Economic liberalism is the ideological belief in organizing the economy on individualist and voluntarist lines, meaning that the greatest possible number of economic decisions are made by individuals and not by collective institutions or organizations. [i][i] - Economic liberalism:Wikipedia;
Whereas the promotion of liberalism in a modern political context has, for some reason, meant a larger role of government to force 'equality' whilst undermining freedom using coercion rather than persuasion.
Economic intervention is only justified when there is a serious case to be made that it does not risk a government failure. So that it should only be used as a last resort in which the disadvantages to third parties actually significantly outweigh the cost to the government. More specifically; that when governments intervene to reduce negative externalities, it does so by effluent charges or the equivalent rather than by setting standards or imposing specific requirements. Government interventions more often than not are imperfect.
One myth is that the minimum wage is an economically acceptable way to improve equality. It is an intuitive notion but it lacks suitable empirical evidence. The minimum wage means that employers will not be able to afford, and therefore are less likely, to hire a low skilled worker at the artificially high price set by the government intervention. They will not be, nor should they be, willing to employ a less productive resource that costs them more than they gain from them in terms of output. This is particularly harmful to those that the government is actually intending to help the most; unskilled, poor, disadvantaged youths. They need to be able to find work initially to get the skills required to demand a higher wage price in the labour market. If business owners cannot employ low skilled people for a wage rate that is equal to their value with respect to their productivity, then this explains why the increase in minimum wage causes real wage unemployment by distortion of the wage price signals. Crucially though, he explains why government should not have the role of intervening in employment discrimination that occurs in the economy because in a free-market system, it bears a cost to discriminate.
At some point he explains how long term monopolies are formed by direct or indirect government intervention. Governmental privileges (such as television licenses, protectionist tariffs and subsidies) which result from political lobbying are some of the sources of the strongest monopolies in the United States. One way or another, the most powerful, long lasting monopolies were fostered from governmental support and assistance. The solution in a free-market system? Free trade. Free trade allows competition from the rest of the world, eliminating domestic monopoly with less restriction on human freedom by government control over private enterprises. On free trade, Friedman also makes a case for it being the solution to balance of payments problems. This would mean eliminating trade barriers and currency controls to allow floating exchange rates.
On the distribution of income, essentially he argues that the high level income tax costs the government more than would otherwise be lost under a flat rate with no deductions. The costs to enforce all tax loopholes seemed to outweigh the benefits gained in terms of tax receipts to the government given that less tax is avoided at a fair rate. Inequality worsens when the government tries to impose heavily disproportionate progressive rates and the amount lost through numerous avoidance techniques outweighs the cost of the reduction. A negative income tax system that guarantees the poor a basic rate in order to encourage more work rather than the system at the time of writing which was largely inefficient, costly, ineffective and unfair.
Another myth that he dealt with was that supposedly increasing government expenditure relative to taxes as fiscal policy is necessarily expansionary. The implicit assumption is that real incomes will increase by government spending increases relative to tax receipts either by borrowing money or by printing money. Since we're scrutinising fiscal policy though, "The government borrows [money] with its right hand from some individuals and hands the money with its left hand to those individuals to whom its expenditures go." As the money is moved from one hand to another, the total amount of money held is unchanged and the rise in expenditure is offset by the decline in private expenditure from those who lent the funds, or would otherwise borrow the funds as he demonstrates. For example, if the spending by government was on something that consumers would otherwise spend their income on, then the assumption is that they have additional income (when they actually have the same amount of income and they're not spending as much) which is then spent on (presumably less valued) goods and services; and that their overall spending as a proportion of their income would be greater than or equal to what they were already spending it on before the government paid for it - there is no additional income. Real income is still the same even if prices didn't rise, which is unlikely to be the case anyway. The government's initial spending is effectively offset because it has taken money from the economy and put it back somewhere else that's useless and the amount of money held in private hands is the same except the government has now found itself in more debt. Another scenario is government spending on an infrastructure project that would otherwise have been done by a private enterprise. The firms then have more funds available but will not spend more of their revenue on less promising investments.
"government expenditures simply divert private expenditures and only the net excess of government expenditures is even available at the outset for the multiplier to work on"
Clearly, the Keynesian model is too simplistic and wholly depends on theoretical circumstances that no economist would agree exist and is actually contradictive of Keynes' other theory about consumption being directly proportional to disposable income*. Consider the increase in interest rates from government borrowing that would occur because they would have to offer a higher return on bonds. As Friedman points out, this situation would only not occur in such an extreme circumstance: one that would require private spenders to be stubborn enough to not change their expenditures regardless of any change in the interest rate.
"[or] in Keynesian jargon, if the marginal efficiency schedule of investment is perfectly inelastic with respect to the interest rate."
Of course you could argue, if you're a Keynesian, that the amount of money which people choose to allocate towards their expenditure and idle money is to be dependent on a ratio of their nominal income and not on other factors like the rate of return from interest bearing accounts, bonds and securities alike.* The latter factors being induced by fiscal expenditure in the absence of a so called liquidity trap where the government could borrow without raising interest rates. Friedman's research showed that rising government expenditure was roughly equal to the GDP increase and hasn't been multiplied in any way.
* Look at Keynes' consumption function
* Look at the Fisher model of intertemporal consumption and the life-cycle hypothesis
https://en.wikipedia.org/wiki/Intertemporal_choice
* Look at Keynes' consumption function
* Look at the Fisher model of intertemporal consumption and the life-cycle hypothesis
https://en.wikipedia.org/wiki/Intertemporal_choice
In each chapter of the book, some way or another, Milton Friedman highlights the misconceptions about what government's role should be in the economy to get a result that is closer to economic freedom. There are solutions to free market inefficiencies but they require less government intervention, not more. Enough time has shown how ineffective the government is at trying to control the invisible hand [ii].
[ii] The invisible hand is a metaphor that was first used by Adam Smith in his book An Inquiry into the Nature and Causes of the Wealth of Nations.
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"Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it ... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."
