Paul Krugman notes that we now have an ongoing test of Keynes-Bernanke vs. Friedman-Schwartz accounts of the Great Depression:
Paul Krugman: Has anyone else noticed that the current crisis sheds light on one of the great controversies of economic history? A central theme of Keynes’s General Theory was the impotence of monetary policy in depression-type conditions. But Milton Friedman and Anna Schwartz, in their magisterial monetary history of the United States, claimed that the Fed could have prevented the Great Depression — a claim that in later, popular writings, including those of Friedman himself, was transmuted into the claim that the Fed caused the Depression.
Now, what the Fed really controlled was the monetary base — currency plus bank reserves. As the figure shows, the base actually rose during the great slump, which is why it’s hard to make the case that the Fed caused the Depression. But arguably the Depression could have been prevented if the Fed had done more — if it had expanded the monetary base faster and done more to rescue banks in trouble. So here we are, facing a new crisis reminiscent of the 1930s. And this time the Fed has been spectacularly aggressive about expanding the monetary base: And guess what — it doesn’t seem to be workiing.
I think the thesis of the Monetary History has just taken a hit.