reality is identical.

That claim has made other economists - to say nothing of sociologists, historians, and politicians - scatter like pigeons. The Historical School poured scorn on this idea, and Carl Menger, the founder of the Austrian School, fought them tooth and nail. The Chicago School of positivists found the claim preposterous, and Mises and Hayek and Rothbard battled them. The Keynesians have long been outraged, and the postwar Austrian generation reasserted the truth. The socialists, who posit that rearranging property titles will transform all of reality, say that the claim is absurd, capitalistic nonsense.

But there it stands. No matter where or when, the essential prerequisite for economic growth is capital accumulation in a framework of freedom and sound money. The consequence of price control is shortage and surplus. The effect of money expansion is inflation and the business cycle. The effect of every form of intervention is to make society less prosperous than it would otherwise be.

The list of universals is endless, which is why every age needs good economists to explain and articulate the truth.

Well, I would like to add that there are universal fallacies too.

Frédéric Bastiat pointed to one: the belief that the destruction of wealth fuels its creation. He explains this by means of an allegory that has come to be known as the story of the broken window. Most famously it was retold as the opening of Henry Hazlitt's Economics in One Lesson, which is probably the bestselling economics book of all time.

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all-knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items and the circle of rising prosperity will expand without end.

What's wrong with this scenario? As Bastiat put it, "It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented."

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way. "Society loses the value of things which are uselessly destroyed."

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.

If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.

After every natural disaster, we at the Mises Institute start what we call the Broken Window Watch.

After Hurricane Katrina, the Labor Secretary said: "What will happen - and I have seen this in previous catastrophes and hurricanes - there is a bright spot in that new jobs do get created."

And The Economist said, "While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins."

And the New York Times said: "Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding."

After last year's California fires, we heard this. "In the odd nature of economic accounting, this will probably be a stimulus," said Alan Gin, a University of San Diego economist. "There will be a huge amount of rebuilding in the next couple of years, financed by insurance payments."

And CBS MarketWatch said: "Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses."

Note that personal loss here is deemed rather irrelevant compared with the beneficial macroeconomic results. Here we have a theme we find often in economics, the attempt to drive a wedge between what makes sense for individuals and what is good for society. We see this on display in this recessionary environment, when people are told to spend spend spend, even though most people understand that recessions are times for saving.

Continuing on, we find the Broken Window fallacy popping up even after 9-11.

Timothy Noah of Slate wrote: "We live in a very wealthy nation that responds to horrible disasters by spending large sums of money... It will also provide a meaningful Keynesian stimulus to a national economy that, let's face it, was tottering on the brink of recession well before Sept. 11. The recession may still come, but the countercyclical spending should help shorten it."

Another economist declared: "Initially, this could provide a significant boost to an economy that had been slumping. The construction industry could benefit from the rebuilding process. There may also be a boon for slumping tech sales, in replacing lost equipment."

Thus can we see the continuing relevance not only of Bastiat's allegory but also of the characters in the story. The posturing wiseguy who says that breaking windows is good for the economy keeps reappearing again and again. So entrenched is this mistake that we might call it official economic doctrine for the whole country.

Regards,

Lew Rockwell

• None Found

With recession looming or already here, the time has arrived for finding scapegoats. Expect a long list of these. Here is the target of the day: tightfisted consumers. A decline in personal consumption, writes the New York Times, "would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year."

This recalls Bush's advice after 9-11, when he assumed the mantle of the nation's personal financial planner. He told everyone to go out and spend money so the economy could avoid recession. Even then, there was confusion about whether he was right or wrong. Some sensible voices pointed out that economic expansion is based not on spending but on capital expansion rooted in savings. That is to say, the only path to future prosperity is delaying current consumption in favor of future investment.

One only needs to think of the household budget here to see the point. If you are planning for the future for your family, what is the wisest course? Does one go into debt as much as possible, buy the largest house and the biggest car, throw lavish parties, hand out all existing liquid funds to friends and strangers? Based on the view that personal consumption is the way to avoid economic problems, this would indeed be the right course.

But this also defies everything we know about family finance. The path to a secure prosperity is delaying personal consumption. One should spend as little as possible and save as much as possible for the future, and let that money be used in the service of investments that yield a solid rate of return. Those who have chosen a different path now see the folly: they are being burned in the soft housing market, for example.

The lesson is also true for the nation at large, because the logic doesn't magically change when moving from the family budget to the national stage. Just because something involves "macroeconomics" doesn't mean that we should throw out all good sense. But that is precisely what people have done with regard to the economy, since J.M. Keynes somehow convinced the world that up is down and left is right.

In a recession or a crisis, the right approach for individuals is to save. So too for the national economy. A looming recession will prompt a pullback in personal consumption as a rational response to the perception of economic troubles. This action does not cause the economy to fall into recession any more than more spending can save it from recession. The downturn is a fact that cannot be avoided. We don't blame umbrellas for floods, and, in the same way, we shouldn't blame tightfisted consumers for recessions.

There is no question that this is what is happening. American Express reports that the rate of spending by its cardholders fell 4% in December. Surveys of consumer satisfaction with the economy report a 15-year low. Retailers report that December was a "blood bath" (NYT 's words) for them, with sales growing at the slowest rate in seven years. Market watchers are mostly concerned that high-income buyers are bailing out.

Again, it is critical to keep cause and effect in mind. The pullback on spending is not going to cause a recession. If we think about the long term, this is not a dangerous trend but a hopeful one. The more people pull back and save, the more the foundation is laid for a recovery after the current correction takes its course.

To see that requires that we take a long view. Government, however, seems constitutionally incapable of seeing the long term, much less doing the right thing to prepare for it. Making matters worse, this is that dreaded event called an election year. Prettying things up to make the economy palatable to voters is priority number one.

What does this mean? More monetary expansion. More government spending. We can fully expect the Bush administration to resort to its old program of sending checks out to every American family with the proviso that the money has to be spent, not saved.

No doubt that many people would be thrilled by this. But look beneath the surface. Government has no money to spend on anything that it doesn't extract from the pockets of you and me and the whole American public. This is easy enough to see concerning taxes. It is not so easy to see when the government runs up debt that is guaranteed by the printing presses.

The monetary issue can be understood by analogy to orange juice. The more water you add, the less substance it has. If you keep adding, eventually you come to the point when you can no longer tell that it was ever orange. This is the same with money. If you print enough — literally or electronically through the credit markets — it will continue to lose value. If money grew on trees, it would be about as valuable as autumn leaves.

So long as we have a central bank, government will be tempted to take the easy path of easy money. There do not need to be any secret phone calls from the White House to the Fed. The culture of policymaking itself is capable of broadcasting the right signals to all important players.

In any case, it is a myth that the Fed makes policy independent of political pressure. It is subject to the screams and hollers for looser credit in the same way that bureaucracies are responsive to demands for more regulation.

Yes, government can increase consumption, but by doing so it does nothing to care for the long term. The long-term health of a nation is not different from that of a household budget. Tough times require cutbacks in personal consumption and a beefing up of savings.

So let's not demonize the consuming public for doing what it should be doing. It's a good rule of thumb that when the government tells you to spend money, you should close your wallet.

Regards,

Lew Rockwell
for The Daily Reckoning Australia

Editor’s Note: This essay was originally published on Mises.org. Llewellyn H. Rockwell, Jr. is president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty.

• None Found

This much is well known about him. But there are other aspects to his life and career you may not know. Sennholz was the first student in the United States to write a dissertation and receive a PhD under the guidance of Ludwig von Mises. Mises had only recently completed Human Action. Imagine how having such an outstanding student, and a native German speaker no less, must have affected Mises's life, how it must have encouraged him to know that his work could continue through outstanding thinkers such as this.

When Mises arrived in New York, determined to make a new life for himself after having first fled Austria and then sensing the need to leave Geneva too, he had no academic position waiting for him. He had no students and no prospects for students. But then came Hans Sennholz. Here was living proof that ideas know no national boundaries, that even in the darkest hour there was hope for a new generation of economic scientists who cherished freedom, and were not fooled by the promise of government planning.

And think of the crucial time in which he entered the Austrian picture. Mises was by now carrying the school by himself. Most of his students had moved on to other things, whether Keynesian economics or social theory. For the Austrian School to survive in a profession now fully dominated by interventionists, it needed economists. The School desperately needed the new life that only new faces, names, books, and ideas provide.

When Hans Sennholz began studying with Mises, it would still be another twelve years before Rothbard's Man, Economy, and Statewould appear, and nearly a quarter century before Kirzner's Competition and Entrepreneurship would be published. Sennholz provided exactly what was needed: that crucial bridge from the prewar School to the postwar School in America, where the Austrian School would now make its home.

His dissertation became the book How Can Europe Survive, published in 1955. It remains the best and most complete critique of European political union ever written. Hans Sennholz demonstrated, some fifty years before others even cared, that political union under the interventionist-welfare state was only a prescription for chaos and bureaucrat rule. True union, he demonstrated, comes from free trade and decentralized states that do not attempt to plan their economies.

Europe today has a burgeoning movement of intellectuals who realize this same thing, and are working to curb the power of Brussels even as they attempt to preserve the free-trade zone. But we must remember that Sennholz anticipated this critique and agenda by nearly five decades. By taking a detailed look at all the programs for unification that were then being batted around, he saw precisely what was ahead for Europe: not prosperity and peace, but stagnation and conflict. So it is and will continue to be, so long as Sennholz's final chapters, which present a blueprint for authentic unity, are not followed.

Hans Sennholz followed up this treatise, which included an account of the Great Depression and the onset of war, with a long string of trenchant writings on monetary theory and history, on employment, on fiscal policy, and even on the moral basis of freedom. Truly he followed in Mises's footsteps, and, like Mises, he refused to let the ideological hostility of his age and ours deter him from speaking truth to power, using every means at his disposal.

Let me provide one example of just how he carries the torch. During the 1980s, much like today, there were two camps on fiscal policy: the left, which wanted more spending and no tax cuts, and the supply-siders who wanted tax cuts plus spending increases. Sennholz became the voice for sanity: in Misesian terms, he called for tax cuts to be matched by spending cuts.

In doing so, he dismissed the magic fiscal dust called "dynamic scoring" as well as the socialist demand for bigger government, while warning against the dangers of inflationary finance. Here was a hero of fiscal conservatism! During the early eighties, too, he wrote an extended Austrian critique of supply side that anticipated all future trends of the decade.

At Margit von Mises's request, Sennholz was the translator of Mises's Notes and Recollections, which is the closest thing we have to an autobiography. It has been this book, above all else, that has shaped the way the generations that never had the chance to meet Mises have come to know the way an economist thinks about science and life amidst personal tragedy. Sennholz and his wife and partner Mary produced the first Mises Festschrift, presented to Mises on February 20, 1956, long before Mises's fame in the United States would grow. Sennholz alone took the initiative to do Mises this honor.

Hans Sennholz acquired Mises's papers for Grove City College, where they have been guarded as the treasures they are. He made Grove City stand out among American colleges as one of the few places where economic sense was taught during the heyday of Keynesian orthodoxy.

Sennholz did not only work to promote the Misesian school. He has been the great benefactor to all economists and scholars by being the translator and promoter of the work of Mises's teacher, Eugen von Boehm-Bawerk. This was an act of great intellectual piety, since the market was not exactly clamoring for hundred-year old books on interest-rate theory. And he did it all on the urging of Mises.

And though an outstanding theoretician, Hans Sennholz placed a strong emphasis on the application of Austrian theory to the timing of business cycle, and to explaining the current state of affairs. This is, by itself, highly unusual in the economics profession. If you know anything about academic economists, you know that they are the last people you want to ask about the state of the economy. But Sennholz made it his job to explain the world around him, a trait which drew many to his thought.

The Mises Institute, for which he serves as an adjunct scholar, is grateful to Professor Sennholz for his early support of our work. He wrote a wonderful paper on Carl Menger, later published in a volume on the gold standard, in which he showed that Menger was not just a theorist, but an activist in the cause of sound money. That paper changed the way we viewed Menger. We came to see him more clearly for what he was: an old-world liberal concerned about the fate of his country in difficult times - much like Sennholz himself.

Finally, I must add that Hans Sennholz has never been shy about insisting on the centrality of ethics in the study of economics. He has decried the welfare state as confiscatory and immoral. He has called inflation a form of theft. He has identified government intervention as coercion contrary to the true spirit of cooperation. He did this at a time when saying such things was taboo in the profession. Here again, he was keeping alive the spirit of Mises, and the spirit of truth.

Nobody can ever gauge the full impact of a great intellectual in the development of culture. His influence spreads like waves in a lake; by the time the waves hit the shore, few are in a position to remember the source. But this much I'm sure of. We are in Hans Sennholz's debt far more than we know.

Regards,

Lew Rockwell
for The Daily Reckoning Australia

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