The Theory of Idle Resources

W.H. Hutt's Theory of Idle Resources was first published in 1939, surely one of the earliest responses to Keynes's General Theory.

Hutt goes for the heart of Keynes's prescription for recovery, which was to get idle resources moving, whether that is money, capital, or labor. If something isn't being employed right now, it is being wasted.

Hutt responded at length that there is nothing uneconomic or necessarily inefficient about an idle resource. It is the decision of the owner to hold back when faced with a long-term plan, a judgment call concerning risk, a high-reservation wage, or a demand for larger cash balances. There might be legal restrictions that are causing workers to withhold labor and capitalists to curb production.

It makes for fascinating reading. Both this faulty Keynesian proposition and its important free-market response are still very much in play today.

The economic environment now is plagued with enormous unemployment — the ultimate idle resource. What's the problem? Is it a macroeconomic problem of aggregate demand? Or is it is a simple labor pricing problem alongside legal restrictions? Hutt takes the latter position, utterly crushing the Keynesian view.

Keynes was refuted in 1939! The rediscovery of this fact is bracing indeed.