Keynes and Friedman 233support a free market and to mediate differences between indi
viduals, thus preventing the coercion of one individual by
another. The government must enforce contracts, define and
enforce property rights, and provide a monetary framework.
Also, the government must prevent monopoly and regulate the
problems brought about by “neighborhood effects.” (An ex
ample of a neighborhood effect is when a person’s pond is
contaminated by an upstream polluter). Such activities as price
supports, tariffs, rent control, minimum wage laws, price con
trols, import quotas, or any other interference in the free ex
change of goods and services should be outside the role of
government. He also opposes regulation of industry and rail
roads, licensure laws, subsidized housing and Social Security.
One of Friedman’s major interests is in the area of money. He
contends that the government’s regulation of the money supply
has been at the root of many economic problems. He blames
government mismanagement for the Great Depression and sees
the actions of the Federal Reserve Board, which incorrectly
manipulated the supply of money and interest rates, as respon
sible for exacerbating the banking crises and the depression in
general. When the Federal Reserve Board condoned a decrease
in the supply of money and moved to make it more difficult for
banks and for business to obtain it, the opposite action should
have been employed. He concludes that rather than giving
discretionary power to a few men in the Federal Reserve Board
to regulate money in response to day-to-day changes in the
supply, there should be a fixed rate of growth in the supply, with
an eye to the long-range goal of stable growth.
As with his classical forerunners, Friedman calls for freedom
in the area of international trade and finance. His view is that
international trade and monetary exchange should be opened to
the mechanism of the free market. Tariffs and fixed monetary
exchange rates should be abolished. Without trade barriers and
with a floating exchange rate, Friedman contends that there
would be arise in the standard of living for all countries, and that
the people of all nations would have more and better goods
available at lower prices.
Friedman attacks the theory, developed by John Maynard
Keynes, of “secular stagnation.” Following the Great Depres
sion, Keynes and his followers held that the limitless opportuni