I believe the shift in mentality came during the First World War. This was the largest war the United States had been in to that date, and it was the first war in which a central bank pretty much provided the architecture for the massive monetary loans the government had to take to undertake its campaigns in Europe. During the war, there was a lot of central planning and a lot of that spilled into the 1920s. Herbert Hoover was the leader of many of these war and post-war planning committees, and he genuinely believed in the power of central planning (if it could work during a war, why couldn’t it work during peace?). He never made the intellectual leap which would have made it painfully obvious that central planning does not “work” during war. It does not work to further an economy. It only works to reroute resources to the war effort. That may work towards war, but it does not work towards economic development. He never made that connection. So, it makes sense that Hoover was the first major interventionist president (in times of recession).
I think its in the ballpark of ‘The Currency School’
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The Bank Charter Act 1844 (7 & 8 Vict. c. 32) was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks and gave exclusive note-issuing powers to the central Bank of England.
Under the Act, no bank other than the Bank of England could issue new banknotes, and issuing banks would have to withdraw their existing notes in the event of their being the subject of a takeover. At the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold. The Act served to restrict the supply of new notes reaching circulation, and gave the Bank of England an effective monopoly on the printing of new notes.
The Act was a victory for the British currency school, who argued that the issue of new banknotes was a major cause of price inflation.
Short answer is -
Nothing was done to alleviate crashes. The market was allowed to clear. This had the side effect of wiping out many businessmen.
The old system was a fractional reserve system. This led to a business cycle and created the crashes.
Under the old system the establishment fractional reserve bankers like JP Morgan would work to be the lenders of last resort. The more conservative bankers would have a tough time but come through at the end of the day. However they knew that, with JP Morgan getting close to the end of his life, they really wanted a Federal Reserve to bail out the bankers.