read the article and answer these five question... (you can find the article below)

Question:

1. what examples does Friedman give of government intervention in the economy?

2. In Friedman's point of view, what is the appropriate role of government in the economy? Do you agree? Explain.

3. How do Friedman's view compare to Adam smith?

4. How do Friedman's view on government role compare with those of J.M. Keynes.

5. Why do Friedman believe it is necessary to have a rule for monetary policy. What is that rule?

6. How does Friedman view his rule.

000000 1930s, government involvement in the vouchers at any school of their choice. Economic Thinkers economic life of the US and other Schools would then develop to meet the nations has increased tremendously. demands of parents-who best know Friedman views this growing encroach- the needs of their children. Thus, there ment as unnecessary, wasteful, and would be a variety of schools catering Milton Friedman (b. 1912) dangerous to individual freedoms. to the varied needs of students. While [Friedman] is a sufficiently bril- Schools that did not attract sufficient liant technical economist to have students would go bankrupt and disap Two centuries after Adam Smith, the earned the Nobel Prize, he is also an pear. economist Milton Friedman reiterated Smith's basic message: Free markets, irrepressible public advocate of his lib- Importance of the Money Supply if left to operate without government ertarian views [a school of thought that Friedman's lack of faith in the ability of interference, will largely resolve our emphasizes the importance of indi- government to solve economic prob- economic problems. Milton Friedman is vidual freedom]. In fact, it is in this latter lems also extends to the management known today as a leader of the mon- role. . . that Friedman has received of the macroeconomy. In the view of etarist school, which emphasizes the most notice, or notoriety. many economists, Friedman's most importance of the money supply in the SOURCE: William J. Baumol and Alan S. Blinder, Economics: Principles and Policy, 4th ed. (New important contribution to economics is health of the economy. York: Harcourt Brace Jovanovich, 1988), p. 503. his views on the money supply. Fried- Friedman worked as an economist man believes that adjusting the money for the US federal government in Economic Freedom supply through open market operations Washington during World War II and The abolition of minimum wage legisla- or changes in the bank rate will not then became a professor of economics tion is but one part of a comprehensive resolve economic problems. In fact, at the University of Chicago. In 1976, and consistent pattern of actions mod- such policies are more likely to exacer- he was awarded the Nobel prize in ern capitalist economies should follow bate the problems. It takes time to re- economics for "his achievements in the in Friedman's view. Tariffs, quotas, sub- cognize the problems and to act. field of consumption analysis, mon- sidies, and much social welfare should Governments are always under pres- etary history and theory, and for his de- also be eliminated. Tariffs, quotas, and sure from particular interest groups, so monstration of the complexity of stabili- subsidies favour special interest that by the time action is taken, it is too zation policy." His publications include groups at the expense of the general late and often inappropriate. Govern- Capitalism and Freedom (1962), A population and promote the inefficient ment should, therefore, follow an invari- Monetary History of the US, 1867-1960 allocation of resources. Social welfare able rule of raising the money supply by with Anna Schwartz (1963), A Theoreti- legislation requires a large bureaucracy a fixed amount equal to the long-term cal Framework for Monetary Analysis o administer it and provides little in- growth rate of the economy-that is, (1971), and Free to Choose written centive for recipients to seek indepen between 3 and 5 percent. with his wife, Rose Friedman (1980). dence. In its stead, Friedman advoc- Friedman views economics as Alfred Friedman took his first economics ates the negative income tax, which has Marshall viewed it, as "an engine for courses at university in 1930 and 1931 none of these disadvantages. analyzing concrete problems. In prac- In the depths of the Great Depression. Friedman would also apply free tice, the analysis of economic problems Economics was an obvious choice for market principles to the supply of edu- always comes down to understanding him since the Depression in Friedman's cation. Parents could be provided with the forces of supply and demand- view was easily the "single most impor vouchers equal in value to the cost of a using scarce resources to achieve tant issue facing the world." Since the child's education. They could spend the alternative goals."FFHEDMAN IN HIS OWN WORDS The Role of Government . . .the Great Depression, like most other periods of severe unemployment, was produced by government misman- agement father than by any inherent instability 'of the private economy A governmentally established agency- the Federal Reserve System [the cen- tral bank of' the USJhas been assigned responsibility for monetary . policy in 1930 and 1931, it exercised this responsibility so ineptly as to con- vert what otherwise would have been a moderate contraction into a major catastrophe. Similarly today, govern- mental measures constitute the major impediments to economic growth in the United States. Tariffs and other restric- tions on international trade, high tax burdens and a complex and inequit- able tax structure, regulatory commis- sions. government price and wage fi - ing, and a host of other measures, give individuals an incentive to misuse and misdirect resources and distort the investment of new savings. What we urgently need, for both economic sta- bility and growth, is a reduction of gov- ernment intervention not an increase. Such a reduction would still leave an important role for government in these areas. it is desirable that we use gov ernment to provide a stable monetary framework for a free economythis is part of the function of providing a stable legal framework. it is desirable too that we use government to provide a gen- eral legal and economic framework that will enable individuals to produce growth in the economy, if that is in accord with their values. 1 . What examples does Friedman give of government intervention in the eco- nomy? 2. in Friedman's view. what is the appro priate role of government in the eco- nomy? Do you agree? Explain. 3. How do Friedman's views compare with those of Adam Smith? 4. How do Friedman's views on govern- ment's role compare with those of JM. Keynes? A Monetary Rule ...How can we establish a monetary system that is stable and at the same time free from irresponsible govern- mental tinkering, a system that will pro- vide the necessary monetary frame- work for a free enterprise economy yet be incapable of being used as a source of power to threaten economic and political freedom? The only way that has yet been sug- gested that offers promise is to try to achieve a government of law instead of men b y legisla ting rules for the conduct of monetary policy that will have the effect of enabling the public to exercise control over monetary policy through its political authorities, while at the same time it will prevent monetary policy from being subject to the day-byday whim of political authorities. . . . in the present state of our kno wledge. it seems to me desirable to sta to the rule in terms of the behavior of the stock of money My choice at the moment Would be a legislated rule instructing the mon- etary authority to achieve a specified rate of growth in the stock of money For this purpose, i would define the stock of money as including currency outside commercial banks plus all deposits of commercial banks. i would specify that the Reserve System shall see to it that the total stock ofmoneyso defined rises month by month, and indeed, so far as possible, day by day, at an annual rate of x percent. where x is some number between 3 and 5. The precise definition of money adopted, or precise rate of growth chosen. makes far less differ- ence than the denite choice of a par- ticular definition and a particular rate of growth. . . lshould like to emphasize that i do not regard my particular proposal as a bee\" and end-all of monetary manage- ment, as a rule which is somehow to be written in tablets of stone and enshrined for all future time. it seems to me to be the rule that offers the greatest promise of achieving a reasonable degree of monetary stability in the light of our present knowledge. i would hope that as We operated with it, as we learned more about monetary matters, we might be able to devise still better rules, which would achieve still better results. Such a rule seems to me the only feasible device currently available for convert ing monetary policy into a pillar of a free society rather than a threat to its foundations. 5. Why does Friedman believe it is necessary to have a rule for monetary policy? What is that rule? 6. How does Friedman view his rule? sconce.- Extracts taken from Milton Friedman. Cap- italism and Freedom (Chicago: University of Chi- cago Press, 1963). pp. 38. 51.5455