Mark Thoma at Economist’s View points us to a 1998 interview where Milton Friedman made the following statement to an interviewer:

I think the Austrian business-cycle theory has done the world a great deal of harm. If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse. You have Rothbard saying it was a great mistake not to let the whole banking system collapse. I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.

This statement is unfortunately not up to Friedman’s usual high standards for accuracy and fairness.

1. Hayek’s norm for monetary policy called for the central bank to stabilize nominal spending (MV), not to “let the bottom drop out of the world”. Hayek of the early 1930s can be faulted for failing to call for the Federal Reserve to counteract the MV contraction in the US, but the problem didn’t lie with his theory or policy norm – it was that he didn’t realize that MV was actually shrinking. Of course, neither did Federal Reserve officials realize it. For details see my article “Hayek’s Monetary Theory and Policy: A Critical Reconstruction,” Journal of Money, Credit, and Banking 31 (Feb. 1999), available online via JSTOR.

2. The sense in which Hayek and Robbins advocated a “do-nothing” policy was their opposition to New-Deal-type output restrictions, make-work programs, and deliberate efforts to hold nominal wages above market-clearing levels. They were right to do so – those policies exacerbated rather than moderated the Depression – and one would have thought Friedman would concur.

3. Rothbard’s book on America's Great Depression was published in 1963, a bit too late to have done harm in the 1930s. The book does indeed say silly things about the virtues of letting the banking system collapse, based on Rothbard’s idiosyncratic belief in 100% reserve banking at any cost. But Hayek doesn’t say any such thing, and the Austrian business cycle theory as such certainly doesn’t.