Thursday, August 6, 2020

William Harold Hutt: A Birthday Appreciation

W.H. Hutt
By Art Carden


That there still are giants in the world happily is no fairy tale. At least, in the field of economics an intellectual giant has appeared whose stature hardly can be disputed. He is Professor W.H. Hutt of the University of Cape Town, Republic of South Africa. The vast range of his intellectual effort, coupled with incisive exposition nevertheless marked by what we believe is evidence of sincere modesty, has provided much appreciated reading for this reviewer. Here at last is what should be the ultimately successful effort to demolish the Keynesian dogmas that have become so popular in college textbooks and in the political arena, where those modern “medicine men,” some of the world’s politicians, pursue their calling.
-AIER founder E.C. Harwood, reviewing W.H. Hutt, Keynesianism–Retrospect and Prospect, AIER Research Reports, December 9, 1963
The economist William Harold Hutt was born to a working-class family in London on August 3, 1899. He served in the Royal Flying Corps, studied at the London School of Economics under Edwin Cannan and Arnold Plant (he never earned a PhD), and after a brief foray into the business world (while still taking courses at LSE) he took an academic job at the University of Cape Town in 1928. He became Dean of the Faculty of Commerce in 1931 and was instrumental in starting the University’s Graduate School of Business. He would stay at the University of Cape Town until his retirement in 1965, and in the eyes of many commentators, it was the fact that he labored so far from the intellectual action of Europe and the United States that helps explain why he was not more widely known. The time is right for his (re)discovery.
As W. Duncan Reekie put it in his introduction to a special issue of Managerial and Decision Economics in Hutt’s memory, “Hutt was fathered by classicism, mothered by marginalism, and orphaned in the 1930s by Keynesianism.” Along with Ludwig von Mises, F.A. Hayek, Milton Friedman, and the other members of the postwar classical liberal remnant, he helped found the Mont Pelerin Society in 1947. Hutt passed away in June 1989, just a few weeks short of his 89th birthday. 
He published his first article, “The Factory System of the Early Nineteenth Century,” in 1926. It inaugurated a sixty-plus year career of slaying sacred cows, and it was republished in F.A. Hayek’s 1954 edited volume Capitalism and the Historians. His earliest work took on one of the founding myths of 20th-century labor history; namely, that collective bargaining and union representation curbed exploitation and transferred wealth to workers (The Theory of Collective Bargaining, 1930). This would be a theme that reappeared throughout his work for the rest of his career. It culminated in his 1973 book The Strike-Threat System, in which he offered his mature analysis of unions’ legally-privileged combinations in restraint of trade in the labor market. In his Economists and the Public (1936) he introduced the idea of “consumer sovereignty.” He defined “consumer sovereignty” this way on page 257 of Economists and the Public:
“The consumer is sovereign when, in his role of citizen, he has not delegated to political institutions for authoritarian use the power which he can exercise socially through his power to demand (or to refrain from demanding).”
According to 1986 Nobel Laureate James M. Buchanan, that alone would have earned him a place in the pantheon of great economists.
Hutt’s 1939 book The Theory of Idle Resources was a response to John Maynard Keynes’s monumental The General Theory of Employment, Interest, and Money. He took apart Keynes’s notion of unemployment emanating from insufficient aggregate demand and made an argument that presaged F.A. Hayek’s argument about “the particular circumstances of time and place” in “The Use of Knowledge in Society.” Just because something looks like it isn’t being used doesn’t mean it isn’t. He defines different kinds of “idleness” and argues persuasively for the importance of specialization in “availability.” Hutt would continue to contribute to macroeconomics–and the broad critique of Keynes more generally–with Keynesianism-Retrospect and Prospect (1963, revised into The Keynesian Episode in 1979) and A Rehabilitation of Say’s Law (1974).
Hutt’s 1971 book Politically Impossible…? was very much consistent with the public choice tradition; in it, he exhorted economists to think not about what is politically feasible in the short run but rather what is best in the very long run. This is interesting in part in light of his 1943 book Plan for Reconstruction, which saw Britain’s eventual demilitarization and recovery/reconstruction after World War II as an opportunity to make efficiency-increasing institutional changes that would, ultimately, lead to even greater prosperity. It is a contribution that is very much in the spirit of what Mancur Olson would write in his 1965 The Logic of Collective Action and his 1982 The Rise and Decline of Nations. Hutt argued in favor of sweeping institutional change, but sweeping institutional change that compensated those who would find themselves worse off due to the elimination of the special privileges they had enjoyed. Would it be perfect? No, but Hutt thought that buying out the special interests would be a defensible “investment” in growth-friendly institutions.
Hutt retired from the University of Cape Town in 1965. As what might seem like a parting gift to South Africa, he published The Economics of the Colour Bar in 1964. Hutt was a staunch opponent of public and private coercion, and he explained how the South African “colour bar” was not a product of free-market, consumer-driven capitalism but rather the successful effort of South African labor unions to exercise a political veto over the consumers’ preferences. As Hutt pointed out, consumers are usually uninterested in the provenance of what they are buying. They simply want to know if they are getting a good product at a good price.
According to some of those who have memorialized Hutt, he always had a soft heart for the downtrodden. He was convinced, on the basis of his years of economic inquiry, that the market–not the state–was their best friend. Hutt’s “liberal approach to race relations,” argued the economist Jennifer Roback in a contribution to the 1988 Managerial and Decision Economics symposium in Hutt’s memory, brings together three liberal ideas: “the belief in the free market economy rather than a centrally planned socialist one,” “individual autonomy as a central value that any worthy political system ought to try to protect,” and “the fundamental hopefulness so common among liberals; that hope is based on beliefs in the innate goodness of mankind and that material progress is possible to us.”
He was very clear about his opinion on Apartheid. It was an affront to decency and humanity that had no defensible basis in theory or fact. He was also enough of a political realist to know two things, however. People are not likely to give up their special privileges without a fight, and a sudden shift to “one man, one vote” mass democracy ran the very real risk of descending into mob rule and persecution of an ethnic minority by an ethnic majority. That (white) minority had, of course, ruled brutally over the majority, but Hutt did not see much of a way forward in populist vengeance. He argued, at various points, for a graduated franchise and for a franchise that apportioned political strength by income. This, of course, has earned him the ire of democratic egalitarians; however, he did not think a sudden shift to mass democracy would be sustainable in the long run. 
In Politically Impossible…?, Hutt endorsed rather the strictures of John Stuart Mill and Alexis de Tocqueville:
“John Stuart Mill, in his classic advocacy of representative government, insisted that the beneficiaries of relief payments should be denied the franchise.” (p. 32)
And
“Changing experience in the working of representative democracy has been largely conditioned by the failure to entrench (by constitution or powerful convention) what may be called ‘the Tocqueville principle’, namely, that majorities should have no right to enrich themselves at the expense of minorities via the voting mechanism.” (p. 32)
Would it satisfy the requirements of cosmic justice? Probably not, but if cosmic justice is not an option–and Hutt apparently did not think it was–a liberal, Millian-democratic system would be a vast improvement over the status quo. In a 1983 interview, Hutt would prescribe the following for South Africa:
Economically, the economy must be freed up. Politically, the franchise must be extended with proportional representation to protect the white minority. Socially, legal segregation must be allowed to die. People should be allowed—not forced to, but allowed—to associate with whom they choose.”
Hutt was a complex thinker in a difficult time who worked to split the difference between the best world we can imagine and the best world that is feasible subject to the constraints we face in the world we actually inhabit. As Ludwig von Mises put it, “Professor Hutt’s rank among the outstanding economists of our age is not contested by any competent critic.” May his contributions endure in our age and in ages to come.

References and Further Reading

Richard M. Ebeling, “William H. Hutt, 1899-1988
John B. Egger, “William Harold Hutt (1899-1988)
John B. Egger, “The Contributions of W.H. Hutt
Joseph T. Salerno, “The Essence of Hutt
Volume 9, Issue 5 of Managerial and Decision EconomicsSpecial Issue: A Collection of Essays Compiled as a Memorial to Professor W. H. HuttVolume 18, Issue 2 of Journal of Labor Researchcontaining a symposium on W.H. Hutt
Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.
The above originally appeared at AIER.org.



1 comment:

  1. "The Strike Threat System" was indeed a sophisticated and subtle analysis of the collective bargaining and most forms of trade union 'industrial action'. I studied Industrial Relations at College. Hutt's theory should have been taught alongside Dunlop and the rest of the IR theorists -but it wasn't.

    In sum Hutt argues that the Strike or threat of Strike changed the composition of capital in the long run. Enterprises with a relatively high investment in fixed versus variable capital were most exposed to strike or strike threat. Thos with less fixed capital and more variable capital were less exposed. Those firms with high fixed capital ratios - and thus high strike threat risk - would see their returns on capital reduced over time. This would incent the market to invest in other types of capital structure at lower strike threat risk. This would of course see the threatened industries decline and lower productivity in general across the economy. So in the long run the 'gains' of strike threat union activity would most likely be much less than advertised - if not a complete wash. Hutt emphasised that the threat of strike - not just strikes per se - was often more damaging than even strike itself. Hutt's analysis would seem worthy of consideration.
    It was also a different perspective than the more common analysis of labor unions as 'cartels of labor' - more common among free market economists. Hutt, from what I recall, wasn't opposed to unions as such. From memory I recall he supported the role unions often played as mutual aid organisations. His criticism was more focused on collective bargaining and strike threat.

    I think there is something to learn from Hutt. However unions can play a useful political economic role from a free market perspective. The strike threat risk is not assocaiated solely with 'organised labor'. 'Wildcat Strikes' also pose a strike threat risk. More formal 'organised labor'trade union structures can sometimes reduce the likelihood of wildcat strikes - so under some circumstances unions might mitigate strike threat risk. At least in theory.

    More broadly at the level of 'political economy' - this is more politcal theory than economics - unions can provide some of those "intermediate insstitutions" of 'Civil society" - like Churches, professional bodies, municipalities, corporations etc that provide a buffer against the state. In general advocates of 'classical liberalism' are supportive of strong 'civil society' institutions as a barrier on outright and centralised states. They theory is that "atomised individuals" are easier pickings for states than larger organised groups. Of course this approach needs to be balanced off against the risk that "big business, big labor and big government" may collude rather than counter-veil. It is of course possible that they do both.

    Although unions have often in practice been a power base for left leaning politics - they have for the most part in most nations tended to be 'social democratic'- rather than far leftist. I'd prefer "pragmatic" to social democratic but social democratic is better than left socialist or commnist- approaches more popular with the learned classes than the laboring classes. The left leaning tendencies of much of organised labor in politics isn't perfect, but it could be worse.

    Sometimes unions in the political domain actually do some good. At least during the 1970s and 1980s - back when high rates of inflation were common - labor unions in many parts of the world were among the main political opponents of incomes poiicy, price and wage controls. Often at this time business and commercial representative bodies were more willing to pretend to go along with the government on incomes policy than was organised labor.

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