He was indeed in favor of free markets. However, your statement is factually wrong on two counts.
1) He was in favor of some government action, most notably monetary policy.[0]
2) His arguments were consequentialist and had little to do with morality. For instance, he once described Ayn Rand as "an utterly intolerant and dogmatic person who did a great deal of good.".[1]
> 1) He was in favor of some government action, most notably monetary policy.[0]
Not really, he actually was in favor of privately issued competing currencies, but he was a realist and realized this was not politically possible, so he advocated monetary policies that did the least harm given the current system.
But always stressed he didn't believe all government actions were evil, he thought national defense and law enforcement for example were best accomplished by government.
On the other hand his son David Friedman is a well known anarcho-capitalist that considered the privatization of all government functions.
That's not exactly fair of Friedman; though he was definitely pretty conservative in his views, he was overall quite the empiricist and not much a radical ideologue.
There are numerous instances of him thinking government action is a good idea. For instance, back in the 90s he argued that the ideal health care policy would be one "with a requirement that every U.S. family unit have a major medical insurance policy," instituted by the federal government (in place of Medicare).
Friedman was not a conservative, he was a liberal (in the original sense of the word, and the sense still used everywhere outside the US): http://www.youtube.com/watch?v=ZNc2vzVsIM4