Milton Friedman and the proper functions of government

Milton Friedman – The Proper Role of Government

Uploaded on Oct 8, 2010

Professor Friedman lectures on the proper role of government in a free society

Here are the proper functions of government according to Milton Friedman:

Friedman states that the basic essential functions of government are to: (1) to defend the nation from coercion from the outside and to defend individuals from coercion by others within the country; (2) to enable the free market by establishing rules for exchange and by providing the medium of exchange; and (3) to respond to neighborhood effects. He says that the government should do only what markets cannot do and should enforce the “rules of the game.” Specifically, the government should maintain law, order, and policy to prevent coercion; preserve the peace and provide for national defense; adjudicate disputes and enforce contracts voluntarily entered into; define the meaning of property rights and provide the means for modifying them and the other “rules of the game”; provide a monetary framework; foster competitive markets and overcome technical monopolies; and address neighborhood effects which are actions affecting others (e.g., pollution) where it is not feasible to charge or reward them. Friedman explains that where the actions of one person affect another, and where the range and value of the effects can be controlled and determined, those involved should pay the price or receive the benefits or compensation for the actions.

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