The Theory of Idle Resources

(1)   Similar causes exist for idleness in labor, equipment and all other resources

THE OBJECT of this essay is to remove certain common confusions concerning the significance of idle productive resources. We shall endeavor to do so by the introduction of a new set of concepts and definitions. The problems at issue are generally referred to as those of “surplus capacity” in the case of equipment and “unemployment” in the case of labor. Similar causes of the different phenomena of idleness are, we shall argue, active in both cases.1 Indeed, so true and important does this contention seem to be, that practically all recent attempts to analyze realistically the nature and causes of unemployment of labor have, we believe, gone seriously astray through failure to recognize it; or at any rate they appear to have been led into error through the necessary crudeness of attempts to deal with attributes common to all types of productive resources by considering their manifestation in one type only.2 In the case of purely natural resources, no “problems” of idleness are usually regarded as arising, although the more careful economists have recognized that “produced” and “non-produced” resources are governed by the same laws of utilization. We shall, then, deal with the various conceptions of idleness of resources in general.

(2)   Idleness has one appearance but exists in several senses

We can define idleness in several ways. That is, we can use the term in various senses. Different causes produce idleness of different types and significance. Our main thesis is that confusion arises from a failure to recognize the consequences of this obvious truth. When there is a plurality of conditions each of which in its pure state has a similar appearance, and each of which has its own cause, what appears to be a simple quality may in fact be a mixture of quite separate attributes. Unemployment or idleness may exist in several different senses whilst all the states, in their “pure” form, may look alike.3 How serious the confusion can be will be realized when it is remembered that what constitutes idleness from one point of view may be utilization from another. Mr. Keynes has attempted (and his interpreters have followed in his footsteps) to simplify and give unity to the conception of unemployment of labor by using a definition of “disutility” which lumps together many quite different things.4 He defines “disutility” as covering “every kind of reason which might lead a man, or a body of men, to withhold their labor rather than accept a wage which had to them a utility below a certain minimum.”5 Now this definition draws a veil over many of the issues which we have to face. We shall show that the significance of withheld labor can be classed into at least six vitally distinct categories, the nature of the unemployment being radically different in each case.

(3)   The necessity for definition

The analysis of idleness calls therefore for the isolation and definition of the various states which that broad term covers. But new definitions are irritating things, and the mere process of multiplying terms may appear to be both pretentious and barren. If we determine to have a new definition, said Malthus, “in every case where the old one is not quite complete, the chances are that we shall subject the science to all the serious disadvantages of a frequent change of terms without finally accomplishing our object.”6 Nevertheless, we feel confident that the terms here proposed do qualify under Malthus’s common-sense exception, namely, that “a change would be beneficial and decidedly contribute to the advancement of the science.”7 And we have tried to adhere to “the fundamental principle” which Professor Cassel has laid down. “The introduction of definitions,” he says, “should be based on a preliminary scientific analysis of economic reality. When this analysis has shown that a certain economic concept is of essential importance and can be distinguished with sufficient exactness, the time has come for giving a name to this concept, that is to say, for introducing a new definition”8

(4)   Popular conceptions of unemployment of labor recognized by custom and law do not help us to define “idleness”

But to analyze “economic reality” does not mean that we should try to make our conceptions harmonize with those based on popular usage, when that usage is confused. Even if popular but confused conceptions have been given recognition by custom or law we can seldom usefully adopt them. Thus, Professor Pigou’s attempt to handle unemployment by defining “desire to be employed” as “desire to be employed at current rates of wages,”9 and by regarding unemployment as the absence of employment at that rate, is an attempt which, in spite of its intended realism, dodges instead of encounters the difficulties of the subject. It is true that his definition corresponds roughly to an official British view of “suitable employment,” the absence of which has been held to constitute unemployment in the legal sense. But if it is made the basis of analysis, all the really fundamental aspects of idleness are passed over. It will be seen, for instance, that under the definitions which we are about to put forward, if capitalist interlopers (e.g., “the bad employers”) are offering an unemployed worker £3 10s. od. a week for a job when the trade-union rate (the “current rate”) is £4, and he refuses to accept it out of loyalty to the union’s wage policy, it is, in the first place, clearly a case of “withheld capacity,” and also, in the second place, a case of “participating idleness” or one of “preferred idleness.” To ignore these aspects is, we believe, to overlook all the crucial issues.

(5)   The categories isolated here are based on logical rather than empirical criteria

We shall here distinguish between the following types of idleness: (a) idleness of valueless resources; (b) pseudo-idleness; (c) preferred idleness; (d) participating idleness; (e) enforced idleness; (f) withheld capacity; (g) strike idleness; (h) aggressive idleness. A state of utilization which has been described as “disguised unemployment” in the case of labor, we shall recognize as (i) “diverted resources.” We believe that every kind of unemployment of resources which has been discussed in the wide literature dealing with unemployment of labor, and in the relatively few contributions which treat of the idleness of other resources, can be included under one or more of these headings. Other terms for the same conditions have been employed, but they have often covered, in a quite unjustifiable way, absolutely different things. Thus, books on the unemployment of labor use the adjectives: “seasonal,” “cyclical,” “slump,” “casual,” “frictional,” “technological” and so forth. But these descriptions are based on empirical rather than logical criteria. They are not the “precise conceptions” demanded by Sidgwick’s standards for definitions and terms.10 They will all be found, on analysis, to involve factors which must be expressed through the causes set forth above. It will be shown that, although empirical definitions undoubtedly have their appropriateness in particular studies, until they are regarded from the angle demanded by our logical scheme, it is difficult for their true significance to be plain. For in each case one of the factors we have indicated will be seen to be the proximate cause. We mean by this that the removal of the one factor would lead to the utilization of the resource,or else to the continued idleness of the resource in some other sense only and from some other cause. In certain cases, more than one of these causes (with its corresponding type of idleness) may be present whilst the removal of any one would mean the cessation of the others. In other cases the causes (and the appropriate types of idleness) are independent.11

(6)   Rational policies must recognize our categories

It must be admitted that knowledge of the category into which any type of idleness falls may not always be the most important knowledge, but it is essential knowledge in every case. Thus, for some discussions, to say that certain resources are idle because they fall into the “valueless resources” category will not be helpful if we stop there. States men and reformers will want to know why they are valueless. And discussion of the implications of this condition will therefore bring under examination the determinants of the margin between valuable and valueless resources. Nevertheless, we conceive it to be one of the supreme tasks in the present state of popular (and even academic) controversy to emphasize the consequences of the greater part of deplorable idleness not falling into this particular category12 We shall demonstrate (a) that idleness can be analyzed into logically separate classes, the relation of each of which to the wider conception of “waste” has not been sufficiently discussed; and (b) that whatever forces lying deeper in the social organism may be held to be responsible for idleness, in the absence of one or more of the causes that we have defined, the condition would not exist.

(7)   There can be no measure of utilization or idleness

We shall conceive of “unemployment” or “idleness,” in all the different senses that we propose to distinguish, as a condition or quality. It cannot be thought of quantitatively. In so far as different types of resources can be defined in terms of quantity, it is possible to talk of the amount of resources which are in the condition of being utilized or employed. We can also realistically refer to the proportion of total time, or the proportion of the conventional working days in a year (or some other time standard) during which the services of particular resources (e.g., looms or weavers) are being utilized. But we cannot talk of the amount of employment in any other way. We cannot add together, say, the number of hours of utilization of a locomotive, of the track, and of the signals. Similarly, we cannot aggregate the employment of the engine driver, the fireman, the guard, and the signalman.

(8)   Mr. Keynes’s attempt to measure “employment” has absurd implications

But Mr. Keynes does try to conceive of employment of labor as a measurable condition. He discusses the sum of all the employment involved in all the different occupations of labor, expressed in terms of “men.” The only major difficulty that he appears to recognize is that which arises through differences of remuneration; and he thinks that it is sufficient for his purpose to get over the difficulty by “taking an hour’s employment of ordinary labor as our unit and weighting an hour’s employment of special labor in proportion to its remuneration.”13 In other words, he regards “individuals as contributing to the supply of labor in proportion to their remuneration.”14 Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased! Apparently this is so in spite of “the level of employment,” N, being expressed in terms of “men.” Curiously enough, Mr. Keynes recognizes that “the community’s output of goods and services is a nonhomogeneous complex which cannot be measured ...”;15 he sees that there is no solution of the “problem of comparing one real output with another”;16 and he is clearly aware of the connected difficulty arising out of the vagueness of the “price level concept.”17 But by substituting the notion of “employment” he has not escaped the impossibility of defining aggregate output. For, if different sorts of “employment” are regarded as having values, are we not really thinking of them as the output of services? What else can be valued? And one can no more measure “employment” in the sense of the output of productive services in general than one can the output of consumers’ goods and consumers’ services in general to which they lead. Yet the whole of Mr. Keynes’s general theory, developed “with a princely profusion of reasoning,”18 is erected on an “Aggregate Supply Function” which assumes that “employment” so conceived can be measured. The function (expressed as Z =φN, N being a level of employment induced by an expectation of a return, Z) hides what may possibly be a serious fallacy in the apparent definiteness of an equation. In avoiding the use of the meaningless term “output,” he has not avoided the concept itself. For N is nothing but output at an early stage of production. His weighting leaves no meaning in the unit “men” at all. We cannot, as he assumes, “aggregate the N’s in a way which we cannot aggregate the O’s”19 (O being an output). ΣN is no more a numerical quantity than ΣO. We shall here assume that all such attempts to devise a logically tenable quantitative concept of utilization or employment are misconceived. This assumption will in no way hinder the sort of analysis of the problem which we conceive to be realistic and useful.

(9)   Orthodox theory does not, as has been alleged, assume “full employment”

Mr. Keynes also alleges that classical and orthodox theory “is best regarded as a theory of distribution in conditions of full employment”20 (apparently because some writers have assumed “full employment” as a methodological device in abstract analysis). His assertion has subsequently been emphasized and repeated by several writers who have been impressed by this startling revelation. And the “man-in-the-street,” who is also anxious to believe that orthodox economists have been astonishingly stupid, has been pleased to find his predilections confirmed. We believe, however, that the types of idleness analyzed in the pages which follow are all of a kind which are implicit—if not expressed in sufficiently clear terms—in orthodox teaching. This essay is felt to be original only in the sense that, through more careful definition, it seeks to clarify what is already known and understood. It is pure orthodoxy, as we understand that term. But it nowhere assumes the absence of the conditions it discusses. Mr. Keynes says that since Malthus there has been a “lack of correspondence between the results of (the professional economists’) theory and the facts of observation.”21 Under our own interpretation of their writings that has not been so. And the present discussion obviously recognizes the continuous and necessary existence in society of idle resources in many different senses. It may be that the classical economists overlooked many important aspects of demand in a dynamic economy. But they were realists, and their discussions imply an awareness of aspects of utilization to which their modern critics appear to be blind. Certainly the important issues here dealt with have not been faced in recent controversies.

(10) “Full employment” has no meaning as an absolute condition

As a matter of fact, it will be an implication of our subsequent analysis that the notion of “full employment” as an absolute condition can have no meaning. Given some basic ideal, e.g., consumers’ sovereignty, any particular resource may be said to be “under-employed” or “idling” when that ideal would be better served by the transfer of resources from other uses to cooperate with it. It would be “fully employed” in that sense if there would be no advantage in attracting other resources to cooperate with it. But it might then be working very slowly (as compared, say, to its former working). Even if continuously employed, the resources would appear to be “idling”; and yet they would be fully employed in the only rational connotation we can suggest for “full,” i.e., as a synonym for “optimum.”22 We can conceive of “fuller” employment but not “full” in the sense of “complete.” The term “full employment” might also be used in an historical or a comparative sense, to mean the degree of utilization originally expected, or achieved at a former period, or realized in similar resources elsewhere. But it is clear that none of those writers who use the term have such comparisons in mind.

(11) “Idling,” meaning “under-employment,” is a parallel conception to “idleness”

The conception of “idling” is allied to that of “idleness.” The former is partial, the latter is absolute. In each of the senses of “idleness” distinguished in paragraph 5, there is a parallel conception of “idling? It means “under-employment.” Thus, many productive instruments may be used intensively or extensively. A machine may work at various speeds, for instance. It may be used, say, in the production of one hundred articles a day either by being operated for the whole of the conventional day of eight hours, or by being operated at twice that speed, producing the same output in four hours and standing idle for the other four hours. From some points of view, the position is identical in these two cases. But in this exposition we shall concentrate on the condition of “idleness.” All that can be said about its significance applies with equal relevance to “idling.” And “idleness” is a distinguishable, indisputable and absolute attribute common to many different states.

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23  But to recognize this truth is to lay ourselves open to the ever-recurring jibe about a philosophy which tolerates a market in which human life is bought and sold!

24  This particular source of possible confusion is most marked in the work of Mr. Keynes and his interpreters. Mr. Keynes’s analysis is made to depend upon an aggregate demand function in which demand means “the proceeds which entrepreneurs expect to receive from the employment of N men” (J.M. Keynes, General Theory of Employment, Interest and Money [New York: Harcourt Brace, 1935], p. 25). For completeness, he needs further functions in which demand means the proceeds which entrepreneurs expect to get from the employment of so many units of equipment, or other resources.

25  E.g., in the case of a machine, its wheels may not be turning; but the significance of that fact may be any one of many things.

26  In Mr. R. R Harrod’s treatment the term “disutility” is at first used in an unobjectionable way, that is, when it is used to explain output (other than leisure) under Crusoe conditions. But when he jumps from this to the notion of “inducement to work” which embodies the parallel force in society (The Trade Cycle , p. 10), all our objections hold.

27  Keynes, General Theory, p. 6.

28  T. R. Malthus, Definitions in Political Economy (London: John Murray, 1836), p. 6.

29  Ibid., p. 5.

30  G. Cassel, Economics as a Quantitative Science, p. 7. See Appendix to this chapter on “Definitions.”

31  A. C. Pigou, Theory of Unemployment (London: Macmillan, 1933), p. 4.

32  See Appendix to this chapter.

33  Professor Pigou’s discussion of the causation of unemployment (Theory of Unemployment, part 1, chap, vi) seems to overlook what we here regard as fundamental because he apparently conceives of a plurality of causes of a homogeneous condition which can be called “unemployment.”

34  The only reference to this basic truth that we have noticed in economic literature is in a recent article by R. F. Kahn. He says, concerning the unrealistic assumption of “full employment” in Professor Pigou’s Economics of Welfare: “That the existence of uncultivated land does not invalidate the methods and conclusions of the Economics of Welfare is sufficiently obvious. That the existence of unemployed labor upsets all these arguments is equally obvious. But in what way labor differs from land is not completely apparent.” But Dr. Kahn says that this “is a matter for separate discussion” (Economic Journal [March 1935]: 1).

35  Keynes, General Theory, p. 41.

36  Ibid., p. 42.

37  Ibid., p. 38.

38  Ibid., p. 39. Mr. Keynes’s disciples have not all followed him here. Thus, Mr. R. F. Harrod talks of “the level of output as a whole,” and even of “the equilibrium level of output of the community as a whole” (The Trade Cycle, pp. 13 and 30).

39  Mr. Keynes’s qualifies his position in an obscure way when he says that these difficulties “are ‘purely theoretical’ in the sense that they never perplex, or indeed enter in any way into, business decisions and have no relevance to the causal sequence of economic events, which are clear-cut and determinate in spite of the quantitative indeterminacy of these concepts” (General Theory, p. 39).

40  Harrod, The Trade Cycle, p. 120.

41  Keynes, General Theory, p. 45.

42  Ibid., p. 16.

43  Ibid., p. 33.

44  The conception of “full employment” in general is that of a “wasteless economy.” It excludes the possibility of “diverted resources” as well as all forms of non-productive idleness. For the meaning of “diverted resources” see chap. IX, paras. 3 and 4.

• 1  William H. Hutt, The Theory of Idle Resources, p. xiv.
• 2  Ibid., p. XV.
• 3  John Maynard Keynes, The General Theory of Employment, Interest, and Money (Amherst, N.Y.: Prometheus Books, 1997), p. 220.
• 4  Ibid., p. 322.
• 5 Henry Hazlitt, The Inflation Crisis (New Rochelle, N.Y.: Arlington House, 1978), p. 79.
• 6 Keynes, The General Theory, p. 327.
• 7 Hutt, Theory of Idle Resources, p. 92.
• 8 Keynes, The General Theory, p. 25.
• 9 Hutt, Theory of Idle Resources, p. 6.
• 10 Keynes, The General Theory, p. 42.
• 11 Hutt, Theory of Idle Resources, p. 6.
• 12 Ibid., p. 64.
• 13 Ibid., p. XVI.
• 14 Ibid., p. 44.
• 15 Ibid., p. 74.
• 16 Ibid., p. 106.
• 17 Ibid., pp. 61–62.
• 18 Harrod, The Trade Cycle, p. 120.
• 19 Keynes, General Theory, p. 45.
• 20 Ibid., p. 16.
• 21 Ibid., p. 33.
• 22 The conception of “full employment” in general is that of a “wasteless economy.” It excludes the possibility of “diverted resources” as well as all forms of non-productive idleness. For the meaning of “diverted resources” see chap. IX, paras. 3 and 4.
• 23In the Preface to The Theory of Idle Resources, completed a year after Keynes’s General Theory appeared, and published two years later in 1939, Hutt says forthrightly: “I have been wisely advised not to touch on any of the major controversies which his contribution [Keynes’s General Theory] has aroused.” But, then, with laser-like logic, he proceeds to demolish some of the most important intellectual props for Keynes’s Theory. Moreover, he does so, as he says, “as far as possible, in a non-technical way” so that “the reader who is unacquainted with the economic textbooks may follow my reasoning from point to point and himself decide on it’s validity.”
• 24In the Preface to The Theory of Idle Resources, completed a year after Keynes’s General Theory appeared, and published two years later in 1939, Hutt says forthrightly: “I have been wisely advised not to touch on any of the major controversies which his contribution [Keynes’s General Theory] has aroused.” But, then, with laser-like logic, he proceeds to demolish some of the most important intellectual props for Keynes’s Theory. Moreover, he does so, as he says, “as far as possible, in a non-technical way” so that “the reader who is unacquainted with the economic textbooks may follow my reasoning from point to point and himself decide on it’s validity.”
• 25Keynes’s argument may be simplified as follows. Full employment should be our goal. The market system will not get us there; it requires government help as well as guidance. This means, in practice, that government will continually print money, in order to reduce interest rates, ultimately to zero, and also borrow and spend as needed. Booms are good, even economic bubbles are acceptable. Recession and bust must be avoided at all cost. As Keynes wrote: “The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”
• 26Keynes’s argument may be simplified as follows. Full employment should be our goal. The market system will not get us there; it requires government help as well as guidance. This means, in practice, that government will continually print money, in order to reduce interest rates, ultimately to zero, and also borrow and spend as needed. Booms are good, even economic bubbles are acceptable. Recession and bust must be avoided at all cost. As Keynes wrote: “The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”
• 27The underlying problem here is that, contra Keynes, we do not want employment for its own sake. It is a means, not an end. What we want is a productive economy, and government stimulus gives us, as Henry Hazlitt has said, “unbalanced production, misdirected production, production of the wrong things..., [all of which lead inexorably] to unemployment and mal-employment.”
• 28This is especially true in investment. Keynes said that any investment is better than no investment. Indeed, in the absence of his indefinable state of full employment, he thought that any spending, whether consumption or investment, was better than no spending. This is why government must keep printing money: the resulting reduction in interest rates should encourage more and more investment and spending.
• 29Hutt was an economist’s economist. Unlike Keynes, he did not aspire to the world of politics or big business. He counted himself among “those ... who are not selling policies in return for power,” and took pleasure in correcting logical errors, large or small, wherever he found them. He is best known for re-establishing Say’s Law after Keynes’s distortion and attempted demolition of it, but much of his best work is on unemployment, and much of that is in The Theory of Idle Resources.
• 30Despite being an economist’s economist, Hutt appreciates how the world actually works. For example, Keynes spoke of “the proceeds which entrepreneurs expect to receive from the employment of N [fill in the number] men.” Entrepreneurs of course do not think this way. They think of products, prices, and costs, of which employees are one, all summed up in the computation of profit. The word profit is one that Keynes avoids wherever possible in his General Theory, though in earlier writings he acknowledged its central role in driving the economy. Hutt rightly looks askance at this.
• 31Hutt further notes that “We cannot add together, say, the number of hours of utilization of a locomotive, of the track, and of the signals. Similarly, we cannot aggregate the employment of the engine driver, the fireman, the guard, and the signalman.” Keynes tries to circumvent the difficulty of aggregating labor in a quantifiable series by regarding “individuals as contributing to the supply of labor in proportion to their remuneration.” Hutt retorts that: “Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased!”
• 32Hutt further notes that “We cannot add together, say, the number of hours of utilization of a locomotive, of the track, and of the signals. Similarly, we cannot aggregate the employment of the engine driver, the fireman, the guard, and the signalman.” Keynes tries to circumvent the difficulty of aggregating labor in a quantifiable series by regarding “individuals as contributing to the supply of labor in proportion to their remuneration.” Hutt retorts that: “Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased!”
• 33Hutt further notes that “We cannot add together, say, the number of hours of utilization of a locomotive, of the track, and of the signals. Similarly, we cannot aggregate the employment of the engine driver, the fireman, the guard, and the signalman.” Keynes tries to circumvent the difficulty of aggregating labor in a quantifiable series by regarding “individuals as contributing to the supply of labor in proportion to their remuneration.” Hutt retorts that: “Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased!”
• 34As the above quote suggests, Hutt was not a fan of labor unions. He was, so far as this writer knows, the very first economist to explain why higher wages earned by unions actually come out of the pockets of other workers, not out of employers’ profits, a point that is now well established but still little understood. This is true, in simple terms, because high wages reduce employment in unionized sectors, thereby increase labor supply in other sectors, which increased supply reduces non-unionized labor rates. In addition, workers are also consumers and may have to pay more for unionized sector goods. As a general rule, Hutt noted, “the poorest must ... suffer most as consumers.”
• 35Hutt explains: “The clue to the understanding of the chief economic and sociological problems of today can be found, in my opinion, in a recognition of the struggle which is in progress against the disrupting equalitarian effects of competitive capitalism. Competition and capitalism are hated today because of their tendency to destroy poverty and privilege more rapidly than custom and the expectations established by protections can allow. We accordingly find private interests combining to curb this process and calling upon the State to step in to do the same; and unless the resistance is expressed through monetary policy, the curbing takes the form of restrictions on production. Hence there arises a clash between what I have called the ‘productive scheme’ and the ‘distributive scheme’; and wasteful idleness, both in labor and in physical things, appears to be due to the consequent restraint of productive power—a restraint imposed immediately [by government] in defense of private interests, but [sugar coated with legal minimum wages and unemployment insurance that ultimately just lead to lower wages and more unemployment].”
• 36Are some of the poor willing to accept government welfare rather than try to improve their prospects? If so, says Hutt, we should not necessarily regard them as either lazy or irrational. They may just realize that the crony capitalist system which presently prevails is completely stacked against them.
• 37If we really want to alleviate unemployment and poverty, Hutt continues, we must do something about this crony capitalism, with its privileged government-business and government-labor partnership monopolies, and it’s supporting out-of-control government and fiscal monetary policies. All such monopoly systems create “contrived scarcity,” “enforced waste,” and other completely irrational outcomes. Unemployment and poverty are simply “indications of its presence,” of the “triumph [of] ... private interest ... over social interest.”
• 38If we really want to alleviate unemployment and poverty, Hutt continues, we must do something about this crony capitalism, with its privileged government-business and government-labor partnership monopolies, and it’s supporting out-of-control government and fiscal monetary policies. All such monopoly systems create “contrived scarcity,” “enforced waste,” and other completely irrational outcomes. Unemployment and poverty are simply “indications of its presence,” of the “triumph [of] ... private interest ... over social interest.”
• 39Hutt also correctly predicted that this problem would get worse before it got better. In an especially acute passage, he explained why the medical system would increasingly be drawn into the monopolistic crony capitalist framework.
• 40But Mr. Keynes does try to conceive of employment of labor as a measurable condition. He discusses the sum of all the employment involved in all the different occupations of labor, expressed in terms of “men.” The only major difficulty that he appears to recognize is that which arises through differences of remuneration; and he thinks that it is sufficient for his purpose to get over the difficulty by “taking an hour’s employment of ordinary labor as our unit and weighting an hour’s employment of special labor in proportion to its remuneration.” In other words, he regards “individuals as contributing to the supply of labor in proportion to their remuneration.” Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased! Apparently this is so in spite of “the level of employment,” N, being expressed in terms of “men.” Curiously enough, Mr. Keynes recognizes that “the community’s output of goods and services is a nonhomogeneous complex which cannot be measured ...”; he sees that there is no solution of the “problem of comparing one real output with another”; and he is clearly aware of the connected difficulty arising out of the vagueness of the “price level concept.” But by substituting the notion of “employment” he has not escaped the impossibility of defining aggregate output. For, if different sorts of “employment” are regarded as having values, are we not really thinking of them as the output of services? What else can be valued? And one can no more measure “employment” in the sense of the output of productive services in general than one can the output of consumers’ goods and consumers’ services in general to which they lead. Yet the whole of Mr. Keynes’s general theory, developed “with a princely profusion of reasoning,” is erected on an “Aggregate Supply Function” which assumes that “employment” so conceived can be measured. The function (expressed as Z =φN, N being a level of employment induced by an expectation of a return, Z) hides what may possibly be a serious fallacy in the apparent definiteness of an equation. In avoiding the use of the meaningless term “output,” he has not avoided the concept itself. For N is nothing but output at an early stage of production. His weighting leaves no meaning in the unit “men” at all. We cannot, as he assumes, “aggregate the N’s in a way which we cannot aggregate the O’s” (O being an output). ΣN is no more a numerical quantity than ΣO. We shall here assume that all such attempts to devise a logically tenable quantitative concept of utilization or employment are misconceived. This assumption will in no way hinder the sort of analysis of the problem which we conceive to be realistic and useful.
• 41But Mr. Keynes does try to conceive of employment of labor as a measurable condition. He discusses the sum of all the employment involved in all the different occupations of labor, expressed in terms of “men.” The only major difficulty that he appears to recognize is that which arises through differences of remuneration; and he thinks that it is sufficient for his purpose to get over the difficulty by “taking an hour’s employment of ordinary labor as our unit and weighting an hour’s employment of special labor in proportion to its remuneration.” In other words, he regards “individuals as contributing to the supply of labor in proportion to their remuneration.” Such a definition of employment must lead to the most absurd results. Thus, if the workers in a trade can organize and drive 10 percent of their number into inferior occupations, reduce by 10 percent the amount of labor supplied, and in so doing increase the aggregate earnings of that trade by, say, 20 percent, then the proportion of all employment enjoyed by them and the proportion of the total labor supplied by them must be regarded as increased! Apparently this is so in spite of “the level of employment,” N, being expressed in terms of “men.” Curiously enough, Mr. Keynes recognizes that “the community’s output of goods and services is a nonhomogeneous complex which cannot be measured ...”; he sees that there is no solution of the “problem of comparing one real output with another”; and he is clearly aware of the connected difficulty arising out of the vagueness of the “price level concept.” But by substituting the notion of “employment” he has not escaped the impossibility of defining aggregate output. For, if different sorts of “employment” are regarded as having values, are we not really thinking of them as the output of services? What else can be valued? And one can no more measure “employment” in the sense of the output of productive services in general than one can the output of consumers’ goods and consumers’ services in general to which they lead. Yet the whole of Mr. Keynes’s general theory, developed “with a princely profusion of reasoning,” is erected on an “Aggregate Supply Function” which assumes that “employment” so conceived can be measured. The function (expressed as Z =φN, N being a level of employment induced by an expectation of a return, Z) hides what may possibly be a serious fallacy in the apparent definiteness of an equation. In avoiding the use of the meaningless term “output,” he has not avoided the concept itself. For N is nothing but output at an early stage of production. His weighting leaves no meaning in the unit “men” at all. We cannot, as he assumes, “aggregate the N’s in a way which we cannot aggregate the O’s” (O being an output). ΣN is no more a numerical quantity than ΣO. We shall here assume that all such attempts to devise a logically tenable quantitative concept of utilization or employment are misconceived. This assumption will in no way hinder the sort of analysis of the problem which we conceive to be realistic and useful.
• 42Mr. Keynes also alleges that classical and orthodox theory “is best regarded as a theory of distribution in conditions of full employment” (apparently because some writers have assumed “full employment” as a methodological device in abstract analysis). His assertion has subsequently been emphasized and repeated by several writers who have been impressed by this startling revelation. And the “man-in-the-street,” who is also anxious to believe that orthodox economists have been astonishingly stupid, has been pleased to find his predilections confirmed. We believe, however, that the types of idleness analyzed in the pages which follow are all of a kind which are implicit—if not expressed in sufficiently clear terms—in orthodox teaching. This essay is felt to be original only in the sense that, through more careful definition, it seeks to clarify what is already known and understood. It is pure orthodoxy, as we understand that term. But it nowhere assumes the absence of the conditions it discusses. Mr. Keynes says that since Malthus there has been a “lack of correspondence between the results of (the professional economists’) theory and the facts of observation.” Under our own interpretation of their writings that has not been so. And the present discussion obviously recognizes the continuous and necessary existence in society of idle resources in many different senses. It may be that the classical economists overlooked many important aspects of demand in a dynamic economy. But they were realists, and their discussions imply an awareness of aspects of utilization to which their modern critics appear to be blind. Certainly the important issues here dealt with have not been faced in recent controversies.
• 43Mr. Keynes also alleges that classical and orthodox theory “is best regarded as a theory of distribution in conditions of full employment” (apparently because some writers have assumed “full employment” as a methodological device in abstract analysis). His assertion has subsequently been emphasized and repeated by several writers who have been impressed by this startling revelation. And the “man-in-the-street,” who is also anxious to believe that orthodox economists have been astonishingly stupid, has been pleased to find his predilections confirmed. We believe, however, that the types of idleness analyzed in the pages which follow are all of a kind which are implicit—if not expressed in sufficiently clear terms—in orthodox teaching. This essay is felt to be original only in the sense that, through more careful definition, it seeks to clarify what is already known and understood. It is pure orthodoxy, as we understand that term. But it nowhere assumes the absence of the conditions it discusses. Mr. Keynes says that since Malthus there has been a “lack of correspondence between the results of (the professional economists’) theory and the facts of observation.” Under our own interpretation of their writings that has not been so. And the present discussion obviously recognizes the continuous and necessary existence in society of idle resources in many different senses. It may be that the classical economists overlooked many important aspects of demand in a dynamic economy. But they were realists, and their discussions imply an awareness of aspects of utilization to which their modern critics appear to be blind. Certainly the important issues here dealt with have not been faced in recent controversies.
• 44As a matter of fact, it will be an implication of our subsequent analysis that the notion of “full employment” as an absolute condition can have no meaning. Given some basic ideal, e.g., consumers’ sovereignty, any particular resource may be said to be “under-employed” or “idling” when that ideal would be better served by the transfer of resources from other uses to cooperate with it. It would be “fully employed” in that sense if there would be no advantage in attracting other resources to cooperate with it. But it might then be working very slowly (as compared, say, to its former working). Even if continuously employed, the resources would appear to be “idling”; and yet they would be fully employed in the only rational connotation we can suggest for “full,” i.e., as a synonym for “optimum.” We can conceive of “fuller” employment but not “full” in the sense of “complete.” The term “full employment” might also be used in an historical or a comparative sense, to mean the degree of utilization originally expected, or achieved at a former period, or realized in similar resources elsewhere. But it is clear that none of those writers who use the term have such comparisons in mind.