LEONTIEF, WASSILY

In 1973 Wassily Leontief, the Russian-born U.S. economist, received the Nobel Prize in economic sciences "for the development of the input-output method and for its application to important economic problems." Input-output analysis belongs to that branch of economics pioneered by nineteenth century French economist, Leon Walras. This branch of economics is known as general equilibrium theory, focusing on examining the interdependence of economic forces representing the economy as a whole. The first major practical policy applications of Leontief's input-output analysis were made by the U.S. Bureau of Labor Statistics, first in 1939 and then again in 1947. His model was used to predict how total and partial sector employment in the United States would change as the economy of the United States shifted from peace to war and back again.

Wassily Leontief was born in St. Petersburg, Russia, in August of 1906. His father, Wassily Sr., was also an economist. The years of Leontief's childhood were at a time of great social and political upheaval in Russia. He was eight years old when World War I (1914–1918) began and he experienced firsthand the turmoil of the Russian revolution. In 1921 he entered the University of Leningrad (known as St. Petersburg prior to the Russian revolution), where he studied philosophy, sociology, and economics. He graduated in 1925, continuing his education afterwards at the University of Berlin, in Germany. In 1928, at age 22, he received his doctorate in economics.

After graduating he spent a year in Nanking, China, as an economic adviser to the Chinese Ministry of Railroads. In 1931 Leontief emigrated to the United States, coming to America during the Great Depression (1929–1939), where he joined the National Bureau of Economics Research. In 1932 he married the poet Estelle Marks.

In 1931 Leontief began a long tenure as an instructor of economics at prestigious Harvard University. He was promoted to a full professor in 1946. Two years later he founded the Harvard Economic Research Project, a center for what he called "input-output analysis." He directed this project until its closing in 1973.

Leontief had published his first paper on input-output analysis in 1936. His early work was analytical but not mathematical. He criticized attempts to apply advanced mathematical theories to explain world economic problems. Instead, he believed theories were only useful if they could be implemented and observed. He amplified this view with the publication of his first book in 1941, The Structure of the American Economy, 1919–1929: An Empirical Application of Equilibrium Analysis. The very basic thinking of this book described his method of analyzing economic input and output, the basis of his reputation as an outstanding economic innovator. Input-output method is now a standard economic projection tool used in countries and corporations around the world.

His system came slowly to a world crippled by a Great Depression, but as World War II (1939–1945) began, there was new interest in testing the applications of Leontief's analysis. It was applied first by the U.S. Bureau of Labor Statistics, which examined the Leontief model for predicting how employment changes in the country would change the overall economy. By 1957, in less than 10 years, Leontief's method had become a basic ingredient in the national accounting systems of most countries in the world, both capitalist and socialist.

The input-output system developed by Leontief focuses on the fact that economic relationships involving complex interdependence came to represent a picture of the economy as a whole. Prior to Leontief, the field of economics studied mainstream economics focusing only on a few variables. For example, an economist might have looked at how a tax on imported oil might effect the demand for gasoline, while ignoring how the same tax might effect the steel industry. A partial analysis led to seriously misleading conclusions, especially if the industry or changes being studied were expansive.

Leontief's brilliant contribution to economics, the heart of his input-output method, involved a multiple transactions table, dividing the economy into many sectors. Essentially, by increasing the number of sectors being scrutinized and by cross-referencing them on a grid, Leontief was able to come up with the "Leontief inverse," revealing what each sector being studied required to produce one additional dollar's worth of output.

The economic significance of Leontief's method was threefold. First, improvements in international data collection had improved enormously in recent decades because Leontief's system required enormous specific data. Thus the examination of this data revealed the workings of any economy in great detail, far more than in the past. Finally, once demands for goods were specified or projected into the future, Leontief's system could be used for policy analysis. Therefore, the Leontief analysis showed both directly and indirectly what each sector of the economy needed in input in order to increase economic output.

The Leontief system improved as data-gathering improved with the use of computers. He was able to increase the number of economic sectors he studied, because the computer had made the sorting of complex data feasible to analyze.

Input-output analysis had become an essential technique in most economic planning and government budgeting, both internationally and nationally. Leontief's success in applying the input-output model of economic analysis resulted largely from his outstanding ability as a general economist. He was interested in several fields: international trade, monopoly issues, and econometrics—the measuring of the specific strength of an economy. Leontief opposed theorizing about economics, and instead said: "What counts is the relevance of the basic material premises, the capability to exploit effectively all factual data at hand, and to identify promising directions." Leontief's practical and empirical approach, causing modern economics to be ever more scientific, had put him clearly in a class as a major contributor to twentieth century economic science.

Wassily Leontief died in February 1999, at the age of 92.

FURTHER READING

Fisher, Franklin M., and Karl Shell. Economic Analysis of Production Price Indexes. Cambridge: Cambridge University Press, 1998.

Harmston, Floyd K., and Richard E. Land. Application of an Input-Output Framework to a Community Economic System. Columbia: University of Missouri Press, 1967.

Koehler, Gary J., Andrew B. Whinston, and Gordon P. Wright. Optimization Over Leontief Substitution Systems. Amsterdam: North Holland Pub., Co., 1975.

Leontief, Wassily. Input-Output Economics. New York: Oxford University Press, 1986.

Leontief, Wassily, and Faye Duchin. The Future Impact of Automation on Workers. New York: Oxford University Press, 1986.