10. Hutt and Keynes

CHAPTER 10

Hutt and Keynes*

William H. Hutt’s career involved work on three continents. Born in London in 1899, he studied at the London School of Economics. From 1928 to 1965, the University of Cape Town in South Africa was his academic base. He subsequently emigrated to the United States, teaching at several American universities. He died in 1988.

Hutt was a wide-ranging scholar. Like John Maynard Keynes, he contributed to topics beyond monetary theory and macroeconomics (see, for example, Reynolds 1986). In Economists and the Public and Politically Impossible... ?, he waxed philosophical, exploring the proper role of academic economists in debates over public policy. He counselled academics to cherish their ivory-tower purity, avoiding even the appearance of speaking for political parties or industries or other private interests, in order to preserve their scientific authority. They should not compromise in hope of being influential. Hutt was “sufficient of a realist to know that the chances of... exercising any influence on policy are small.” “Every true economist in this age must be satisfied with great hopes and small expectations” (1952a, p. 53, quoting the preface to his own Theory of Idle Resources). When an economist does consider political feasibility and so recommends a policy other than the one he considers best on grounds of economics (and avowable value judgments), then he should clearly state the amateur political assessment underlying his recommendation, and also state the policy he truly considers best. Keynes, unlike Hutt, relished active involvement outside academia. He wrote much on policy issues, was confident of his ability to sway public opinion first one way and then another (as he mentioned in a conversation recalled by F. A. Hayek, 1979, pp. 101-102), and was inclined to develop theory to bolster existing policy intuitions. As its title suggests, however, this chapter concentrates on work for which Hutt and Keynes are best known and in which they treat the same topics—their money-macro theories.

KEYNES ON DEMAND FAILURE

As the General Theory in particular shows, Keynes believed in a deep-seated, recurrent tendency toward deficiency of effective demand, causing unemployment and loss of potential output. Keynes had no particular complaint about how the price mechanism would allocate resources, given adequate total demand. Especially in wealthy communities, however, private investment tended to be inadequate to absorb all the saving that would be attempted at full employment. Although Keynes and his followers sometimes identified the difficulty as characteristic of a monetary economy as opposed to a barter economy, they did not trace deficiency of demand to an unstable and often wrong quantity of money. Even though Keynes waffled a bit on the question of monetary disorder (notably in chapter 17 of the General Theory), he definitely was not a monetarist in today’s sense of the word. Monetary disequilibrium, if it occurred, reflected real troubles; he saw market failure, particularly failures centred in the labour and stock and bond markets. He believed that on average over time, business investment was inadequate for full employment and was prone to fluctuate with the state of business confidence, which in turn was subject to sudden change because estimates of prospective yield had to be made using limited knowledge. Keynes alluded to waves of optimism and pessimism, an antisocial fetish of liquidity, and “dark forces of time and ignorance” enveloping the future (1936, pp. 153-155). For such reasons, he thought that an acceptable approximation to full employment required sustained government action to maintain adequate total spending. (To avoid repeating myself in detail, and for documentation, I refer to my chapter 9.)

HUTT’S MICRO ORIENTATION

Hutt’s macroeconomics is more disaggregative and micro-oriented. Hutt adopts a Say’s Law, or goods-against-goods, approach. People specialize in producing particular goods and services to trade them away for the specialized outputs of other people. Incomes created in particular lines of production are the sources of demand for the outputs of other lines: supply of some things constitutes demand for other (non-competing) things.

Fundamentally, then, there can be no deficiency of demand. Any apparent problem ofthat sort traces to impediments to the exchange of goods and services for each other. Impediments to exchange discourage the production of goods and services destined for exchange and discourage the employment of labour and other productive factors. Diagnosing these impediments is Hutt’s overriding concern.

Say’s Law, as Hutt interprets and extends it, explains how cuts in production in some sectors of the economy entail cuts in real demands for the outputs of other sectors and so cuts in production in those other sectors also. The rot is cumulative; disequilibrium is infectious; a multiplier process operates, although not in the mechanistic way suggested by Keynes’s spuriously precise formulas. In the opposite and more cheerful direction, anything promoting recovery of production in some sectors promotes recovery in other sectors also.

But what are the impediments to exchange and production that trigger the downward movement and whose alleviation triggers cumulative recovery? Hutt points to wrong prices. Prices too high to clear the markets for the outputs of some sectors cause cutbacks in their production and in their demands for the outputs of other sectors. What might otherwise have been equilibrium prices for the outputs of those other sectors are now too high; and unless adjusted downwards, they impede exchanges and production further. Hutt blames wrong pricing, not any inadequacy of “spending.” Instead of determining the volume of exchanges, spending gets determined: the flow of money transferred in lubricating transactions depends on their physical volume and on the money prices at which those real transactions are evaluated. It is fallacious to suppose, with the Keyne-sians, that income is created by transfers of money (Hutt 1979, pp. 90,381). Hutt does not flatly assert that monetary disorder never plays any role at all in frustrating exchanges and production. His view of the role of money will require further attention later in this chapter. Meanwhile, we may note his remark that “Money is relevant to ‘effective demand’ only because unanticipated inflation can, in a very crude way, cause certain prices which have been forced above market-clearing levels (causing therefore nonuse or underuse of men and assets) to become market-clearing values, thereby releasing ‘withheld’ potential productive capacity and increasing ‘effective demand’ in our sense and in Keynes’ sense” (Hutt 1977, p. 36, emphasis in original).

Hutt scorns the fundamentalist Keynesianism that broods about adequacy or inadequacy of demand, about the propensity to consume out of real income, and about a savings gap that grows with income and wealth and so supposedly becomes all the harder to fill with real investment spending, especially as real capital formation supposedly leaves fewer and fewer attractive opportunities for still further investment. Saving, as such, cannot pose a problem. People cannot save without acquiring some assets or other. If this process, including the associated financial transactions, results in real capital formation, well and good; opportunities for further investment still are not foreclosed. Complementarities exist among capital goods; having more of some expands profitable opportunities to construct more of others. Furthermore, sectors of the economy employing additional capital goods enjoy increased productivity and real incomes, which increase the demands for the outputs of other sectors and for the resources to produce them. If, on the other hand, savers neither acquire real assets themselves nor acquire securities by transferring their command over resources to entrepreneurs who will construct assets, then they must be trying to build up their holdings of money. Yet Keynes, says Hutt, tried to put the blame on an excessive propensity to save as such, obscuring the liquidity-preference or demand-for-money aspect of the disequilibrium. (This charge, it seems to me, overlooks chapter 17 of the General Theory. What Keynes might better be charged with is vagueness, along with inconsistency among different parts of his book.)

Actually, says Hutt (1979, p. 295), “saving preference and liquidity preference are as unrelated as demands for monocles and bubble gum.” Even when an intensified demand for money balances is contributing to macroeconomic disequilibrium, the blame should fall not on this particular change in preferences but on the failure of prices to accommodate it. With prices insufficiently flexible, any change in technology or resources or preferences, including not only a strengthening but even a weakening of savings preference or of liquidity preference, can impede market clearing, exchanges, and production. Diagnosis must thus focus on how well or poorly the pricing process is working, and why.

DISEQUILIBRIUM THEORIES

In emphasizing the infectiousness of the failure of some markets to clear (and, more cheerfully, the cumulative character of recovery when some prices initiate adjustment to market-clearing levels), Hutt’s doctrine parallels a line of advance in macroeconomics pioneered by Robert Clower (1965, 1967) and Axel Leijonhufvud (1968) and followed by such other economists as Donald Tucker (1971) and Robert Barro and Herschel Grossman (1971, 1976). Their approach features such concepts as absence of the (supposed) Walrasian auctioneer, incomplete and costly and imperfect information, false price signals, sluggish price adjustments, quantity changes as well as price adjustments, the duality of people’s decisions about particular transactions according to whether they do or do not meet frustration in accomplishing other desired transactions, and the income-constrained process (the counterpart of Hutt’s infectiousness of disequilibrium and recovery).

Clower and Leijonhufvud offered their approach as spelling out what Keynes “really meant” or “had at the back of his mind” while writing the General Theory. In this they were wrong, in my opinion. Actually, they were independently resurrecting an older approach from which the Key-nesian revolution had diverted attention (Yeager 1973; cf Grossman 1972). Hutt believes that his own remarkably similar doctrine stands poles apart from what he considers the crudities of Keynes. In a thesis on Theories of Disequilibrium: Clower and Leijonhufvud Compared to Hutt, Mrs. Evelyn Marr Glazier notes but does not actually tackle the question of who more correctly understands what Keynes really meant. She does, however, show that the three economists named in her title “agree more on some of the fundamental issues of disequilibrium than they do on the history of doctrines” (p. 3).

Hutt differs from Clower and Leijonhufvud more in emphasis than on substance. He puts less emphasis than they do on reasons why a considerable degree of price and wage stickiness is understandable and rational. He does not recognize why, after a disturbance, it naturally takes time to achieve a new equilibrium level and coordinated pattern of prices because of incompleteness and costliness of and delays in obtaining up-to-date knowledge of market conditions and the interdependence yet separate and sequential setting and revision of individual prices and wages. (On this latter point, see Cagan 1980 and Yeager 1986.)

Hutt notes that Clower and Leijonhufvud stress “the imperfections of the information and communication process as a cause of the hiatus” that money poses between desires to sell and desires to buy.

But the kind of communication or information required for the coordination of the economy takes the form of market pressures; and these pressures are exerted through loss-avoidance, profit-seeking incentives. Faced with such market signals as shrinking or accumulating inventories, entrepreneurs react by changing the rates of liquidation of different inventories via the price changes which they forecast will effect the desired results. (Hutt 1974, p. 102, emphasis in original)

MARKET PROCESSES THWARTED

In passages where he seems about to recognize the natural aspect of price and wage stickiness (for example, 1974, pp. 40-41), Hutt does not follow through. He regrets the less than instantaneous operation of market pressures and returns to the theme that wrong prices in other economic sectors “merely” make price cuts necessary for market clearing in a particular sector (1974, pp. 40-41, 89-90). He notes that if an entrepreneur correctly expects a decline in demand for his product to prove temporary, then letting its inventory grow will turn out to have been a wise investment. If he proves wrong, then he will have withheld supplies, and his misbehaviour has depressive effects on other sectors. Market processes, however, including the natural selection of entrepreneurs, will generally achieve quick adjustment of prices to market-clearing levels if only they are allowed to work (pp. 44-45, 97). Even if government policy aimed at preventing misbehaviour in the pricing process, it admittedly could not succeed completely. “There would always be defects in the drafting of the required legislation, as well as error in enforcement and judicial interpretations” (pp. 41-42). So saying, Hutt again blames imperfect policy rather than natural conditions. Entrepreneurial pessimism or timidity in depressions has always been “a consequence of the price mechanism having been prevented from fulfilling its co-ordinative role” (p. 99). Note the word “prevented.”

Hutt blames government for not suppressing the basic reason—villainy—why prices and wages do not clear markets and assure continuous coordination. He perceives villainy—but the word is mine, not his—on the part of labour unions, business monopolists, and government itself. Villainy includes such things as union control over wages, minimum-wage laws, overgenerous unemployment compensation, and monopoly and collusion. Hutt recognizes that the victims of incorrect pricing are not necessarily the villains. Villainous pricing of particular factors and outputs can reduce the demands for other outputs, rendering their unchanged prices wrong and their producers idle (for example, Hutt 1974, p. 88). However, he is inclined to criticize even these victims of others’ malpricing for not adapting to the changed situation by adjusting their own prices promptly and steeply enough (1974, p. 83).

Throughout his many writings (for example, 1973) Hutt denounces union wage scales and strikes. Even the mere possibility of strikes deters productive investment and so the growth of real incomes. Even for me, no great admirer of unions, his repeated fulminations against them become downright boring.

Hurt’s book of 1944, containing proposals for postwar Britain in particular, further expounds his diagnosis by displaying his passion for reconstructing the world along idealized competitive lines. Drastic antitrust laws would prohibit strikes, lockouts, and boycotts; contracts or conspiracies to restrain output, trade, or exchange or to take part in collusive monopolies; price discrimination; amalgamations, mergers, and holding companies; acquisition by a corporation of shares or debentures of other corporations or purchase, as a going concern, of the assets of competitors; and interlocking directorates. A State Trading Board would have the right to compete with private enterprise, to expropriate property, to impose schemes for coordination, synchronization, and standardization upon groups of independent firms, to determine hours and conditions of labour in certain circumstances, to certify quality, and to issue cease-and-desist orders. A Labour Security Board might require young people to accept specified training or apprenticeship and might penalize failure to attend regularly and perform with due diligence. A Resources Utilization Commission would require State corporations and owners of public utilities to practise marginal-cost pricing, unless aggregate receipts would be less than fixed cost plus avoidable cost. Hutt gave a definition of marginal cost and added: “In the interpretation of this definition recourse may be had to the text-books of economics” (1944, quotation from p. 62).

I doubt that Hutt would still, late in his career, have advocated such drastic steps toward making reality conform to textbook chapters on pure and perfect competition. In the intervening years he, like so many of the rest of us, presumably learned much about the interrelations between economic freedom and human freedom in general; he presumably became disenchanted about turning to government for solutions to market failures. But his book of 1944 remains symptomatic of an orientation that Hutt apparently did hold throughout his career—a concern to trace macroeconomic difficulties to impediments to the ideal working of markets and to seek remedies through microeconomic reconstructions. In his book of 1974 (pp. 101-102) he still suggested that antitrust action, if not perverted by demagogic vote-seeking, would be an appropriate and important ingredient of policy for full employment. Pre-Keynesian economists whom he admired believed “that unless government performed its classical role there was an automatic tendency for groups acting in collusion to price their inputs or outputs in such a way that a cumulative tendency for economies to run down could be set in motion” (1974, p. 120, emphasis in original).

Hutt and the Clower-Leijonhufvud school differ, as we have seen, in their relative emphases on villainy and reasonable behaviour in explaining wage and price stickiness. (I do not want to suggest, however, that the latter school stresses rigidity or even stickiness as the ultimate source of discoordination. Clower and Leijonhufvud probe more deeply into the intricate and prolonged groping necessary to enlist scattered knowledge and achieve a new market-clearing level and pattern of prices after a major shock. On this distinction, see, in particular, Leijonhufvud 1981, pp. 111-112.)

HUTT ON MONEY

Another point on which emphases differ concerns the role of money in economic discoordination. Clower in particular (for example, 1967) emphasizes that goods do not exchange for goods directly: money is the medium of exchange, and if people have difficulty obtaining money by selling their own goods or services, that very fact keeps them from expressing their demands for other people’s goods and services.

Hutt is sceptical of this notion of money as a hiatus between selling and buying.

[W]hen a person buys, he normally demands with moneys worth, not with money. He demands with money only when he happens to be reducing his investment in it (i.e., not concurrently replenishing his money holdings), for he can always obtain money costlessly by realizing his inputsor outputs (services or assets) as their moneys worth.... [T]he acquisition andspending of money... is costless. It follows that money is as incidental (and as important) as cash registers and cashiers in the demanding and supplying process. (1974, pp. 67-68, emphasis in original; cf. pp. 57-60)

In this passage Hutt seems to be supposing a unified budget constraint, in contrast with the realistic split constraint described by Clower (1967). He also seems to suppose that all goods and services are extremely liquid or readily marketable at their full values. His downplaying of the role of money as medium of exchange may be associated with his defining the quantity of money very broadly so as to include what he calls the “pure money equivalent” of nearmoneys and nonmoneys (Hutt 1974, pp. 17-18; 1979, chap. 8).

The possible frustration of transactions through failure of communications and market signals does not basically trace to the use of money. The hiatus arises from the remoteness of wage-earner and wage-earner, of entrepreneur and entrepreneur. These remotenesses are inevitable consequences of the extreme division of labour that the pricing system and money make possible. Except in this sense, the use of money has nothing whatever to do with the problem. (These sentences closely paraphrase 1974, pp. 58-59.)

Yet one would expect someone who expounds the tremendous services of money as eloquently as Hutt does (for example, 1974, p. 60) to recognize the correspondingly great scope for damage if the real quantity of money comes to deviate seriously from the total of real cash balances demanded. One would expect that recognition from the author of “The Yield on Money Held” (1956), an absolutely fundamental contribution to monetary theory. (Hutt explains the straightforward senses in which business cash balances are productive and consumers’ cash balances afford utility. A brilliant exposition and extension by Selgin, 1987, makes further discussion here unnecessary.)

Yet Hutt says he does not understand why the tastes, market processes, and so forth that determine the purchasing power of the money unit should induce “income constraints in the form of the withholding of supplies and hence of demands, except in the sense that, in the presence of downward cost and price rigidities, deflation will aggravate the cumulative withholding process—just as unanticipated inflation will mitigate or reverse it” (1974, p. 62, emphasis in original). Whether Hutt realizes it or not, the exception he makes is a mammoth one. He also appears to recognize the damage that an inappropriate quantity of money can do when he quotes Leijonhufvud, with apparent agreement, concerning “recurrent attacks of central bank perversity” (1974, p. 73, quoting Leijonhufvud 1968, p. 399, where, however, Leijonhufvud capitalizes the initial letters of “Central Bank”).

Yet Hutt shies away from recognizing the role of money in business cycles and from appreciating the monetary-disequilibrium hypothesis of David Hume, Clark Warburton, Milton Friedman, Karl Brunner, Allan Meltzer, and other monetarists. In an oblique reference to the monetary aspect of depression, Hutt did go so far as to say that the classical orthodoxy of the 1920s and 1930s had warned against “the development of an inflationary situation which, requiring subsequent deflationary ratification if contractual monetary obligations were to be honored, would eventually precipitate depression through predictable resistances to the necessary price adjustments” (Hutt 1974, p. 118, emphasis in original). In several places, furthermore, Hutt appears to advocate a policy of accommodating the quantity of money to the demand to hold it at a stable price level.

Even so, he backs away from tracing macroeconomic disorder to money. When he comes as close as he ever does to comparing monetary disturbances and price rigidities as sources of disruption, he almost always puts his emphasis on the rigidities (for example, 1974, p. 69). The nonmonetary view of depression, he says, “is truly the explanation of all depression. When deflation is the initiating factor (under downward cost or price rigidity), the economy still runs through the cumulative consequences of the withdrawal of supplies of non-money” (1974, p. 73 n., emphasis in original).

[D]epression is due to the chronic, continuous boosting of costs in occupations and industries where the unions tend to be strongest—because demands for their outputs happen to be most inelastic and consumers therefore most easily exploited. In the absence of inflation it would have been perceived how the withdrawal of labour and output by over-pricing in such activities reduces the source of demands for the outputs of less easily exploitable occupations and activities. (1975, p. 113; footnotes omitted here)

But one might well expect Hutt to explain why a “chronic” and “continuous” problem manifests itself in only occasional depressions, with healthy growth and occasional booms intervening. Later Hutt says that inflation, if unanticipated, can improve price/cost ratios in many sectors of the economy. But this crude remedy attracts resources into unsustainable kinds of production and “creates such basic distortions in the pricing mechanism that we must often blame the attempt to spend depression into prosperity for aggravating prospective and realised unemployment” (1975, pp. 113-114, emphasis in original).

Hutt touches on certain crucial questions about money without giving sufficiently explicit answers. In some passages he takes such pains to penetrate behind the veil of money that he practically denies money’s routine but momentously important function as the medium of exchange; he actually says that people are buying goods and services with money only when, untypically, they are acting to reduce their cash balances (1979, pp. 238, 295). When inflation appears to be stimulating a depressed economy—a phenomenon supposedly beloved of the Keynesians—does the stimulus come from the monetary expansion as such, with prices lagging and the quantity of money and flow of spending thus growing in real terms, or from the price inflation itself, which maybe rectifying wrong relative prices, especially by eroding excessively high real wage rates? Often Hutt appears to give the latter answer, suggesting that the trick of getting real wages down in a relatively politically feasible way is the essence of Keynesian employment policy. Interpreters disagree, but others have also taken Keynes to mean just that. It would be ironic if Hutt and Keynes, when agreeing, agree on an erroneous point.

In a malcoordinated and depressed economy, does the trouble necessarily stem from wrong relative prices, such as excessive real wages, or might it stem instead mainly from prices and wages that, although not badly out of line with one another, are generally too high (or conceivably too low) in relation to the nominal quantity of money? In some passages (September 1953, p. 224; 1979, pp. 147, 282-283, and passim) Hutt emphasizes unstable price rigidities and people’s postponement of purchases while waiting for the rigidities to break down and prices to fall, seeming to imply that the particular price level would not matter if its permanent rigidity were obviating these expectations and postponements. In other passages (1979, pp. 185-186, 207, and passim) he seems to advocate a policy of flexibly accommodating the nominal quantity of money to the existing price level, as if he were indeed concerned about the painful necessity of otherwise adjusting the price and wage level to the money supply.

Hutt anticipated some of the soundest parts of the present-day doctrine of rational expectations. He emphasizes that when inflation has come to be generally expected and allowed for, it becomes purposeless. Unemployment becomes almost a normal accompaniment of inflation, even accelerating inflation (1977, pp. 37-38; cf p. 252). In these and other passages, however, it is unclear whether he sees the underlying money-supply expansion itself or instead sees the resulting price inflation as what may initially stimulate or recoordinate an economy (although eventually becoming futile). Apparently he means the latter: price inflation may be a way—an inferior, temporary, Keynesian way—of improving coordination by inflating down excessively high real wage rates. He does not forthrightly grapple with the monetarist point that depression may occur not so much because relative prices and wages are wrong as because the whole wage and price level is too high in relation to the nominal quantity of money or, in other words, because the nominal money supply has become too small for the wage and price level.

HUTT’S STYLE OF ARGUMENT

Readers must wish that Hutt had done what he did not do, namely systematically present the doctrines he considered rivals of his own in their strongest versions, criticize them in adequate detail, and show just how they fail where his succeeds. We know Hutt disliked Keynesianism; it would be interesting to know in some detail what he thought about monetarist reasoning and evidence.

Hutt’s failure to make his position clear on crucial issues, together with the writing style that is largely responsible, brings to mind his own complaint (for example, in 1979, Prologue) about how little scholarly dialogue his work had elicited, particularly from Keynesians. (Consider, also, the harsh review of Hutt 1974 by Herschel Grossman, 1976, someone who I think would be sympathetic to much of Hutt’s message if it were presented clearly.)

Hutt’s exposition is a collection of discursive and often cryptic remarks. Strewn over hundreds of pages (in 1979, for example), and in no readily intelligible order, we find bits of positive analysis, jabs at Keynesianism, historical allusions, policy proposals, and autobiographical asides. Hutt had a habit of latching onto remarks by other writers as they were apparently cast up at random by his own reading, even if those writers were not leading or typical authorities or controversialists on the points at issue, and then using their remarks as pegs onto which to string his own observations. This habit gave his writing an unnecessarily polemical tone. (As Pejovich 1978 noted, Hutt had a normative bent and seemed not particularly concerned with non-normative analysis of allocations generated by alternative institutional arrangements.)

Strewn through Hutt’s writings are echoes of long-standing obsessions, including, of course, his obsession with labour unions. Another concerns Britain’s return to the gold standard in 1925 at the prewar parity, requiring internal deflation if that parity were to remain workable. Repeatedly, though often in cryptic language, Hutt offered apologetics for that policy. He might even have been right, but the way that these apologetics kept intruding in unlikely places and with a moralizing tone is characteristic of his style.

Another characteristic is lengthy brooding over the meanings of terms and concepts. Hutt once recorded his “strong dislike for mere ‘terminological innovation’ (September 1953, p. 215), but this is a dislike that he managed to overcome. Some wag once said that he wrote in Huttite. Hutt offered lengthy and sometimes obscure definitions of such concepts as market-clearing prices for inputs (1977, p. 105), competition (1977, p. 154; 1974, pp. 15-16), exploitation (1977, p. 218 n.), money (1977, p. 254), and some nine or ten varieties of idleness (throughout his 1977). Presumably out of aversion to theorizing with aggregates and averages, Hutt avoided the term “price level,” saying “scale of prices” instead (for example, September 1953, p. 217; 1979, p. 214).

Hutt used one term so much that I, anyway, became accustomed to it: “withheld capacity.” This term suggests that people who, in ordinary language, are having a hard time finding jobs or customers are withholding their capacity to work or produce by insisting on wages or prices above market-clearing levels. So doing, they are withholding their demands for the goods and services of other people and thereby causing other prices and wages, if unchanged, to be excessive. This terminological allusion to villainy serves to shunt aside analysis of the nature and reasons for price and wage stickiness, including ways that the interdependence of wages and prices narrows the reasonable options available to individual price-setters and wage negotiators. His terminology helps Hutt to damn reality for being real. Yet he himself briefly recognized (for example, 1977, pp. 136 n., 204) that resistance to wage and price adjustments can be “individually rational” although “collectively irrational.”

His terminology would permit him, if pressed, to defend propositions that are startling on their face.

The withholding of capacity which is capable of providing currently valuable services is always a case of restraint on freedom. (1979, p. 371 n.)

[T]he labor of all able-bodied persons was demanded throughout the depression years. It was not supplied. (1979, p. 169)

[W]hat is usually called “unemployed labor” could be more realistically called “unsupplied labor.” (1974, p. 79)

Individuals actively “prospecting” for remunerative jobs are employed, (italicized section heading in 1977, p. 83)

[In the] phrase “excess supply” of labor ... the word “excess” ... could more appropriately be “deficient” or “insufficient”! (1974, p. 86)

[T]he phrase “willingness to demand” ... simply means “willingness to supply”! (1974, p. 27)

[W]hen there is a “shortage” or rationing, we usually say that “demand exceeds supply,” although what we really mean is that, at the price asked, more would be demanded if more were supplied. Hence I cannot conceive of any situation in which ... the value and amount demanded in any market fails to equal the value and amount supplied.... [P]eople who would be prepared to demand at the price asked if they could get the goods are prevented from demanding. (1974, pp. 80-81)

[C]onsumption is always the extermination of power to demand. The failure of the Keynesians to understand this simple truth lies at the root of what I believe to be the most outrageous intellectual error of this age. (1979, p.341)

Hutt often covered himself against challenge by qualifying apparently egregious propositions with cryptic phrases that are hardly understandable unless the reader is already familiar with his terminology and allusions. For example,

It is quite wrong to assume that unfavorable prospects can deter net accumulations, otherwise than through the discouragement of saving preference, or—indirectly—through the encouragement of the withholding of capacity (although such prospects certainly do influence the form taken by accumulation). (1979, p. 349)

A similar habit was to mention government policies not always straightforwardly but rather with reference to the results that Hutt would expect them to have. Thus, in an historical context: “not a single governmental step toward multiplying the wages flow was taken” (italicized in 1979, p. 61), meaning, approximately, that the government did not act against the unions.

THE SELLING OF IDEAS

Besides his terminology, tone, and paradox-mongering, other circumstances help explain why Hutt’s work has received less attention than Keynes’s. Although the General Theory was not Keynes’s best-written book, it does contain flashes of clever writing and appealing new concepts and terminology. Keynes presented his message as revolutionary, offering young or adaptable economists the opportunity to march at the vanguard of the profession. Keynes’s theory had political appeal. It came as a rationalization (whether sound or unsound) of policies that would have been beneficial under the exceptional circumstances of the mid-1930s. Hutt, though, was recommending micro-oriented policies that would have stepped on toes and whose desired benefits would not have come quickly.

Hutt always maintained that he was expounding old, orthodox doctrine; but, although alluding to Edwin Cannan and the London School tradition, he did not build on his predecessors’ work in adequate detail, and he neglected to forge links with pre-Keynesian monetary-disequilibrium theory. So he put himself at a double-barreled disadvantage—confessing that his message was basically old stuff, while not clearly showing how he was extending it. Keynes’s theory, in contrast, appealed to academic economists by containing concepts and gimmicks offering possibilities for research and publication, for class lectures and examination questions. (On this matter of the internal dynamic of a field of study, see Colander 1986.)

THE ENDURING VALUE OF HUTT’S MESSAGE

Although I do think that Hutt created unnecessary difficulties for its acceptance, I do not mean to disparage his message itself. Apparent macro disorders can indeed trace partly to micro distortions, particularly in prices and wages. Because market transactions are voluntary and the short side determines the actual quantity traded in any market, frustration of transactions and so of production can cumulate in a quasi-multiplier process. Downward cumulativeness is particularly severe if money and credit undergo an induced or secondary deflation (although I do wish that Hutt had been more emphatic in recognizing the role of money). Like F.A. Hayek and others, Hutt was magnificently right in his strictures against chronically inflationary policies as supposed cures of unemployment.

Because of Hutt’s style and tone, his writings are unlikely to persuade readers who lack the background and the will necessary to understand his eccentrically phrased message. For two reasons I myself have been turned off by Hurt’s style less than most readers probably would be. First, when I came across Hutt’s work decades ago, I happened to be predisposed in favour of the sort of message he was trying to convey. Second, I was privileged in 1955 to attend a two-week conference at which he was one of the main speakers. Later, when he served as visiting professor at the University of Virginia, we were colleagues. His analytical message, his humanitarian concern for those suffering from restrictions on economic opportunity, his intellectual force and zeal, and his integrity came across better when he had ample opportunity to present his message in person than when he offered it in writing alone.

Whether he realized it or not, Hutt was preaching to the already saved. Doing so, however, is far from pointless. Sympathetic readers can find much in his work to fortify their understanding of how the real world works and could be made to work better. They can find much to deepen their insights into the fallacies of Keynesian doctrines whose former dominance has still not been entirely expunged. Teachers able to give sympathetic expositions can make good use of Hutt’s work in their classes. It may serve as the focus of fruitful controversy among sympathetic readers.

REFERENCES

Barro, Robert J., and Herschel I. Grossman. “A General Disequilibrium Model of Income and Employment.” American Economic Review 61 (March 1971): 82-93.

———. Money, Employment, and Inflation. New York: Cambridge University Press, 1976.

Cagan, Philip. “Reflections on Rational Expectations.” Journal of Money, Credit, and Banking 12, Pt. 2 (November 1980): 826-832.

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^* From Perspectives on the History of Economic Thought, vol. 6, Selected Papers from the History of Economics Conference, 1989, ed. William J. Barber (Aldershot, U.K., and Brookfield, Vt.: Elgar, 1991).