InCognito

In Prices and Production Hayek writes,

Macroeconomic aggregates do not act upon one another. Equations that describe macroeconomic activity provide this illusion. I.e., if the money stock increase by x%, GDP will grow by y%. Trends like these might exist in macroeconomic data, but this by no means suggests a fundamental relationship. An increase in the money stock, for example, acts directly on prices of particular goods. Consider simple, endogenous changes in the money stock that might occur in a boom without a central bank. Say that new credit is created in response to an increase in demand for loanable funds. The new money will be used to by particular goods whose prices will rise due to an increase in investment. This will translate to an increase in the price level over time, but there is no force acting directly on the price level. Most economists understand this, but our models suggest that the macro-aggregates do act upon one another, so this is worth explicitly stating.