Larry J. Sechrest (1946–2008)

This book is the expansion, update, and publication of Sechrest’s 1990 PhD dissertation in Economics. Like many such efforts, I found the result to be a ‘mixed bag’. Sechrest summarizes, compares, and contrasts the opinions of economists from several schools relating to his subject of Free Banking. He spreads this over historical accounts of free and central banking, and adds to it his own observations and interpretation. Scattered throughout the work, he developed a mathematical model of his ideal free bank. The two parts of the work (narrative and mathematical) require separate evaluations.

His narrative is excellent, with historic detail, extensive notes, and an excellent bibliography. Sechrest particularly looks at the historic approaches to free banking in the 19th century U.S. and earlier in Scotland, and compares them with the emerging national central banks. He includes the discussions of the subject from the Austrian, Keynesian, Chicago and other schools of economic thought. To grossly summarize his conclusions: 1) Fully free laissez-faire banking has never been fully tried; 2) It could apparently be very successful applying certain limits and parameters; and 3) The result would be specie-backed, bank issued money with fractional reserve, and bank issued currency. He presents his case well and strongly.

His models detract from the value of the work, particularly if you are not a grad student in economics or finance. While some of the graphs are useful, the matrix and linear algebra along with the integrals can only be of use to the advanced student or professional. While the math appears to be consistent and valid, it should be used only with two reservations. The first reservation, which seems to be shared by the Austrian school (Hayek and von Mises), is this: the model embeds the conclusions of its author and thus relies on hypotheses that are not fully accepted by others. My second reservation is that a great deal of effort is required to follow the modeling without any clear idea of the outcome. Sechrest never identifies his purpose, and the reader cannot tell if this is intended as a stochastic or a heuristic model. Much of his detail is required only in the first case, while some of his comments support only the second.

My recommendation for the non-professsional reader is to thoughtfully review Sechrest’s conclusions, paying particular attention to his conditions and terms; while at the same time bypassing most of the models. That narrative part of the work contains a strong case for backing away from the Federal Reserve System without the fanaticism of some of the gold standard proponents. Only time and experience can further identify the value of the proposed models.… (meer)