Chapter dzDz: Hutt and Keynes ȀȇȂpp.ȁȂȇ,ȁȈȄ). When inflation appears to be stimulating a depressed econ-
omy—a phenomenon supposedly beloved of the Keynesians—does the
stimulus come from the monetary expansion as such, with prices lagging
and the quantity of money and flow of spending thus growing in real
terms, or from the price inflation itself, which may be rectifying wrong rel-
ative prices, especially by eroding excessively high real wage rates? Often
Hutt appears to give the latter answer, suggesting that the trick of getting
real wages down in a relatively politically feasible way is the essence of
Keynesian employment policy. Interpreters disagree, but others have also
taken Keynes to mean just that. It would be ironic if Hutt and Keynes,
when agreeing, agree on an erroneous point.
In a malcoordinated and depressed economy, does the trouble nec-
essarily stem from wrongrelativeprices, such as excessive real wages, or
might it stem instead mainly from prices and wages that, although not
badly out of line with one another, aregenerallytoo high (or conceiv-
ably too low) in relation to the nominal quantity of money? In some pas-
sages (SeptemberȀȈȄȂ, p.ȁȁȃ;ȀȈȆȈ, pp.ȀȃȆ,ȁȇȁ–ȁȇȂ, and passim) Hutt
emphasizesunstableprice rigidities and people’s postponement of pur-
chases while waiting for the rigidities to break down and prices to fall,
seeming to imply that the particular price level would not matter if its
permanentrigidity were obviating these expectations and postponements.
In other passages (ȀȈȆȈ, pp.ȀȇȄ–Ȁȇȅ,ȁǿȆ, and passim) he seems to advo-
cate a policy of flexibly accommodating the nominal quantity of money to
the existing price level, as if he were indeed concerned about the painful
necessity of otherwise adjusting the price and wage level to the money
supply.
Hutt anticipated some of the soundest parts of the present-day doc-
trine of rational expectations. He emphasizes that when inflation has
come to be generally expected and allowed for, it becomes purposeless.
Unemployment becomes almost a normal accompaniment of inflation,
even accelerating inflation (ȀȈȆȆ, pp.ȂȆ–Ȃȇ; cf. p.ȁȄȁ). In these and other
passages, however, it is unclear whether he sees the underlying money-
supply expansion itself or instead sees the resulting price inflation as what
may initially stimulate or recoordinate an economy (although eventually
becoming futile). Apparently he means the latter: price inflation may
be a way—an inferior, temporary, Keynesian way—of improving coor-
dination by inflating down excessively high real wage rates. He does not
forthrightly grapple with the monetarist point that depression may occur
not so much becauserelativeprices and wages are wrong as because the