Free Banking

Free Banking by Larry Sechrest is a magnificent work. First published in 1993, it is a formalization and extension of literature in the free-banking area, with important correctives and clarifications.

Sechrest argues that the debate over central banking and free banking is the most important economic issue of the day. Central banking accepts all the methodological precepts of socialist central planning. It is constructivist. The planners pretend to know more than they can know. And the results are about as successful as socialism. He proves this point with the first formal model of central versus free banking, one that combines the insights of Hayek, Selgin, and Garrison to show that a competitive system would be self-correcting where a centralized one cannot be.

In the process of mounting a careful attack on countercyclical policy and evaluating the existing free-banking theories, Sechrest shows that money is not a public good, that banking is not a natural monopoly, that central banking does not constitute a case of spontaneous evolution, and that we do not need a lender of last resort.

He concludes, "As long as money remains a tool of the state, that tool will continue to serve the state as a well-spring of income redistribution, social engineering, and military adventurism. A laissez-faire approach to money and banking is more than merely conductive to efficiency and stability. It is likely to prove to be the necessary precondition for prosperity, justice, and peace."