Question

Why did Friedrich Hayek call expansionary spending dangerous?

Answer 1

Friedrich Hayek was an Austrian Economist known for his work on the Theory of Money, which earned him a Nobel Memorial Prize in 1974. He openly supported classic liberalism, which emphasized the economic freedom of all individuals who formed part of society.

Hayek opposed expansionary spending (or expansionary monetary policy) because he considered, following principles of liberalism, that government intervention in the economy should be kept at its minimum expression. It is up to individuals and the economic relations they form as to whether an economy grows or not. The increase of money supply in a country could bring negative effects such as inflation, which is the sustained increase in the prices of goods and services.

Answer 2

Hayek was worried that expansionary spending would lead to poor decision-making by a misguided consumer class which in turn would lead to rapid inflation.