Q: Which US congressman had the idea of metropolitan area, and said that poverty causes crime?
There is no one Congressperson. Metropolitan areas are often mentioned in the Congressional Record in the context of government assisting those areas with solving their problems, real or imagined. Crime is also raised in remarks, but noting different possible causes.
The chapter from the second edition addresses Friedman's idea of the appropriate size of metropolitan governments. A note at the end of the chapter states that it was written in 1969. That "the idea of metropolitan area government has been circulating for several years", may refer to ideas in the book, Council of State Governments, The States and the Metropolitan Problem (A Report to the Governors' Conference, 1956).
The report, Metropolitan Government, August 15, 1956,1 referencing the book, suggests a need for "new instrumentalities of government" that may cross "county and state lines as well as municipal boundaries"; thus "metropolitan area government".
What is needed in metropolitan areas, most students of public administration say, is a general government with jurisdiction over enough territory and with sufficient power to handle area-wide problems effectively. Authorities recognize that it may not be possible, or necessary, to concentrate all power in the hands of a single area-wide government. Attendants at the East Lansing conference agreed that consolidation of all local authority in a metropolitan government was “neither a likely nor a desirable solution except possibly in new and relatively small or emerging metropolitan communities.” They suggested, however, that “Serious consideration should …be given to the development of general metropolitan governments… [with] limited functions, leaving all other functions to existing local units.
Metropolitan areas, as used in 1956, were defined by the Census Bureau as Standard Metropolitan Areas (SMAs). A later name change called them Standard Metropolitan Statistical Areas (SMSAs). Currently, the Office of Management and Budget (OMB) calls these areas Metropolitan Statistical Areas (MSAs).
In the quoted introductory paragraph (shown in the question), Dr. Friedman was being facetious. Dr. Friedman (son of economists Drs. Milton and Rose Friedman), as an "anarcho-capitalist theorist" rejects the idea of bigger government, such as "metropolitan area government".
I do not believe that if small governments are good and large governments bad, mammoth governments must be better. [1]
The "Washington circles" mentioned by Dr. Friedman consist of the organizations, lobbyists, etc., whose occupation is to represent special interests in Washington.
Both "Great Ideas" and "genius" from the introduction should be taken as sarcasm.
1 If encountering problems accessing the complete document use the Google search Metropolitan Government site:library.cqpress.com
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An older document at the same search is also interesting, The Political Integration of Metropolitan Areas, July 11, 1930.