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Source link: http://archive.mises.org/11348/the-essence-of-hutt/

The Essence of Hutt

December 30, 2009 by

Hutt presented a theory of unemployment and depression that, while completely consistent with the important macroeconomic truths embodied in a rehabilitated Say’s Law of markets, is fully capable of explaining observed macroeconomic fluctuations. FULL ARTICLE by Joseph T. Salerno

{ 13 comments }

Ned Netterville December 30, 2009 at 9:39 am

Keynes didn’t refute Say’s Law. He got some straw, stuffed it into a pair of his old pants and a shirt, and put a name tag on the resulting scarecrow that said, “Hello, My Name is Say’s Law.” He then proceeded in his grandiloquent style to rhetorically flail it. The ruse worked on many wannabe economists like Paul Krugman, but not on Dorothy or Hutt, who saw the wizard behind the curtain manipulating frantically.

Michael R Stoddard December 30, 2009 at 10:38 am

Dear Prof Salerno,

Forgive my confusion.
Regarding the last paragraph in your article and the statement that it is not “aggregate demand” that is at falt but a withholding of supply based on prices fixed above market clearing levels.
To me it seems that the fixed price levels above market clearing prices leads to a reduction in demand and an increase in amount supplied.
If you fix the price above what I will pay, I will not demand the good or service and as a supplier I will flood the market with supply. Hence the apparent failure of “aggregate demand” due to price fixing.

Mike

Steve Horwitz December 30, 2009 at 2:40 pm

Thanks for this Joe. Hutt was perhaps the most underappreciated classical liberal economist of the 20th century, including by other classical liberals. He anticipated several major ideas by later (neoclassical) thinkers and forwarded elements of the Austrian approach as well. And he contributed across a number of areas in the discipline. All of this while maintaining his steadfast free market views. He can be tough to read sometimes, but it is well worth the effort.

For interested readers, a piece of mine on Hutt can be found here: http://myslu.stlawu.edu/~shorwitz/Papers/Hutt_JLR_1997.pdf as well as in chapter 6 of my Microfoundations and Macroeconomics: An Austrian Perspective now out in affordable paperback, I might add.

jeffrey December 30, 2009 at 3:08 pm

A better link http://www.amazon.com/Microfoundations-Macroeconomics-Perspective-Steven-Horwitz/dp/0415569575/ref=sr_1_1?ie=UTF8&s=books&qid=1262207109&sr=8-1

Steve, the Mises store would love to carry this book but we’ve never been able to negotiate a decent price with this publisher. They don’t seem to understand how to do business. If you can work something out, please do. Otherwise, please consider letting the Mises Institute publish your next book.

Daniel Kuehn December 30, 2009 at 3:12 pm

Aside from the point about unions, you don’t really seem to explain what Hutt’s macroeconomics really is. Is it ONLY the union issue? If it is, that sounds just like the insider-outsider model which is what the New Keynesian position is (among other frictions that they highlight)!

The only other thing you seem to mention is the coordinating function of prices. Since when has that view been non-Keynesian?

If that’s all there is to him, then Hutt to me sounds like an interesting and relatively insightful guy, but unfortunately probably deserving of his obscurity.

Reading mises.org can be a surreal experience for me sometimes. You’ve actually convinced yourselves that you’re the only ones that think in terms of price coordination or individual behavior. You promote this idea that Keynes liked constant tweaking through deficit spending, rather than considering the possibility that the deficit spenders of the fifties and sixties (unlike the deficit spenders in the depressionary 30s) were actually contradicting what Keynes suggested. These guys are apostles of Alvin Hansen and John Hicks, not Keynes.

As for Ned Netterville’s point – I couldn’t agree more that Keynes largely attacked a straw man version of Say’s Law. Or perhaps more accurately, he attacked a “strong version” of Say’s Law and acted as if he attacked Say’s Law in it’s entirety. However, I’ve never seen straw-man building like the images of Keynes that I see built up on here. Keynes’s version of Say at least bears some resemblance to the original!

Daniel Kuehn December 30, 2009 at 3:17 pm

Steve – I didn’t know who you were, so I checked you out online. As an fyi – your Wikipedia page review of who you studied under links to James Buchanan the president, rather than James Buchanan the Nobel laureate! :) That might be worth correcting!

Thanks for the link to your book.

Steve Horwitz December 30, 2009 at 3:22 pm

@Daniel: thanks. More about me at my web page, linked above.

@Jeff: Let me talk to Routledge, although I have to say that they didn’t even tell me they were releasing it in paper until it was basically out. I found it through a Google Alert! So I’m not optimistic.

jeffrey December 30, 2009 at 3:35 pm

Right. I’m not optimistic about this either. The stories I could tell about this company….amazing. Amazing!

Niko December 31, 2009 at 2:32 am

@Daniel Kuehn:
So, in the end, the real question is: What did Keynes propose? Since his most gifted pupils, as you imply, totally missed it, Krugman still doesn’t get it and so on, what did he say?

Well, he said nothing than. His hole theory is nothing more than a placebo: it is a matter of believe.

Ohhh Henry December 31, 2009 at 1:17 pm

“In another important application of economic analysis, Hutt explained how the South African apartheid system developed as a system of legal privileges bestowed by an interventionist government on Communist-oriented, white labor unions, who wished to protect and augment their wage rates by restricting competition from lower-skilled, nonwhite workers.

Ironically, the most frequent objection to ending Apartheid which I heard from South Africans in the 1980s was, “Nelson Mandela is a communist.”

Ned Netterville December 31, 2009 at 2:47 pm

@Daniel: “However, I’ve never seen straw-man building like the images of Keynes that I see built up on here. Keynes’s version of Say at least bears some resemblance to the original!”

JMK, in the intro to his GT wrote: “The ideas here expressed so laboriously are extremely simple and should be obvious. The difficuilty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

Videlicet: Those who don’t buy Keynes’ economic nonsense have been brain washed.

JMK’s preface to the German edition of GT, penned 7 September 1936: “The theory of output as a whole, which is what the following book purports to provide is much more easily adapted to a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”

Viz.: Hitler, you are uniquely position to implement my full-employment, government-interventionist policies, which would be difficult or impossible to legislate in a free society.

JMK, intro to French ed. of GT, 20 Feb. 1939: “[Economists] have not extricated themselves from his [Say's] basic assumptions and particularly from his fallacy that demand is created by supply…a theory so based is clearly incompetent to tackle the problems of unemployment and of the trade cycle.”

As Hazlitt points out in THE FAILURE OF THE NEW ECONOMICS, in order to refute Say’s Law, K attacks a version of Say’s Law he found in J.S. Mill’s PRINCIPLES OF POLITICAL ECONOMY, which he lifted out of context. Had he included the three sentences following the paragraph he lifted and attacked, his “refutation” of Say’s Law would have died aborning, and perhaps the GT would have been aborted by an observant editor before it was foisted on the world.

Quoting Hazlitt, “As we shall see, Keynes himself alternates constantly between two mutually contradictory contentions: (1) that savings and investment are ‘necessarily equal,’ and ‘merely different aspects of the same thing (p. 74 [GT]), and (2) that saving and investment are ‘two essentially different activities’ without even a ‘nexus’ (p.21), so that saving not only can exceed investment but *chronically* tends to do so.”

One needs only read Hazlitt’s demolition of Keynes GT to realize that no parody nor caricature of Keynes portraying him as a buffoon or a charlatan can be overwrought. Proof: read GT and then read Hazlitt’s two books: THE FAILURE OF THE NEW ECONOMICS, and THE CRITICS OF KEYNESIAN ECONOMICS, the latter a compilation of essays by leading US and European economists debunking Keynes’ GT.

Ned Netterville December 31, 2009 at 5:28 pm

@ “Reading mises.org can be a surreal experience for me sometimes. You’ve actually convinced yourselves that you’re the only ones that think in terms of price coordination or individual behavior. You promote this idea that Keynes liked constant tweaking through deficit spending, rather than considering the possibility that the deficit spenders of the fifties and sixties (unlike the deficit spenders in the depressionary 30s) were actually contradicting what Keynes suggested. These guys are apostles of Alvin Hansen and John Hicks, not Keynes.”

Misians (Austrians) may not be the only ones who think in terms of price coordination and individual behavior, but they certainly have been leaders in elaborating the influences of these factors in economics, and it is clear that Keynes gave both short shrift in his General Theory of Employment, Interest and Money. Hansen and Hicks were both Keynes’ disciples to a greater or lesser extent, and where they did not adhere precisely to Keynes “theories” or policy prescriptions as conveyed in his GT, that was probably because they could not understand or defend K’s obscurant cant, or when they recognized some of his utter nonsense and revised to avoid Keynes’ pratfalls. With the possible exception of Paul Krugnam, there is probably not an economist alive who would undertake to defend Keynes’ GT against the devastating critiques of Henry Hazlitt and others, and Krugman could only do so by resorting to the same legerdemain Keynes used–and damn the illogic, ’cause he’s a Nobel laureate.

Ned Netterville December 31, 2009 at 8:51 pm

@”Aside from the point about unions, you don’t really seem to explain what Hutt’s macroeconomics really is. Is it ONLY the union issue? If it is, that sounds just like the insider-outsider model which is what the New Keynesian position is (among other frictions that they highlight)!”

How do New Keynesians differ from Old Keynesians, and why do the New feel a need to distinguish themselves from Keynesians or Old Keynesians? What is an insider-outsider model? What’s a friction?

@”The only other thing you seem to mention is the coordinating function of prices. Since when has that view been non-Keynesian?”

It has been non-Keynesian since Keynes published his GT. The concept that reducing the price of labor (wage rates) would increase the demand for labor was as foreign to Keynes as laissez-faire. Same with the price of borrowing (interest rates).

Hazlitt: “I have already pointed out that though Keynes calls Chapter 21 “The Theory of Prices,” he defines the theory of prices (p.206) as the analysis of the relation between changes in the quantity of money and changes in the price level.” This, as I have remarked, is merely a theory of changes in the statistical average of prices. It therefore omits any analysis or explanation of (1) what determines any one particular price (say the price of eggs), and (2) what determines the relation of individual prices to each other. But these are the really fundamental problems involved. Until we have solved them, we cannot go on to any rational discussion of why individual prices change, and why the “price level” (which is a purely statistical construct put together from individual prices) changes. But Keynes simply takes these fundamental problems for granted.

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