Deflation
Deflation occurred periodically in the U.S. during the 19th century (the most important exception was during the Civil War). This deflation was at times caused by technological progress that created significant economic growth, but at other times it was triggered by financial crises — notably the Panic of 1837 which caused deflation through 1844, and the Panic of 1873 which triggered the Long Depression that lasted until 1879. These deflationary periods preceded the establishment of the U.S. Federal Reserve System and its active management of monetary matters. Episodes of deflation have been rare and brief since the Federal Reserve was created (a notable exception being the Great Depression) while U.S. economic progress has been unprecedented.
Causes of the Great Depression
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: