Free Banking - by Larry J Sechrest (Hardcover)

About the Book

Free banking is a term that refers to the total deregulation of the banking industry. It signifies an absence of such constraints as reserve requirements, capital requirements, government deposit insurance, and limitations on branching. Above all, it means that private banks would be allowed to issue their own currency. This book takes a fresh approach to that controversial topic. Sechrest proposes that free banking constitutes the final vindication of Say's Law, that the optimal monetary goal, monetary equilibrium, can only be achieved under free banking, that the monetarist and Austrian business cycle theories are complementary, and that the most likely form of free banking will be that in which banks issue specie-convertible notes and hold fractional reserves.

After defining free banking the author explains why he adopts the well known White-Selgin model. He then discusses the key characteristics of laissez-faire banks, which form the basis for a formal model, complete with graphs, which may be used in the classroom. The unique relationship between the market for money and the market for time that exists under free banking suggests that business cycles will be minimized under such a regime. That relationship also leads to the insight that the Austrian and monetarist cycle theories are really two sides of the same coin. New evidence is presented that leads the author to the conclusion that both Lawrence White's portrayal of Scottish free banking and the traditional image of American free banking are exaggerated. Three different basic models of free banking are then reviewed in detail and critiqued. Finally, the author suggests both some possible topics for future research and that free banking is desirable socially and politically as well as economically.

Book Synopsis

Free banking is a term that refers to the total deregulation of the banking industry. It signifies an absence of such constraints as reserve requirements, capital requirements, government deposit insurance, and limitations on branching. Above all, it means that private banks would be allowed to issue their own currency. This book takes a fresh approach to that controversial topic. Sechrest proposes that free banking constitutes the final vindication of Say's Law, that the optimal monetary goal, monetary equilibrium, can only be achieved under free banking, that the monetarist and Austrian business cycle theories are complementary, and that the most likely form of free banking will be that in which banks issue specie-convertible notes and hold fractional reserves.

After defining free banking the author explains why he adopts the well known White-Selgin model. He then discusses the key characteristics of laissez-faire banks, which form the basis for a formal model, complete with graphs, which may be used in the classroom. The unique relationship between the market for money and the market for time that exists under free banking suggests that business cycles will be minimized under such a regime. That relationship also leads to the insight that the Austrian and monetarist cycle theories are really two sides of the same coin. New evidence is presented that leads the author to the conclusion that both Lawrence White's portrayal of Scottish free banking and the traditional image of American free banking are exaggerated. Three different basic models of free banking are then reviewed in detail and critiqued. Finally, the author suggests both some possible topics for future research and that free banking is desirable socially and politically as well as economically.

Review Quotes

"Professor Sechrest has a firm grasp of discoordination as the main topic of macroeconomics. He combines this insight with historical evidence and formal modeling to argue a strong case for leaving the issue of money to private enterprise. His book is a solid contribution to an expanding new field of research on monetary theory and monetary institutions."- Leland B. Yeager College of Business Auburn University

"Sechrest's valuable new book extends the growing literature on free banking by providing a mathematical model of a free banking system and by exploring its relationship to macroeconomics. By addressing banking theory, the history of American and Scottish free banking, and monetary policy, Sechrest's book has a breadth beyond previous contributions, making it a must read for defenders and critics of free banking."-Stephen Horwitz Assistant Professor of Economics and Irene Eggleston Faculty Chair St. Lawrence University

"This is a comprehensive, clearly written survey of the case for free banking. It provides the reader with an understanding of all of the various approaches to free banking that exist in the literature and how they relate to one another; and it also relates this literature to standard neoclassical economics. It is thus an intelligible, one of a kind, guide to the subject."- Peter Lewin Professor University of Dallas and University of Texas at Arlington

About the Author

LARRY J. SECHREST is Director of the Free Enterprise Institute and Assistant Professor of Economics in the Department of Business Administration at Sul Ross State University. He is an Adjunct Scholar of the Ludwig von Mises Institute as well as a former Fellow of both the Mises Institute and the Institute for Humane Studies. His work has appeared in such publications as the Cato Journal, the Review of Austrian Economics, the South African Journal of Economic and Management Sciences, Magill's Survey of Social Science: Economics, and the Journal of Economics.