section_path: Causes/Mainstream explanations/Common position
section_name: Common position
paragraph_text: 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 banks 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.
  
  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 was a common position, and was universally held by Austrian School economists. The liquidationist position held that a depression worked to liquidate failed businesses and investments that had been made obsolete by technological development – 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.
  
  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. An increasingly common view among economic historians is that the adherence of many Federal Reserve policymakers to the liquidationist position led to disastrous consequences. 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. Milton Friedman called leave-it-alone liquidationism "dangerous nonsense". He wrote:
  
  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.