Friedman and the Cowles Commission

The interaction between Milton Friedman and the Cowles Commission represented a confrontation of two research programs, a Walrasian versus a Marshallian, each claiming to offer the best scientific approach for the conduct of empirical economics. It was not only simultaneous equations approach versus partitioning, abstract reasoning versus substantive empirical research, but also whether to adopt the methods of the natural sciences or not. Although they never reached consensus, this interaction was to result in the so-called naive model test for econometric models, designed by Friedman and subsequently developed by Carl Christ, a member of staff at Cowles. But while Friedman saw a negative test result as a failure of the Walrasian program, the Cowles Commission saw it as a diagnostic tool for building larger models.