Believe it or not, Paul Krugman hits the nail on the head in his critique of the Friedman/Bernanke theory of the Great Depression:
Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”
It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.
Of course, Krugman’s conclusion is that the Keynesian diagnosis is better than the Friedmanite monetarist one. Matt Machaj argues that there is a third option, the Austro-libertarian position of respecting property rights. For those wishing a fuller analysis, see this blog post.