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This chapter studies Friedman’s commentaries on and interactions with Arthur Burns and G. William Miller, who were at the helm of the Federal Reserve during the 1970s. Friedman could claim to have made only limited headway in getting his views accepted by these policymakers. Both Chairmen Burns and Miller in the 1970s rejected Friedman’s view that monetary policy actions could by themselves control inflation. On the issue of the appropriate operating procedures for monetary policy, Friedman expressed hope at various times that Burns or Miller would shift from a federal funds rate instrument to a bank reserves-type instrument, and he was disappointed in each case by the resilience of the Federal Reserve’s attachment to a federal-funds-rate-oriented operating procedure.

In the 1960s and early 1970s, Milton Friedman defined the debate within macroeconomics. Modern macroeconomics emerged out of that debate. Despite the impressive development of theorizing since the 1970s, macroeconomists still need to address the methodological challenges dealing with identification posed by Friedman. One way to address this issue of identification is to ask why two of the most eminent economists of the time, Milton Friedman and Arthur Burns, arrived at diametrically opposed views on inflation and on the appropriate monetary policy to control inflation. The argument here is that Burns adhered to the earlier institutionalist school, which attached great importance to the assumption that evolving institutions changed behavior. In contrast, Friedman retained his view of inflation as a monetary phenomenon because of the way in which its predictions held up in a wide variety of different institutional arrangements.

This chapter looks at the career of Milton Friedman and those that were an influence on his becoming a Nobel Prize recipient in economics in 1976. Friedman was born in 1912 and went to Rutgers University. He would have entered the actuarial profession, but for two extraordinary teachers: Arthur F. Burns, who would become chairman of the Federal Reserve System, and Homer Jones, who would later become a vice-president at the Federal Reserve Bank of St. Louis. Another person who influenced Friedman was Jacob Viner who made him realized that economic theory was a coherent, logical whole, and not a set of disjointed propositions. Friedman's doctoral dissertation was the result of a study he worked on under the supervision of another Nobel laureate Simon Kuznets. They collaborated on the publication Income from Independent Professional Practice which used the economic theory of distribution to explain and interpret data on the incomes of various professions. He became active in public policy, using his economic knowledge to try to influence public thought. He also wrote A Theory of the Consumption Function and Price Theory: A Provisional Text.