The Theory of Idle Resources
W.H. Hutt’s Theory of Idle Resources was first published in 1939, surely one of the earliest responses to Keynes’s General Theory.
Hutt goes for the heart of Keynes’s prescription for recovery, which was to get idle resources moving, whether that is money, capital, or labor. If something isn’t being employed right now, it is being wasted.
Hutt responded at length that there is nothing uneconomic or necessarily inefficient about an idle resource. It is the decision of the owner to hold back when faced with a long-term plan, a judgment call concerning risk, a high reservation wage, or a demand for larger cash balances.
This is certainly true as regards labor. In a changing economy, people move from sector to sector, something choosing periods of unemployment over employment at low wages. This makes sense for them. For this reason, it makes no sense to craft policies designed to achieve "full employment" since this means overriding human choice.
In addition, there might be legal restrictions that are causing workers to withhold labor and capitalists to curb production.
Hutt's demolition of the heart of Keynes makes for fascinating reading. Both the Keynesian proposition and the response are still very much in play today.
Hunter Lewis writes the new introduction.
"Hutt’s mind was made for logic," Lewis writes. It could see a logical problem from every side, draw every distinction and nuance, then penetrate right to the bottom of it. No fallacy was safe from him and, without being the least combative, he never flinched from telling the unvarnished truth."
The economic environment is plagued with enormous unemployment - the ultimate idle resource. What is the problem? Is it a macroeconomic problem of aggregate demand? Or is it is a simple labor pricing problem alongside legal restrictions? Hutt takes the latter position, and utterly crushes the Keynesian view.
The conclusion is unavoidable; Keynes was refuted in 1939! The re-discovery of this fact is bracing indeed.
Jonathan Cape, London, 1939