Great Depression Warning: You are not logged in. Your IP address will be publicly visible if you make any edits. If you log in or create an account, your edits will be attributed to your username, along with other benefits.Anti-spam check. Do not fill this in! ====Common position==== There is common consensus among economists today that the government and the central bank should work to keep the interconnected macroeconomic aggregates of [[gross domestic product]] and [[money supply]] on a stable growth path. When threatened by expectations of a depression, [[central bank]]s should expand liquidity in the banking system and the government should cut taxes and accelerate spending in order to prevent a collapse in money supply and [[aggregate demand]].<ref name="nber.org">{{cite journal |first=J. Bradford |last=De Long |title='Liquidation' Cycles: Old Fashioned Real Business Cycle Theory and the Great Depression |journal=NBER Working Paper No. 3546 |date=December 1990 |page=1 |doi=10.3386/w3546 |doi-access=free }}</ref> At the beginning of the Great Depression, most economists believed in [[Say's law]] and the equilibrating powers of the market, and failed to understand the severity of the Depression. Outright leave-it-alone [[Liquidationism (economics)|liquidationism]] was a common position, and was universally held by [[Austrian School]] economists.<ref name="Randall E. Parker 2003, p. 9"/> The liquidationist position held that a depression worked to liquidate failed businesses and investments that had been made obsolete by technological development β releasing [[factors of production]] (capital and labor) to be redeployed in other more productive sectors of the dynamic economy. They argued that even if self-adjustment of the economy caused mass bankruptcies, it was still the best course.<ref name="Randall E. Parker 2003, p. 9" /> Economists like [[Barry Eichengreen]] and [[J. Bradford DeLong]] note that President [[Herbert Hoover]] tried to keep the federal budget balanced until 1932, when he lost confidence in his Secretary of the Treasury [[Andrew Mellon]] and replaced him.<ref name="Randall E. Parker 2003, p. 9">Randall E. Parker, ''Reflections on the Great Depression'', Elgar Publishing, 2003, {{ISBN|978-1-84376-335-2}}, p. 9</ref><ref name="WhiteLawrence">{{cite journal|first=Lawrence|last=White|title=Did Hayek and Robbins Deepen the Great Depression?|journal=Journal of Money, Credit and Banking|volume=40|issue=4|pages=751β768|year=2008|doi=10.1111/j.1538-4616.2008.00134.x|url=https://dergipark.org.tr/tr/pub/liberal/issue/48188/609854|access-date=November 7, 2019|archive-date=April 15, 2021|archive-url=https://web.archive.org/web/20210415095946/https://dergipark.org.tr/tr/pub/liberal/issue/48188/609854|url-status=live}}</ref><ref>{{cite journal |first=J. Bradford |last=De Long |title='Liquidation' Cycles: Old Fashioned Real Business Cycle Theory and the Great Depression |journal=NBER Working Paper No. 3546 |date=December 1990 |page=5 |doi=10.3386/w3546 |doi-access=free }}</ref> An increasingly common view among economic historians is that the adherence of many Federal Reserve policymakers to the liquidationist position led to disastrous consequences.<ref name="WhiteLawrence" /> Unlike what liquidationists expected, a large proportion of the capital stock was not redeployed but vanished during the first years of the Great Depression. According to a study by [[Olivier Blanchard]] and [[Lawrence Summers]], the recession caused a drop of net [[capital accumulation]] to pre-1924 levels by 1933.<ref>{{cite journal |first=J. Bradford |last=De Long |title='Liquidation' Cycles: Old Fashioned Real Business Cycle Theory and the Great Depression |journal=NBER Working Paper No. 3546 |date=December 1990 |page=33 |doi=10.3386/w3546 |doi-access=free }}</ref> Milton Friedman called leave-it-alone liquidationism "dangerous nonsense".<ref name="nber.org" /> He wrote: {{blockquote|I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You've just got to let it cure itself. You can't do anything about it. You will only make it worse. ... I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.<ref name="WhiteLawrence" />}} Summary: Please note that all contributions to Christianpedia may be edited, altered, or removed by other contributors. If you do not want your writing to be edited mercilessly, then do not submit it here. You are also promising us that you wrote this yourself, or copied it from a public domain or similar free resource (see Christianpedia:Copyrights for details). Do not submit copyrighted work without permission! Cancel Editing help (opens in new window) Discuss this page