Hayek Criticized the Federal Reserve’s Policy of Stabilizing the Price Level During 1922–9 because It Required the Fed to Inject Money in order to Offset the Price-Reducing Effects of Productivity Improvements

Hayek criticized the Federal Reserve’s policy of stabilizing the price level during 1922–9 because it required the Fed to inject money M in order to offset the price-reducing effects of productivity improvements that were increasing real output Q. The Fed’s injections distorted the interest rate away from its equilibrium value, leading to savings-investment discoordination.

--Lawrence H. White, The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years (New York: Cambridge University Press, 2012), 84.