Hayek on How the Interventionist State Shapes the Structure of the Misallocation of Resources During the Artificial Boom

“The general fact that booms have always appeared with a great increase of investment, a large part of which proved to be erroneous .. fits in with the idea that a supply of capital was made apparent which wasn’t actually existing. The whole combination of a stimulus to invest on a large scale followed by a period of acute scarcity of capital fits into this idea that there has been a misdirection due to monetary influences .. but this is capable of a great many modifications, particularly in connection with where the additional money goes .. Since [I wrote] so much of the credit expansion has gone to where government directed it that the misdirection may no longer be overinvestment in industrial capital but may take any number of forms. You must really study it separately for each particular phase and situation. The typical [pre-war] trade cycle no longer exists. But you get very similar phenomena with all kinds of modifications.”

I hardly need to suggest how all this applies to economic discoordinations of the past decade, especially as concerns the long term production good of housing.

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4 Responses to Hayek on How the Interventionist State Shapes the Structure of the Misallocation of Resources During the Artificial Boom

  1. Georg Thomas says:

    I am a great admirer of your blog, consulting it on a daily basis. May I ask you to reference the source of this excellent quote. Or have I simply overlooked the reference?

  2. Greg Ransom says:

    Georg, the comment is found in _Hayek on Hayek_, toward the end of the book.

  3. Eric Auld says:

    Random quote says “It is the disciple of the market which forces us…” should be the discipline of the market, right?

  4. Greg Ransom says:

    Thanks!

    “Random quote says “It is the disciple of the market which forces us…” should be the discipline of the market, right?”

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