Leontief, Wassily

Leontief, Wassily 1905-1999

BIBLIOGRAPHY

Wassily Leontief was born into an academic family on August 5, 1905, in Saint Petersburg, Russia. He earned his undergraduate degree from the University of Saint Petersburg. Upon completing his doctoral dissertation at the University of Berlin in 1928, Leontief started his professional life at the Institute of World Economics at the University of Kiel. He moved to the United States to work for the National Bureau of Economic Research in 1931 and then Harvard University in 1932. He served as the director of the Harvard University Research Project until 1973. Leontief left Harvard for New York University in 1975 to found the Institute for Economic Analysis. He was awarded the Nobel Prize in economic sciences in 1973.

Leontief ’s greatest achievement was the creation of a new area of economics, namely input-output analysis. In 1941 he published the classic Structure of American Economy, which laid the foundation for what is now known as a social accounting matrix. Such a matrix gives a snapshot of all transactions in an economy between and within producing sectors, households, factors of productions, institutions, and consumers at a level of disaggregation permissible by the availability of data.

Leontief was one of the first to discuss the issue of simultaneous estimation of demand and supply curves and the problems of identification. His work on aggregation and index numbers (1936) has also had a lasting impact. Leontief was one of the early contributors to the theory of aggregation in production relations (1947). He derived conditions under which one can identify structural mathematical relationships from reduced-form equations. His empirical research on the pattern of trade in the United States (1953) led to the well-known Leontief paradox. Later in life, he wrote on a number of diverse subjects, including the environment, population growth, automation, and defense.

The common thread in all his works was his love of general equilibrium analysis and his attempt to provide an empirical foundation to the theoretical work of the French economist Léon Walras (1834–1910). Leontief went well beyond that and brought the role of intermediate inputs to the forefront.

Input-output analysis was developed on the premise that different sectors of production in an economy are interconnected via production relations. One of the fundamental concepts in input-output analysis is the distinction between direct and indirect input requirements. This distinction led to the Leontief multiplier, which gives the total inputs required to produce a given level of final use as the sum of direct requirements and an infinite series (first round, second round, etc.) of indirect requirements. A sector can be more labor intensive (or, more polluting) than another in terms of the direct coefficient, but less so in terms of the total coefficient.

The Heckscher-Ohlin theorem on international trade suggests that a country should export goods that use more intensely the factor of production in which the country is relatively abundant; a country should import goods that use more intensely the factor of production in which the country is relatively less abundant. For example, China, which is relatively more abundant in labor, should export labor-intensive goods, whereas the United States, which has relatively more capital, should export capital-intensive goods. Using a 1947 input-output table for the United States, Leontief (1953) found an apparent contradiction between reality and the predictions of the Heckscher-Ohlin theorem. Leontief showed that the United States was apparently exporting labor-intensive goods. The Leontief paradox arises if one uses total coefficients (rather than the direct coefficients) in deriving labor and capital requirements. Direct coefficients are defined per unit of output, but the total coefficients are defined per unit of final use. Leontief made this distinction very clear. He lists the two as “requirements per million dollars of output” and “requirements per million dollars of final output.” He defined capital and labor requirements for competitive imports as those that would be required if the imports were replaced by domestic production. Leontief found that capital and labor (“man” years) per million dollars of U.S. exports in 1947 were 2,550,780 and 182,313 respectively (in U.S. dollars and 1947 prices). The corresponding figures for competitive imports were 3,091,339 and 170,004 respectively. Thus the capital-labor ratio for a million dollars worth of exports is smaller than the capital-labor ratio for a million dollars worth of competitive imports.

The similarity between the Marxian labor theory of value and input-output analysis has led some to speculate that Leontief was influenced by Karl Marx (Bailey 1994). Perhaps Leontief was influenced indirectly by Marx, but it is more likely that both Marx and Leontief had a common source of inspiration in the French physiocrat François Quesnay (1694–1774), who considered a three-way classification of the French economy—farmers, manufacturers, and landowners.

SEE ALSO Input-Output Matrix; Social Accounting Matrix

BIBLIOGRAPHY

Bailey, R. E. 1994. A Voyage Round Economics: The New Palgrave Dictionaries of Economics, and Money, and Finance. Economic Journal 104: 660–675.

Leontief, Wassily. 1936. Composite Commodities and the Problem of Index Numbers. Econometrica 4 (1): 39–59.

Leontief, Wassily. 1941. The Structure of American Economy, 1919–1929: An Empirical Application of Equilibrium Analysis. Cambridge, MA: Harvard University Press.

Leontief, Wassily. 1947. Introduction to a Theory of the Internal Structure of Functional Relationships. Econometrica 15 (4): 361–373.

Leontief, Wassily. 1953. Domestic Production and Foreign Trade: The American Capital Position Reexamined. Proceedings of the American Philosophical Society 97: 332–349.

Sajal Labiri