The importance of monetary policy was highlighted by the incorrect approach of the US Fed's approach to the Depression. In particular the Feb went through bouts of raising interest rates in the face of mass unemployment and deflation.
Regarded as an expert on the Depression, Ben Bernanke paid tribute to Friedman (and Schwartz) by saying that it was incorrect monetary policy that made the Great Depression worse.
At the end of a speech celebrating Friedman's 90th Bernanke said ....
"The brilliance of Friedman and Schwartz's work on the Great Depression is not simply the texture of the discussion or the coherence of the point of view. Their work was among the first to use history to address seriously the issues of cause and effect in a complex economic system, the problem of identification. Perhaps no single one of their "natural experiments" alone is convincing; but together, and enhanced by the subsequent research of dozens of scholars, they make a powerful case indeed.For practical central bankers, among which I now count myself, Friedman and Schwartz's analysis leaves many lessons. What I take from their work is the idea that monetary forces, particularly if unleashed in a destabilizing direction, can be extremely powerful. The best thing that central bankers can do for the world is to avoid such crises by providing the economy with, in Milton Friedman's words, a "stable monetary background"--for example as reflected in low and stable inflation.
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. "
https://www.federalreserve.gov/boarddocs/speeches/2002/20021108/
