From the 1968 AEA presidential address, defining the natural rate that the long-run Phillips Curve is vertical at.
The “natural rate of unemployment,” in other words, is the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is imbedded in them the actual structural characteristics of the labor and commodity markets, including market imperfections, stochastic variability in demands and supplies, the cost of gathering information about job vacancies and labor availabilities, the costs of mobility, and so on.
The definition does the decisive work of the address. By locating the natural rate in the real structure of markets — frictions, search costs, imperfections — Friedman makes it a quantity that monetary policy cannot durably move, because money is nominal and the natural rate is not. The long-run Phillips Curve is therefore vertical at this rate: any attempt to hold unemployment below it through monetary stimulus must, on this account, produce accelerating inflation rather than a permanent employment gain. Friedman is careful that “natural” carries no normative endorsement — the rate reflects whatever structural impediments happen to exist, and can be lowered by policies that attack those impediments rather than by aggregate demand. (Note the original spelling, “imbedded.”)