Leland Yeager, RIP
By Scott Sumner
While traveling in Japan a couple weeks back I heard the news that Leland Yeager had passed away. I only met Yeager once, but I could immediately tell that he was a real gentleman.
Yeager was an outstanding economist in the monetarist tradition, who influenced a great many younger economists. I was particularly influenced by a 1983 paper that Yeager co-authored with Robert Greenfield. The paper is gated, but this Cato paper by David Cronin does a nice job summarizing the key argument. Greenfield and Yeager discussed a monetary regime where the dollar would become an abstract unit of account linked to a broad basket of goods (similar to the basket used for the CPI.) The government would play no role in producing money; rather it would merely define the dollar. Private banks could create competing media of exchange, which could be redeemed into some sort of redemption medium (such as gold), with enough value to purchase the standard bundle of goods.
This paper was part of what was called the “New Monetary Economics” of the early 1980s, which also saw contributions from Robert Mundell, Fischer Black, Eugene Fama and Robert Hall. And this research strongly influenced my own thinking on monetary economics, moving me from the “quantity approach” of the traditional monetarists to a “price approach”. Under the price approach, monetary policy determines the price of money. There is also a third “rental cost” approach to money (i.e. interest rates), which is used by Keynesians and some Austrians.
Under a price approach to policy, monetary policy is about setting the correct price of money, not the correct money supply or the correct interest rate. NGDP futures targeting represents one example of the price approach to monetary policy. In 1986, I began to favor policies that targeted NGDP futures prices. The futures market approach was a way around the problem of sticky prices, which make it difficult to make dollars directly convertible into the basket of goods that comprise the CPI.
Update: I forget to mention that David Henderson did a post on Leland Yeager a few days ago.