Role and Function of Government - Milton Friedman

Essay by Nelly25mattUniversity, Bachelor'sA-, February 2008

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Milton Friedman begins chapter 2 by explaining that one of the main roles of the government is to prevent coercion. This is a necessity in a free market economy because it levels the playing field. In a free market economy both sides should benefit from a transaction and coercion destroys this.

Friedman states that most people follow most of the rules, most of the time. The government only needs to punish the relatively few people who don't obey the laws. Friedman claims, "The need for government in these respects arises because absolute freedom is impossible." People don't agree on everything so having absolute freedom would cause a great deal of conflict. Friedman believes that without the government enforcing their laws in some way, there would be chaos.

Friedman was the leading proponent of the monetarist school of economic thought. He maintained that there is a close and stable link between inflation and the money supply, mainly that the phenomenon of inflation is to be regulated by controlling the amount of money poured into the national economy by the Federal Reserve Bank; he rejected the use of fiscal policy as a tool of demand management; and he held that the government's role in the guidance of the economy should be severely restricted.

Friedman wrote extensively on the Great Depression, which he called the Great Contraction, arguing that it had been caused by an ordinary financial shock whose duration and seriousness were greatly increased by the subsequent contraction of the money supply caused by the misguided policies of the directors of the Federal Reserve.

Throughout the Federal Reserve's history it has been known to change the money supply in a cyclic manner. When the economy is stumbling they push more money out and when it is booming they shrink the...