Monetary Policy and the Legacy of Milton Friedman

By Schwartz, Anna J. | The Cato Journal, Spring-Summer 2008 | Go to article overview

Monetary Policy and the Legacy of Milton Friedman


Schwartz, Anna J., The Cato Journal


So many well-deserved tributes have been paid to the memory of Milton Friedman that I propose to pay him tribute in a special way by talking about my long association with him. Before I do so, I note his activities before the 1950s, when we started working together. For the record, Friedman was not a monetarist when our collaboration began.

The National Bureau of Economic Research was then located at 1819 Broadway, now the site of the Time Warner Center. At that time, the research program of that organization was divided between the measurement of national income and the study of business cycles.

Friedman's Activities before the 1950s

Friedman had had an earlier connection with the NBER related to its research on the measurement of national income. This association came about in an unforeseeable manner as a result of a job he obtained in 1935 after finishing his second year of graduate study at the University of Chicago. The job at the National Resources Committee was in Washington in the heyday of the New Deal. The director of the NRC was charged with the planning of a nationwide study of consumer purchases to be funded by the Works Progress Administration that would offer jobs to unemployed individuals in selected communities in many states to collect information on their income and expenditures from a wide sample of families. Friedman was a member of a group at the NRC assigned to prepare the questionnaire, design the sample, plan the tabulation, and analyze the results. Friedman left the NRC in 1937 when the planning phase ended.

In 1936 Simon Kuznets, an NBER staff member, organized the Conference on Research in Income and Wealth to bring together academic and government agency individuals engaged in work on national income and its distribution. Friedman attended the first meeting in early 1937 as a representative of the NRC. Later that year he became Kuznets's assistant at the NBER. His first task was to edit the proceedings of the spring 1937 conference. As secretary of the conference, he edited the second and third of the proceedings meetings, and until 1945 was active in the conference, when he left to do war research.

Friedman's major accomplishment at the NBER during this period was his revision of a preliminary draft by Kuznets of a manuscript on incomes of five independent professional practitioners that the latter had collected. The NBER published the book as co-authored. The Friedmans left New York in 1940 for Madison, Wisconsin, where he had a one-year teaching appointment at the University of Wisconsin that for various reasons was a disappointment. In 1941 he collaborated with two others on a study of taxes to prevent inflation, a view he would later decry. The study led to an offer of a job with the Division of Tax Research at the Treasury Department. Here he was involved in reforming the tax system in order to win the war. He left the Treasury in 1943 to take a job as a mathematical statistician with the Statistical Research Group at Columbia to do war research. At the war's end, Friedman was offered a one-year teaching position at the University of Minnesota. In 1946, he accepted a professorship at the University of Chicago. In the fall quarter of 1950, he took a leave of absence to spend as a consultant to the Marshall Plan agency in Paris.

Collaborating with Friedman

It was in 1950 that Arthur Burns, then Wesley Mitchell's successor as the NBER director of research, approached Friedman to resume his connection with the Bureau by directing the study of the role of money in business cycles. I had joined the Bureau in 1941 and had begun some independent work on studies of banks and measures of reserves. Burns thought Friedman and I would make a good team.

Staff members were assigned the task of describing and analyzing the cyclical behavior of an economic variable--for example, hours worked, the unemployment rate, and total production. …

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