LELAND B. YEAGER: MARKET GRANDMASTER.

AuthorDorn, James A.
PositionBiography

When Leland Yeager (1924-2018) passed away on April 23, at the age of 93, the world lost a brilliant mind, a devoted teacher, a dedicated scholar, and a man of integrity. I had the privilege of having Leland as a professor at the University of Virginia during my graduate studies in economics in the late 1960s, and later working closely with him as editor of the Cato Journal and director of Cato's annual monetary conference. Of course, I didn't need to edit his beautifully crafted papers and I studiously avoided sending his papers to a copyeditor! When he retired from the University of Virginia as the Paul Goodloe Mclntire Professor of Economics, he left a legacy of excellence, as well as a host of stories about his legendary persona. All of his students know about "the yardstick" and "the stare." (1)

In this memorial essay, I wish to paint a picture of Leland as a "market grandmaster," in the sense of his keen understanding of markets and prices along with the role of money in facilitating exchange, and the importance of property rights in shaping incentives and behavior. Along with James Buchanan, Gordon Tullock, Ronald Coase, G. Warren Nutter, Roland McKean, and others, he was an important member of the Virginia School of Political Economy.

The Centrality of Market Exchange and Coordination

James Buchanan, who was instrumental in bringing Leland to the University of Virginia from the University of Maryland (Koppl 2006: 7), held that "economists should be 'market economists'"--that is, "they should concentrate on market or exchange institutions ... in the widest possible sense" (Buchanan [1964] 1979: 36). Buchanan also argued that the "most important social role [of economists] is that of teaching students," and "the most important central principle in economics is ... that of the spontaneous coordination which the market achieves"--namely, "the principle of spontaneous order" (Buchanan [1976] 1979: 81-82).

Leland excelled in the tasks that Buchanan thought most important. He was an outstanding teacher who placed market exchange and coordination at the center of his lectures. He wanted us to understand how the voluntary actions of individuals, guided by free-market prices and limited government, would lead to mutually beneficial exchanges and a harmonious market order in which people were free to choose. He also wanted us to recognize the significance of money in facilitating exchange and what happens when monetary disorder upsets the market system by distorting relative prices.

In the realm of public policy, he took a principled approach and sought to trace out the long-run effects of alternative policies, whether in the field of international trade or monetary policy. In his presidential address, "Economics and Principles," at the 1975 meetings of the Southern Economic Association, he reiterated what his students knew well:

The principled approach to economic policy recognizes that the task of the policymaker is not to maximize social welfare, somehow conceived, and not to achieve specific patterns of outputs, prices, and incomes. It is concerned, instead, with a framework of institutions and rules within which people can effectively cooperate in pursuing their own diverse ends through decentralized coordination of their activities. In the macroeconomic field, it shuns activist "fine-tuning" and aims instead at a steady monetar)' framework [Yeager 1976a: 560].

Leland espoused "the principle of limited government" and argued that "even when no disadvantages are obvious, there is a presumption (defensible, to be sure) against a new or expanded government activity" (ibid., 562). He hoped that voters "might come to appreciate the value of avoiding myriad interventions and of orienting economic policies, instead, toward legal and monetary frameworks within which decentralized decisions are coordinated by market processes"--but he was not optimistic that voters "might come to judge policies and candidates in the light of the principle of limited government" (ibid., 565).

Yeager, nevertheless, saw it as his duty to "help explain the value of respecting principles not only in the realm of economic policy but also in other interactions among human beings" (ibid.). In thinking about "relevant strands of economic theory," he pointed to the liberal concept of "results of human action but not of human design," which F. A Hayek (1973: chap. 6) popularized, as well as

the importance, for a functioning society, of people's having some basis for predicting each other's actions; the inevitable imperfection, incompleteness, dispersion, and costliness of knowledge; the costs of making transactions and of negotiating, monitoring, and enforcing agreements, and the consequent usefulness of tacit agreements and informally enforced rules; applications of methodological individualism and of property-rights theory to analysis of nonmarket institutions and activities; concepts of externalities and collective goods and the supposed free-rider problem; and the principle of interdependence [Yeager 1976a: 565].

Like Buchanan, Leland was a fellow traveler of the Austrian School of Economics. Indeed, after he left the University of Virginia, he took a position at Auburn University as the Ludwig von Mises Distinguished Professor of Economics. Although he neither subscribed to the radical subjectivism of some Austrians nor fully accepted the Austrian theory of the business cycle, he noted the significance of thinking in terms of individuals, not aggregates; viewed competition as a market process; recognized the subjective nature of value; and understood the importance of sound monetary institutions and private property rights for maintaining a vibrant market system.

In his advanced price theory class, Yeager took time to review the socialist calculation debate and the absurdity of adhering to gross output targets, which would lead to the production of large nails that were useless. When he gave this example of the experience under Soviet central planning, Professor Yeager stopped in the middle of his lecture to leave the room because his face turned red with laughter at the absurdities that resulted from the lack of a real price system. However, he soon regained his composure and returned to carry on his lecture.

Throughout his career as a teacher and scholar, Leland always returned to fundamentals. In his keynote address at a meeting of the Chesapeake Association of Economic Educators, which I helped organize in 1979, he began by saying, "The economic ignorance that is so painfully evident in public-policy discussions is ignorance not of the subtleties of 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" (Yeager 1979). (2) Moreover, "in our teaching we ought to point out not only truths but also ancient fallacies that keep being rediscovered in new guises with an air of triumphant novelty, e.g., [the] real-bills doctrine."

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