Leland B. Yeager

Central to Yeager’s thinking was the essential role of monetary stability in bringing about order in free markets. Unlike other assets, money has no single market or price of its own; it is the medium through which exchange takes place in all markets. That is why he focused on and developed what Clark Warburton called “the theory of monetary disequilibrium.” This theory dates back to David Hume but was lost sight of with the onslaught of John M. Keynes’s General Theory. Many of Yeager’s essays on monetary disequilibrium—and the impact of erratic money on relative prices, business fluctuations, and the price level—appear in The Fluttering Veil, edited by George Selgin.

Yeager was always interested in the big picture of how economic systems coordinated individual plans in a world of scarcity. He recognized the importance of institutions in shaping economic incentives and behavior. In his view, property rights mattered, as did ethics and the rule of law. He taught his students about the Socialist Calculation Debate, and the loss of economic/personal freedom when central planning abolishes private property rights and free-market pricing.

Although Yeager never saw himself as a member of the Austrian School of Economics, he was a “fellow traveler.” He was critical of the Austrian theory of the business cycle, but accepted the subjective nature of human choices/values and the importance of understanding the market process rather than simply accepting the standard model of perfect competition.

Like Milton Friedman and Clark Warburton, Yeager believed that monetary disturbances are the chief factor initiating business fluctuations. He argued for a monetary constitution—a rule-based monetary regime—that would safeguard the long-run purchasing power of money. However, like Friedrich Hayek, he preferred privatizing money and a system of free banking to mitigate business fluctuations—allowing markets to clear without being disrupted by government-caused monetary disequilibrium.

In addition to his work in the areas of monetary policy and international trade, Yeager made important contributions to capital theory. His 1976 article, “Toward Understanding Some Paradoxes in Capital Theory,” won Economic Inquiry’s Best Article award. In it, he showed that paradoxes could be resolved by taking into account the time and value characteristics of capital, rather than simply treating it as a physical input. His 1977 booklet, Proposals for Government Credit Allocation was an important critique of government intervention in private capital markets. Finally, Yeager’s long-awaited book, Capital, Interest, and Waiting (coauthored with Steve H. Hanke) appeared in 2024, six years after his death. This book provides an intertemporal view of the price system, a better understanding of monetary policy, and an in-depth analysis of the “economics of waiting.”

Yeager placed great attention on the need for clear communication in conveying the fundamental principles of political economy. As he noted in a December 1979 speech, “The economic ignorance that is so painfully evident in public-policy discussions is ignorance not of the subtleties or technicalities but of the basic truths. Economists should make an effort to communicate these basics, and not only to their students but also to a wider audience.” For Yeager, the basics included: scarcity, choice, opportunity cost, gains from trade, and the principle of spontaneous order based on free markets, a just rule of law, private ownership, and monetary stability. He believed that, in giving policy advice, economists should keep those fundamentals at the forefront.1

In that same speech, Yeager emphasized the importance of a competitive price system that communicates knowledge not available to any single mind, as Hayek famously explained in “The Use of Knowledge in Society.” He also argued:

• There has been too much aggregation in macroeconomics, theoretical and applied—too much of the notion of aggregate demand confronting aggregate supply. Fundamentally… Say’s Law is right: supply of some goods and services constitutes demand for other goods and services; fundamentally there can be no problem of deficiency of aggregate demand.

• The exchange of goods and services against goods and services takes place through money. We want our students to understand the tremendous importance of money in facilitating exchange and thus in facilitating the division of labor in producing the goods to be exchanged. Money facilitates economic calculation and the comparison of costs and benefits and the signaling function of price and profit.

• But precisely because money is so important to the working of the economic system, monetary disorders can have fateful consequences. Here is the hitch in Say’s Law: although “fundamentally” goods and services exchange against goods and services, money is the intermediary in this process; and if the demand for and supply of money get out of balance, these fundamental exchanges are impeded. By “monetary disorders,”…. I mean erratic disturbances to the relation between the actual quantity of money and the demand for money balances. Not only wrong relative prices but also a wrong price level or purchasing power of the dollar in relation to the quantity of money can snarl up exchanges. Anything that snarls up exchanges snarls up the production of goods to be exchanged, with cumulative consequences. Anything that undercuts the reliability of the dollar as a unit of account [e.g., inflation] snarls up the accuracy of economic calculation, with fateful consequences.

Yeager was an outstanding scholar and a revered teacher who took great interest in his students and celebrated their success.2 He was legendary for his classroom lectures filled with insights and precise graphs drawn to scale on the blackboard with “The Yardstick.” In preparing for class, he would not just read a book that was to be discussed; he would digest it to the point he knew more than the author, as Don Patinkin noted in regard to his lengthy book, Money, Prices, and Interest.

Yeager was born in Oak Park, Illinois. He earned an A.B. from Oberlin College in 1948, after serving in the Army as a Japanese codebreaker during World War II. In 1949, he earned an M.A. in economics from Columbia University, followed by a Ph.D. in 1952. He wrote his dissertation, “An Evaluation of Freely-Fluctuating Exchange Rates,” under the supervision of James W. Angell and Ragnar Nurkse. From 1952 to 1957, Yeager taught at the University of Maryland and then moved to the University of Virginia, where, in 1969, he was named the Paul Goodloe McIntire Professor of Economics.

From 1985 to 1995, Yeager served as the Ludwig von Mises Distinguished Professor of Economics at Auburn University. He held visiting professorships at Southern Methodist University, UCLA, New York University, and George Mason University. He was president of the Southern Economic Society, the Atlantic Economic Society, and the Interlingua Institute. Yeager was an adjunct scholar at the Cato Institute and at the American Enterprise Institute.

Selected Bibliography of Works by Leland B. Yeager:

1954. Free Trade: America’s Opportunity, New York: Robert Schalkenbach Foundation.

1956. “A Cash-Balance Interpretation of Depression,” Southern Economic Journal, Vol. 22, No. 4: 438–47.

1962. In Search of a Monetary Constitution (editor and contributor), Cambridge, MA: Harvard University Press.

1966. International Monetary Relations: Theory, History, and Policy, New York: Harper and Row; second edition 1976.

1966. Trade Policy and the Price System (with David G. Tuerck), Scranton: Pennsylvania: International Textbook Company.

1968. “Essential Properties of the Medium of Exchange,” Kyklos, Vol. 21, No.1: 45–68.

1973. “The Keynesian Diversion,” Western Economic Journal, Vol. 11, No. 2: 150–163.

1976. “Economics and Principles,” Southern Economic Journal, Vol. 42, No. 4: 559–571.

1976. “Toward Understanding Some Paradoxes in Capital Theory.” Economic Inquiry, Vol. 14 (September): 313–46.

1977. Proposals for Government Credit Allocation, Washington, DC: American Enterprise Institute.

1986. “The Significance of Monetary Disequilibrium.” Cato Journal, Vol. 6, No. 2: 369–99.

1988. Ethics in the History and Doctrine of the Virginia School, Fairfax, VA: Center for Study of Public Choice, George Mason University.

1989. “Can Monetary Disequilibrium Be Eliminated?” (with Robert L. Greenfield), Cato Journal, Vol. 9, No. 2: 405–421.

1992. “Toward Forecast-Free Monetary Institutions.” Cato Journal Vol. 12, No. 1: 53–73.

1997. The Fluttering Veil: Essays on Monetary Disequilibrium (edited by George Selgin), Indianapolis: Liberty Fund.

2001. Ethics as a Social Science: The Moral Philosophy of Social Cooperation. Northampton, MA: Edward Elgar.

2010. “Privatizing Money,” Cato Journal, Vol. 30, No. 3: 417–38.

2011. Is the Market a Test of Truth and Beauty? Essays in Political Economy, Auburn, Al: Ludwig von Mises Institute.

2024. Capital, Interest, and Waiting: Controversies, Puzzles, and New Additions to Capital Theory (with Steve H. Hanke), London: Palgrave Macmillan.

Footnotes

[1] This speech was given at the University of Baltimore at a meeting of the Chesapeake Association of Economic Educators.

[2] For a comprehensive list of Leland Yeager’s writings, see Armaan Bahl, “Leland B. Yeager: An Annotated Bibliography of His Works,” Studies in Applied Economics (SAE), No. 278, September 2024. At: https://sites.krieger.jhu.edu/iae/working-papers/studies-in-applied-economics/. Additional readings on Yeager’s contributions to political economy, his impact on students, and his life can be found in: (1) William Breit, Kenneth G. Elzinga, and Thomas D. Willett, “The Yeager Mystique: The Polymath as Teacher, Scholar and Colleague,” Eastern Economic Journal, Vol. 22, No. 2, Spring 1996, pp. 215–29; (2) James A. Dorn, “Leland B. Yeager: Market Grandmaster,” Cato Journal, Vol. 38, No. 3, Fall 2018, pp. 721–36; (3) Roger Koppl (ed.), Money and Markets: Essays in Honor of Leland B. Yeager, New York: Routledge, 2006.