Milton Friedman studied the Great Depression and noticed that money supply dropped by one-third from 1929-1933. He came to the conclusion that this was the cause of the depression and that the Fed hadn't acted strongly enough. He also influenced a guy by the name of Ben Bernanke who, at Friedman’s 90th birthday party, vowed not to make the same “mistake.”
Did the Fed really sit bit idly as Friedman claimed? Actually, no. The Fed acted aggressively, buying government securities and expanding its balance sheet from 1929-1933. It also lowered the discount rate from 5% to 1 ½%. Friedman appears to be guilty of data mining. Correlation doesn’t prove causation. In fact, gold flows and loss of confidence in banks were contributing factors to the contraction in money supply. If anything, the monetary inflation of the Fed probably made matters worse.
~ Kevin Duffy, "Mr. Market Flunks the Marshmallow Test," Grant's Spring Conference, March 15, 2017