Friedrich Hayek- Interview Monex International_1975

Via Cafe Hayek.

Extract:

MONEX: How were you able to forsee what would happen?

HAYEK: What made me expect this, of course, is one of my main theoretical beliefs that you cannot indefinitely maintain an inflationary boom. Such a boom creates all kinds of artificial jobs that might keep going for a fairly long time but sooner or later must collapse. Also, I was convinced that after 1927, when the Federal Reserve made an attempt to stave off a collapse by credit expansion, the boom had become a typically inflationary one.

So in early 1929 there was every sign that the boom was going to break down. I knew by them that the Americans could not prolong this sort of expansion indefinitely, and as soon as the Federal Reserve was no longer willing to feed it by more inflation, the thing would collapse.

In addition, you must remember that at the time Federal Reserve was not only unwilling but was unable to continue the expansion because the gold standard set a limit to the possible expansion. Under the gold standard, therefore, an inflationary boom could not last very long.