<P> From the point of view of today's mainstream schools of economic thought, government should strive to keep some broad nominal aggregate on a stable growth path (for proponents of new classical macroeconomics and monetarism, the measure is the nominal money supply; for Keynesian economists it is the nominal aggregate demand itself). During a depression the central bank should pour liquidity into the banking system and the government should cut taxes and accelerate spending in order to keep the nominal money stock and total nominal demand from collapsing . </P> <P> The United States government and the Federal Reserve did not do that during the 1929 ‐ 32 slide into the Great Depression The existence of "liquidationism" played a key part in motivating public policy decisions not to fight the gathering Great Depression . An increasingly common view among economic historians is that the adherence of some Federal Reserve policymakers to the liquidationist thesis led to disastrous consequences . Regarding the policies of President Hoover, economists Barry Eichengreen and J. Bradford DeLong point out that the Hoover administration's fiscal policy was guided by liquidationist economists and policy makers, as Hoover tried to keep the federal budget balanced until 1932, when Hoover lost confidence in his Secretary of the Treasury Andrew Mellon and replaced him . Hoover wrote in his memoirs he did not side with the liquidationists, but took the side of those in his cabinet with "economic responsibility", his Secretary of Commerce Robert P. Lamont and Secretary of Agriculture Arthur M. Hyde, who advised the President to "use the powers of government to cushion the situation". But at the same time he kept Andrew Mellon as Secretary of the Treasury until February 1932 . It was during 1932 that Hoover began to support more aggressive measures to combat the Depression . In his memoirs, President Hoover wrote bitterly about members of his Cabinet who had advised inaction during the downslide into the Great Depression: </P> <P> The leave - it - alone liquidationists headed by Secretary of the Treasury Mellon...felt that government must keep its hands off and let the slump liquidate itself . Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate...It will purge the rottenness out of the system . High costs of living and high living will come down . People will work harder, live a more moral life . Values will be adjusted, and enterprising people will pick up the wrecks from less competent people ." </P> <P> Before the Keynesian Revolution, such a liquidationist theory was a common position for economists to take and was held and advanced by economists like Friedrich Hayek, Lionel Robbins Joseph Schumpeter, Seymour Harris and others . According to the liquidationists a depression is good medicine . The function of a depression is to liquidate failed investments and businesses that have been made obsolete by technological development in order to release factors of production (capital and labor) from unproductive uses . These can then be redeployed in other sectors of the technologically dynamic economy . They pointed to the short duration of the Depression of 1920--21 was due to the policy of letting the liquidation occur and argued that the crisis had laid the groundwork for the prosperity of the later 1920s . They pushed for deflationary policies (which were already executed in 1921) which--in their opinion--would assist the release of capital and labor from unproductive activities to lay the groundwork for a new economic boom . The liquidationists argued that even if self - adjustment of the economy took mass bankruptcies, then so be it . Postponing the liquidation process would only magnify the social costs . Schumpeter wrote that it </P>

Historians views on the causes of the great depression