The Nobel Prize

Wassily W. Leontief (1906–99)

Wassily Leontief was born in Saint Petersburg, Russia in 1906. At the age of 15 he entered the University of Saint Petersburg (renamed Leningrad in 1924) where he studied philosophy, sociology and economics and from where he obtained his MA in social science as a ‘learned economist’ in 1925. Leaving Russia, Leontief went to Germany where he worked at the Institute for World Economics at the University of Kiel. In 1928 he obtained a PhD from the University of Berlin. After a year spent in China, as an economic adviser to the Chinese government on the railway network, he went to the United States in 1931 (later becoming a US citizen) where he worked for a brief period as a research associate at the National Bureau of Economic Research. In 1932 Leontief joined the faculty at Harvard University where over a period of four decades he was promoted from instructor (1932–33) to assistant professor (1933–39), associate professor (1939–46) and Professor of Economics (1946–53), before finally holding the Henry Lee Chair of Political Economy from 1953 to 1975. While at Harvard he founded the Harvard Economic Research Project, devoted to input–output analysis, and served as its director from 1948 to 1973. In 1975 he left Harvard to join New York University, where he founded the Institute of Economic Analysis.
Leontief’s many offices and honours included the presidencies of the Econometric Society in 1954 and the American Economic Association in 1970. In 1973 he was awarded the Nobel Memorial Prize in Economics ‘for the development of the input–output method and for its application to important economic problems’ (Nobel Foundation, 2004).

Over the course of a long and distinguished career, the main focus of Leontief’s research was directed to the development and practical applications of input–output analysis. Input–output analysis describes the interrelationships between the sectors or industries in an economy in terms of the inputs required per unit of each sector’s output. In doing so it gives a crucial insight into the overall structure and operation of the economy. The approach allows analysts to calculate (via the derivation of technical coefficients from the input–output table) how a change in production in any one sector or industry will affect other sectors and industries in the economy. In consequence, input– output analysis has proved to be particularly useful to policy makers for forecasting and planning (for example, avoiding bottlenecks in key sectors of the economy following a planned change in final demand for consumption, investment, government expenditure and exports) in both developed and developing countries.

Leontief’s first article on input–output analysis, entitled ‘Quantitative Input and Output Relations in the Economic System of the United States’, was published in the Review of Economics and Statistics in 1936. Five years later the numerical results of two ten-sector tables (consolidated from a matrix of relations between 44 sectors), which were calculated for the United States for 1919 and 1929, were published in his first book, The Structure of the American Economy (Leontief, 1941). Over the years he refined and extended his first basic model to produce increasingly sophisticated and complex models (for example, by increasing the numbers of sectors covered, a task aided by the development of computers) and applied the approach to study a wide variety of important economic problems. His 1941 monograph was followed by the publication of a number of other important books based on input–output analysis (see, for example, Leontief, 1951 – the second edition of his 1941 book; 1966b; Leontief et al., 1953b; 1977b) and numerous articles in which he explored the practical applications of the approach.

Three examples will suffice to illustrate the practical applications of the analysis Leontief developed in his published work. First, in an early article entitled ‘Wages, Profits and Prices’ (Leontief, 1946), he showed how inflationary pressures, which originate in different sectors, are diffused throughout the economy. Second, he applied input– output analysis to the study of US foreign trade (Leontief, 1953a; 1956) and surprisingly found that US exports were less capital intensive and more labour intensive than US imports. Leontief’s findings seemingly contradicted the Heckscher–Ohlin approach which explains the composition of international trade in terms of the relative factor endowments of different countries. According to Heckscher and Ohlin, given its relative abundance of capital, the United States should export capital-intensive goods and import labour-intensive goods. Leontief’s result – now known as the ‘Leontief paradox’ – has provided fertile ground for much subsequent research in the field of international trade. Third, he used input–output analysis to study the environmental repercussions of increasing economic activity (see, for example, Leontief, 1970).

While Leontief will be remembered first and foremost for the development of input–output analysis and its practical applications, he also undertook work in other areas of economics including demand and supply curve analysis, composite commodities and the problem of index numbers, the theory of international trade and the significance of Marxian economics for current economic theory. Some of his classic contributions to economics have been gathered together in two collections of essays (Leontief, 1966a; 1977a). Underlying nearly all of his work is the recurrent theme that economics is an empirical and applied science which above all else should be directed to analysing real-world problems rather than developing formal mathematical models at the expense of their practical relevance (see, for example, Leontief, 1971 – his presidential address to the American Economic Association).

Main Published Works
(1936), ‘Quantitative Input and Output Relations in the Economic System of the United States’, Review of Economics and Statistics, 18, August, pp. 105–25.
(1941), The Structure of the American Economy, 1919–1929: An Empirical Application of Equilib
rium Analysis, Cambridge, MA: Harvard University Press; 2nd edn 1951, New York:
Oxford University Press.
(1946), ‘Wages, Profits and Prices’, Quarterly Journal of Economics, 61, November, pp. 26–39. (1953a), ‘Domestic Production and Foreign Trade: The American Capital Position Re-exam
ined’, Proceedings of the American Philosophical Society, 97, September, pp. 332–49.
(1953b), Studies in the Structure of the American Economy: Theoretical and Empirical Explorations in Input-Output Analysis (with H.B. Chenery and others), New York: Oxford University Press.
(1956), ‘Factor Proportions and the Structure of American Trade: Further Theoretical and
Empirical Analysis’, Review of Economics and Statistics, 38, November, pp. 386–407.
(1966a), Essays in Economics: Theories and Theorizing, New York: Oxford University Press. (1966b), Input–Output Economics, New York: Oxford University Press; 2nd edn 1986.
(1970), ‘Environmental Repercussions and the Economic Structure: An Input–Output Approach’, Review of Economics and Statistics, 52, August, pp. 262–71.
(1971), ‘Theoretical Assumptions and Nonobserved Facts’, American Economic Review, 61, March, pp. 1–7.
(1977a), Essays in Economics: Theories, Facts and Policies, Oxford: Basil Blackwell.
(1977b), The Future of the World Economy (with A.P. Carter and P. Petri), New York: Oxford
University Press.
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