Leland Yeager: In Memoriam

First, he was a fellow traveler of the major free market schools of thought in economics for decades, though never exactly fitting into any of them. Yeager, as anyone who knew him would tell you, was his own man and had no interest in being part of a “school of thought” in the ways those are usually understood. That said, he taught at Virginia, as both Public Choice and New Institutionalism were becoming viable schools of thought, and then he taught for many years at Auburn University, including the time during which they had a PhD program with a strong Austrian component. Yeager also spent time at George Mason University, where I first crossed paths with him in person in the mid-​1980s.

Yeager’s own work incorporated elements of all of these approaches to economics. His monetary theory drew upon the work of the British classical liberal economist Edwin Cannan and the Austrian economist Ludwig von Mises’s early monetary theory. Yeager was also influenced by a group of thinkers who have since become known as the Early American Monetarists, including Herbert J. Davenport and Clark Warburton. His general approach to economics was similarly a mix, incorporating many ideas from the Austrians, but rejecting their approach to capital and interest theory in favor of ideas taken from those same early American traditions. This led him to be what I have termed a “sympathetic critic” of the Austrian theory of the business cycle. In these ways, Yeager was part of the later Monetarist approach to monetary theory, as well as in conversation with the Austrians, but never resting comfortably in either school, even as scholars in both traditions were strongly influenced by his work.

Substantively, what Yeager’s work in monetary theory emphasized are the implications of the very simple insight that money is the generally accepted medium of exchange. Two important implications follow from that. First, money is half of every exchange. In this way, it comes into contact with all of the goods and services in the economy just as, by analogy, blood comes in contact with all of the parts of the body. Extending the analogy: if something is wrong with money, it will affect the markets for all of those individual goods, just as a blood disease tends to affect multiple places in the body rather than being localized to one limb or organ.

The second implication is that because money is that generally accepted medium of exchange, we receive money “routinely” as we get paid for selling our labor services or their products. Starting with the “cash balance approach” to the demand for money emphasized by Mises, in which the demand for money is a demand to hold balances of real purchasing power, Yeager makes a distinction between our “desired” holdings of money and our “actual” holdings of money. Our desired money holdings represent our demand for money, while our actual holdings reflect what we currently have on hand. Note two things here. First, we demand money when we hold it, not when we spend it. Money provides us with the service of being available in our wallets or the bank. Second, it’s possible to have too much money. Or more precisely: it’s possible for us to have more of our wealth in the form of money than we desire to at a particular point in time. Because we accept money routinely when others pay us, our actual and desired holdings of money can differ. For Yeager, those divergences are the start of macroeconomic trouble. This approach became known as monetary disequilibrium theory (or sometimes monetary equilibrium theory, depending on the emphasis).

Yeager was particularly concerned with the situation where there was too little money, i.e., where people’s actual money holdings were less than what they desired. Understanding the history of the 1930-33 period, where a 30 percent decline in the money supply was a key factor in turning a garden-​variety recession into the Great Depression, Yeager thought it particularly important that monetary institutions not make that mistake again. With too little money, the only recourse consumers have to get their actual holdings up to what they desire is to restrict their consumption. Trying to earn more income or selling off assets requires that other people have sufficient money to be buyers, but if the entire economy is suffering from a lack of money, those options are largely unavailable. The one thing we can control is our consumption. What Yeager, and other monetarist theorists argued, was that when consumption spending falls for this reason, it will lead to a downward spiral that turns to recession as other people see lower income, which means they have less to spend and so on.

The conclusion Yeager drew from this was that it was crucial to minimize the likelihood of these deviations. The question for policy was what sort of money and set of monetary institutions could keep the supply of money roughly equal to the demand to hold it, ensuring that actual and desired money holdings would not diverge? Yeager was skeptical that central banking could do the job, especially given the track record of the Fed in the 20^th century. As a result, he explored several different alternatives to central bank provided money over his career, including engaging in various debates with more Austrian-​influenced economists over the possibility of a free banking system. A good deal of modern work by libertarian economists that explores alternatives to central banking and examines the costs of both deflation and inflation rests on theoretical foundations provided by Yeager’s scholarly contributions.

My own work on Austrian macroeconomics is very much influenced by Yeager’s approach. My 2000 book tried to show how Yeager’s work was more consistent with Austrian work, including the Austrian theory of the business cycle, than Yeager himself believed. It took Yeager two readings of my book to write me and say that I had persuaded him, at least to some significant degree, that there was more scope for compatibility than he had previously thought. That he took the time to both re-​consider my argument, after initially rejecting it, and then write me to tell me so, are good examples of his extraordinary intellectual honesty and integrity. His substantive contributions aside, Yeager was a real model of what it meant to be an old-​fashioned scholar of economics and related disciplines.

The third element of Yeager’s scholarly work that is of interest to libertarians is his book Ethics as Social Science: The Moral Philosophy of Social Cooperation . There’s much going on in that book, but the core argument is that our understanding of ethical behavior cannot afford to ignore the conclusions of social science, and especially economics. What Yeager argues, advancing on some basic ideas that can be found in Mises’s Human Action and in Henry Hazlitt’s The Foundations of Morality, is that we should judge the morality of human action in terms of how well it forwards social cooperation, which, in turn, generates the social outcomes of peace and prosperity that most people desire. Rather than grounding morality in some form of social contract or natural rights, Yeager argues that what should determine our rights and other moral boundaries are the degree to which they indirectly improve the well-​being of society by making social cooperation more likely and productive.

This position has been called “indirect utilitarianism” (or a version of “rule utilitarianism”) as it does not require that individual actors judge how well their specific acts increase “utility.” Rather we can use our understanding of social science to judge how well specific acts, as well social rules, forward the intermediate goal of social cooperation, which in turn will produce the desired social outcomes. This argument is very much in the camp of consequentialist, as opposed to deontological, justifications of the liberal order, as Yeager believes that broadly libertarian institutions and morality will do the best at creating social cooperation and thereby societies with the most peace and prosperity. In the book, he offers critical perspectives on all of the alternative approaches to the moral foundations of liberty, including natural rights, social contractarianism, and other forms of utilitarianism. It is a major contribution to libertarian theory and ethical thought, and one that is, like his work on monetary theory, dramatically underappreciated by a variety of audiences.

Leland Yeager may not be a name that many libertarians are familiar with, but the effusive appreciations written since his death by economists whose names are more well-​known indicate how influential he was on several generations of libertarian scholars. I know that in my own case, a great deal of my work on Austrian macroeconomics is not only deeply indebted to his scholarship, it was written with a little Yeager on my shoulder as one of the readers I needed to convince. That’s a tribute to Yeager’s steadfast refusal to be the slave to any dogma and to uphold the highest standards of scholarship and intellectual integrity. Economics and libertarianism lost one of the great ones on April 23^rd. If nothing else, one can hope his death brings long overdue attention to his contributions by both economists and the libertarian movement more generally.