Evolution of Milton Friedman

"In the second essay, from 1955, Friedman smartly sums up the devolution of liberalism from the philosophy of "defenses against arbitrary government and...protect[ing] individual freedom" to one of strengthening the "power of the government to do 'good' 'for' the people." But he's still a big believer in the idea that neighborhood effects or externalities-actions that give either costs or benefits to people not involved in the transaction-are good reasons for government action. He admits, in the style that drove Rothbard nuts, that while any "extension of state action involves an encroachment on individual freedom," the true liberal "regards this as...by no means a fatal obstacle to" such state action, as long as a cost-benefit analysis indicates good would come of it.

"A couple decades later, Friedman was a much more ferocious libertarian. In a 1976 lecture on Adam Smith given at a Mont Pelerin Society meeting, he identifies himself as one "who...preach[es] laissez faire" and explains that the neighborhood effect argument for the state is tricky and overreaching, and that government actions themselves have bad external effects that "externality" devotees ignore. He also writes that "superficially scientific cost-benefit analysis" to justify state action "has proved a veritable Trojan horse.""

http://reason.com/archives/2012/11/20/the-increasingly-libertarian-milton-frie