William H. Hutt

William Harold Hutt (1899-1988)

Written by John B. Egger

The Austrian School’s defining precepts, concisely specified by Carl Menger in 1871, were consistent with important doctrines, like rivalrous competition, which have characterized economics from its earliest days. Though more true of Continental than of British writers, who were hampered by an objective concept of value, Menger’s insights could be folded into an evolutionary tradition that continued to develop — with a few backsliders like Marshall and Pareto — until the 1930s. This decade saw the Austro-Continental-Classical blend torn apart. Microeconomics came to be dominated by mathematics and perfect competition, and monetary theory was overthrown by Keynes’s macroeconomics. The economists whose method and philosophy best qualified them to resist these detours and to continue the pre-1930s development of economic theory, were those closest to the Austrian tradition. In this sense it was the mainstream’s descent into mathematical microeconomics and Keynesian macroeconomics that made the Austrian School distinct.

This is the world in which William Harold Hutt (1899-1988) found himself at the early stages of his academic career, but understanding his relationship to the Austrian School requires a more detailed look at his formative years. Hutt was born in London to working-class parents on August 3, 1899, and earned a Bachelor of Commerce degree from the London School of Economics in 1924. He was favorably impressed by some of his teachers: Lillian Knowles on economic history, H. C. Gutteridge on law, T. E. Gregory and Herbert Foxwell on money and finance, and Edwin Cannan.1 Hutt described Cannan, who taught him elementary economics and then money after Foxwell’s retirement, as “the leading influence to which I was subjected during my first three years at L. S. E. ... a remarkably wise and independent thinker.”2

From 1924 until 1928 Hutt worked for publisher Sir Ernest Benn. Benn was so impressed with Hutt’s first published article — “The Factory System of the Early Nineteenth Century,” written in 1925 — that he promoted Hutt to manage The Individualist Bookshop, Ltd. But Hutt continued to take courses informally at LSE, and when Arnold Plant, his friend from undergraduate days advertised for a Senior Lecturer at the University of Cape Town, Hutt applied. With strong support from Benn and Professor Cannan, he obtained the post and arrived in South Africa in March 1928. (John R. Hicks, headed for a temporary post at Witwatersrand, was aboard the same ship.) Two years later Plant received a professorship at LSE, and Hutt was appointed Chair of Commerce, and later became Dean of the Faculty of Commerce.

This background suggests much about Hutt’s approach to economics. Austrian by neither birth nor residence, he could know nothing of Mises’ privatseminars in Vienna. He apparently did not read German, and Mises’s The Theory of Money and Credit was not translated until 1934. Hutt and Hayek were contemporaries, in fact precisely the same age, but in different countries, cultures, and languages, and while Hayek’s earliest works dated from about the time of Hutt’s “Factory System” they were not widely known until decades later. One might hope that Hutt had learned something at LSE of Menger and Böhm-Bawerk, but a strong Jevons and Marshall influence (especially from Foxwell) was more likely. As one might conjecture, Böhm-Bawerk was not well known at LSE, a fact Hayek discovered in 1930.

Hutt, in short, had no significant exposure to works that we now identify with the Austrian School until the early 1930s, when Money and Credit was translated and Hayek began his flurry of activity at LSE. By then, though, Hutt was in Cape Town with heavy responsibilities as the Chair of the Faculty of Commerce. He was always a creative and independent scholar, as even his first article suggests, but his early- and mid-1920s training at LSE helps to explain why he later identified himself as a classical economist.

Although Hutt and other critics of the Keynesian Revolution--including Arthur Marget and Henry Hazlitt — considered their work to be in the classical tradition, as the Revolution’s stunning popularity through the 1940s and 1950s pushed economists’ memory of earlier monetary theory further into the background, Hutt and Hazlitt (Marget had left academic economics after the War and died in 1962) found themselves increasingly sharing perspectives with the School that had most firmly and consistently upheld pre-Keynesian monetary theory: the Austrians. Neither seems to have been attracted much to the aggregative, positivist method of the Chicago School’s monetarism, a reaction to Keynesianism that to some extent shared its method. Hutt considered the Austrians to be the true heirs of the classical tradition with which, understandably, he preferred to be identified.

“The Factory System of the Early Nineteenth Century” was published in Economica (1926) and became more widely known when Hayek included it in Capitalism and the Historians (1954). Hutt’s career change and the duties of shaping a satisfactory business curriculum in Cape Town explain a five year hiatus, but his return to publishing on academic economics was a blockbuster: The Theory of Collective Bargaining.3 Perhaps partly because his father had been a journeyman printer of modest income, the use of economic theory to understand the wages and employment of labor was one of Hutt’s lifelong primary concerns. This short book — re-issued in 1975 and 1980 with addenda but its 1930 text unchanged — disputed prevailing beliefs that labor was at a “disadvantage” and that the labor market was inherently a bilateral monopoly that left the wage rate “indeterminate.” Peppered with quotes from British and American economists from Adam Smith onward, Hutt sought to correct others’ views of the classical tradition, to contribute to it, and to offer practical advice on governments’ labor policies. Though he circulated the book widely, its message was out of step with politically powerful doctrines and it was largely ignored.

When he returned to this theme with The Strike-Threat System4 in 1973, his more thorough analysis of the impoverishing effect of labor unions and pro-union legislation could draw on four decades of Austrian scholarship unavailable in 1930. It enabled him to reinforce his argument that unions gain at the expense of other labor, not capital, and that the transfer reduces total output. Hutt identified the principal improvement between 1930 and the 1970s as “the emphasis I now place on the composition of the assets stock and the composition of the stock of complementary assimilated knowledge and skills” (1980, xviii), an insight attributable to the Austrian School’s focus on the complementarities among capital goods and labor skills within particular plans.

Hutt’s perception of the ability of powerful groups — including, but not limited to, labor unions--to use the political process for private gain despite general impoverishment, led him to the second of his three principal interests in economics: public choice. His first South African article, also his second article on economics, was “Economic Aspects of the Report of the Poor White Commission,” in 1933. (His best known work on the South African sociopolitical system, The Economics of the Colour Bar (1964), identified apartheid as a device by which white unions enlisted the force of government to prohibit non-white laborers from competing with them.) His next few years were productive, especially considering his deanship, with nine articles on competition and monopoly, predatory pricing, and economic legislation.5 But it was his second book that has drawn much praise.

Economists and the Public6 was published in the same year as Keynes’s General Theory, and many economists have wished that Hutt’s thoughtful work had received the greater attention. James Buchanan, a Nobel Laureate for his own work in public choice who brought Hutt to the University of Virginia after Hutt’s retirement in 1965, called it “one of Hutt’s best works,” and Arthur Seldon wrote that only Hutt’s concern about Keynesianism kept him from being recognized as a public choice pioneer. Hutt considered the book a contribution to the British classical tradition and included many references to it, in particular to John Stuart Mill, whose utilitarianism Hutt found appealing. The work’s principal theme was that economists served the public best by taking a long view, focusing on policies that promoted the wealth-creating competitive market and ignoring whether they were politically feasible at the moment. (He reiterated this in Politically Impossible...?7 ). He feared that concern with political feasibility would, inevitably, draw economists into the advocacy of politically attractive policies that served special interests to the detriment of society.8 Perhaps he sensed the need for such counsel during the Great Depression, but Keynes’s work, which appeared in time for Hutt to acknowledge by squeezing in a last-minute paragraph, promoted precisely the destructive but politically irresistible short-run view against which Hutt warned. One book shaped decades of policy and teaching; the other must be swept free of dust from library shelves. No one acquainted with Austrian economics would dispute that we would all be wealthier and smarter if their fates had been reversed.

Some readers will not embrace all of Hutt’s advice. His utilitarian philosophy, which Mises and Hazlitt show is not objectionable in itself, and his conviction that humanity was best served by competitive institutions with flexible wages and prices, led him to oppose not only government coercion but “economic coercion and private monopoly.” As early as his 1934 “aggressive selling”9 (predatory pricing) article and at least as late as 1977, Hutt argued for strong antitrust enforcement against private collusion, whether among laborers or producers, because it produced impoverishing and antisocial “contrived scarcities” hindering the market’s ability to address “natural scarcities” (these terms are the title of a 1935 article).10 He coined the term “consumers’ sovereignty”11 in 1936, a valuable response to the economically illiterate who identify businessmen with feudal nobility which is fundamentally misleading, as Rothbard responded in 1962, there is only “individual” sovereignty.

The year 1939 witnessed Hutt’s publication of The Theory of Idle Resources,12 a brilliant and creative work motivated by a perceived gap in existing analyses of unemployment, the Depression, and the popularity of Keynes’s General Theory. It was reissued in 1977 with Hutt’s extensive addenda. Rewarding reading over a half-century later, its principal point is that one cannot conclude that a resource is “idle” — in the sense of not performing its best economic function — simply by looking at it. One must examine the causal economic process to discern the economic function in which a seemingly idle resource is engaged, and sometimes “idleness” is its best use. Job search, for example, is formally considered unemployment (emphatically, however, not by Hutt) but is often a more productive activity for a worker with specific skills than an instantly attainable job flipping hamburgers; moreover, changes in demand expected to be temporary can make a machine’s or factory’s apparent idleness mere “pseudo-idleness,” a more productive “use” than costly conversion to other temporary uses.

In Idle Resources, Hutt continued his criticism of both government and private coercion, envisioning a free market with only “natural,” and no “contrived,” scarcities. Private coercion consisted of service-restricting practices of both labor unions and producer cartels, and it produced forms of idleness that policy can and should address — though only by preventing the activities that created them. Hutt repeatedly warned that the public works and inflation policies advocated by Keynes and his followers, whether a response to coercive idleness is best addressed by legislatively rooting out its causes or to a superficial failure to recognize productive “pseudo-idleness” like frictional unemployment, would divert resources away from the productive uses they would find most quickly in an unfettered market. He vigorously retained this theme, which he shared with Hayek and Mises, throughout his life.

By the mid-1950s, Hutt had published about three dozen articles on a wide variety of economic topics. His 1943 book Plan for Reconstruction13 has been lauded by James Buchanan, and his 1954 contribution to a festschrift to Mises, “The Yield from Money Held,”14 has been praised by distinguished monetary theorists like George Selgin. (It was Hutt’s first significant work in the third of his three economic interests, monetary theory.) By this time the influence of Mises and Hayek on Hutt’s thinking had become noticeable, though of course much of his earlier work was consistent with Austrian theory. In 1955 the Foundation for Economic Education invited him to a Pennsylvania seminar, his first trip to the United States. Hutt, journalist George Schwartz, and Ludwig von Mises were the three lecturers, and he credits the discussion with the impetus to write the book that is probably his best known: Keynesianism — Retrospect and Prospect.15 His personal recollection of Mises is interesting:

Mises had inspired me for many years before I first met him, through his impressive contributions in articles and books, but it was not until 1955 ... that I could first greet him face to face. He was physically smaller than I had expected, but I was immediately struck by his really remarkable personality — a magnetism and tenacity created by his deep emotional attachment to a free economy and the institutions on which it had to rely. His lectures, like his writings, were austere, although his verbal expositions were by no means devoid of an informal, natural sense of humor. The warmth of our relations was sustained until his death. But his lectures in 1955 were a powerful inspiration which influenced my own subsequent work. [Memoirs, p. 93]

Since Hutt had been involved in the formation of the Mont Pelerin Society (1947) and had attended the second and many other of its subsequent general meetings, it is surprising that he did not meet Mises until 1955.

Almost inevitably, Hutt’s attention returned to Keynes. Two other economists born in 1899, Hayek and Marget, had devoted much of their productive thirties to attempts to restore pre-Keynesian sanity to the economics profession, neither achieved the slightest short-run success and each moved on to other things. Hazlitt, a few years older, apparently felt the same pressures as Hutt and virtually contemporaneously, he published his The Failure of Keynesian Economics.16 Keynesianism and Failure are very different in style, but they shared (with the almost universally ignored Marget’s two-volume (1938 and 1942) The Theory of Prices) the observation that in Keynes’s General Theory “what is true is not new, and what is new is not true.”

Published at the peak of Keynesian policy and academic influence, and somewhat hampered by Hutt’s idiosyncratic terminology, the 450-page Keynesianism had no noticeable effect on the profession. Although its Preface thanks Ludwig Lachmann for valuable discussions, and Mises and Marget for their “courageous and independent work,” the book contains few citations to Mises and even fewer to Hayek. Nonetheless, younger economists now working in the Austrian tradition will find the book a delight. (The Keynesian Episode17 should be considered, its updated and Americanized second edition.) Subtitled “A Critical Restatement of Basic Economic Principles,” it describes the Keynesian doctrine and its appeal, then analyzes the coordinating role of market prices and the natures of money, income, saving, and consumption. Hutt then specifically targets such standard Keynesian fare as “the multiplier,” “the accelerator,” and the “liquidity-preference theory of interest.”

Again, Hutt produced a magnificent work Austrians would love to claim as one of their own, but which he himself viewed as thoroughly classical in nature. Keynes considered the foundation of his own work his refutation of Say’s Law, which (according to Hutt) he coined the phrase “supply creates its own demand” to express, and Keynesianism‘s central theme was to reassert the validity and relevance of Say’s perceptiveness. Later he focused precisely on this, with his provocative short study A Rehabilitation of Say’s Law.18 By then he was delighted to find works by Clower, Leijonhufvud, and Yeager courageously advocating the use of forms of Say’s Law.19

The theme of Keynesianism was one that those unacquainted with Hutt may have learned from Mises or Hayek, but which Hutt seems to have developed directly from Say: depressions and unemployment result from mispricing, not any supposed deficiency of aggregate demand. Hutt found Keynes’s structure of aggregated concepts so confusing that he declared it “hinders the perception of certain things as well as the saying of them,”20 and he professed great admiration for the brilliant young macroeconomists of the 1970s and 1980s who produced valid insights despite being hobbled with these concepts and language. He viewed Keynes’s theory as an apologia for the basest political goal of power, one that refused to address the institutions hindering price adjustments and instead advocated the use of monetary and fiscal policy. Using macroeconomic policy to resolve microeconomic problems, Hutt pointed out, inevitably conceals and exacerbates the problem by diverting resources into uses other than those an unhampered market would have produced. Whatever they may do to measurable statistics, which he had noted in 1939 could not measure “idleness,” these policies are impoverishing. By the 1970s Hutt optimistically perceived the emergence of the economics profession from “the Keynesian episode” (which Leland Yeager, with greater descriptive accuracy, called “the Keynesian diversion”) and its return to pre-Keynesian methods and truths.

Hutt was an enthusiastic member of the Mont Pelerin Society and enjoyed its meetings immensely. He was thrilled when Hayek won the Nobel Memorial Prize in Economics, and attended many Austrian and libertarian conferences into the final years of his life. Many younger Austrians remember him as a kind and courtly man, intellectually sharp and devoted to liberty. Those unfamiliar with his work have a real treat to look forward to. Of his principal works I would begin with Keynesianism and Idle Resources, then Collective Bargaining and Strike-Threat, and finally Economists. One may wonder how much greater his effect on economics might have been if he had chosen a different career path. Nonetheless, the exciting rediscovery of the Austrian tradition foretells the day when economists widely know and appreciate the works of William Harold Hutt.

• 1See by Edwin Cannan, The Paper Pound of 1797–1821. London: King, 1921, and A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848, London: Percival and Co., 1917.
• 2unpublished memoirs ca. 1984, p. 39
• 3The Theory of Collective Bargaining. London: P. S. King, 1930. In this book Hutt explains that some common beliefs about labor unions are false. The most common argument in favor of labor unions claim that an individual worker has a weaker bargaining power than an employer — also stated by Adam Smith in his early works, and that labor unions help balance the bargaining powers of both sides. Hutt maintained that economists who had this view had not given a satisfactory explanation of why it would be the case.
• 4The Strike-Threat System: The Economic Consequences of Collective Bargaining. New Rochelle, N.Y.: Arlington House, 1973. When asked to review this book, Ludwig von Mises said: “Professor Hutt’s rank among the outstanding economists of our age is not contested by any competent critic.”
• 5Hutt’s published articles on these subjects are: “ The Significance of State Interference With Interest Rates,” South African Journal of Economics 1 (September 1933), pp. 365-68. “Economic Method and the Concept of Competition.” South African Journal of Economics 2 (March 1934), pp. 1-23. “Co-ordination and the Size of the Firm.” South African Journal of Economics 1 (December 1934), pp. 298-320. “The Nature of Aggressive Selling,” Economica 2 (August 1935), pp. 298-320. “Logical Issues in the Study of Industrial Legislation,” South African Journal of Economics 3 (March 1935), pp. 26-42. “Natural and Contrived Scarcities,” South African Journal of Economics 3 (September 1935), pp. 345-53. “Discriminating Monopoly and the Consumer,” Economic Journal 46 (March 1936), pp. 61-79. “The Price Mechanism and Economic Immobility,” South African Journal of Economics 4 (September 1936), pp. 319-30.
• 6Economist and the Public, London: Jonathan Cape, 1936.
• 7Politically Impossible...?, London: Institute of Economic Affairs, 1971.
• 8In his “Illustration of Keynesianism” in Individual Freedom, ed. S. Pejovich and D. Klingaman, Greenwood Press: Connecticut, Hutt said that some prominent economists were looking for politically easier solutions to economic problems of the time (1930s). He contended that these economists were speaking with “two voices” (among these economists were Pigou, Henderson, Robertson, Clay).
• 9See “The Nature of Aggressive Selling,” Economica 2 (August 1935), pp. 298-320.
• 10See “Natural and Contrived Scarcities,” South African Journal of Economics 3 (September 1935), pp. 345-53.
• 11See “The Concept of Consumers’ Sovereignty,” Economic Journal 50 (March 1940), pp. 66-77.
• 12The Theory of Idle Resources: A Study in Definition
• 13Plan for Reconstruction, London: Kegan Paul, 1943.
• 14“The Yield from Money Held,” in Freedom and Free Enterprise, ed. Sennholz, 1954.
• 15Keynesianism Retrospect and Prospect: A Critical Restatement of Basic Economic Principles, Chicago: Henry Regnery Company, 1963.
• 16The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies, New Rochelle, N. Y.: Arlington House, 1959.
• 17The Keynesian Episode: A Reassessment, Indianapolis: Liberty Press, 1979.
• 18A Rehabilitation of Say’s Law, Athens: Ohio University Press, 1974.
• 19Ibid. p. 48.
• 20Keynesianism Retrospect and Prospect, p. ix.