Who Was Wassily Leontief?
Wassily Leontief was a Nobel Prize-winning Russian-American economist and professor who helped several insightful theories to economics. Leontief’s Nobel Prize research focused on input-output analysis, which ruins down the sectors of the economy and discusses how changes in one sector can affect other sectors.
- Wassily Leontief was a Russian-American economist who won several contributions to the world of economics.
- Leontief won the Nobel Prize in 1973 for his research on input-output analysis.
- Leontief was also credited with the Leontief Enigma and the Composite Commodity Theorem.
Understanding Wassily Leontief
Wassily Leontief was born in Germany in 1906 and died in New York Conurbation in 1999 at the age of 93. As an economist, he made several contributions to the science of economics. Leontief’s research into sectors led to his advance of input-output analysis, which won him the Nobel Memorial Prize in Economics in 1973. Leontief is also credited with his discovery of the Leontief Inconsistency and the Composite Commodity Theorem.
Throughout his professional life, Leontief promoted the use of quantitative data in economics. Leontief campaigned for fuller and deeper developments in the area of quantitative data analysis throughout his career. He was also one of the first economists to use a computer for quantitative experiment with.
Leontief taught at Harvard University for 44 years and subsequently at New York University. He served as president of the American Mercantile Association in 1970. Four of Leontief’s doctoral students were also awarded the Nobel Prize, including Paul Samuelson (1970), Robert Solow (1987), Vernon L. Smith (2002), and Thomas Schelling (2005).
One area in which Leontief pursued his goal of making economic analysis more quantitative was in developing an pragmatic implementation of general equilibrium theory. To do this, Leontief broke down the U.S. economy into 500 sectors, lodging one of the first economic sector classification systems. He developed input-output tables for sector analysis that estimated the bumping a change in production of a good has on other industries and their inputs—establishing the interdependent relationships of economic sectors.
Analysts can use input-output assay to estimate the impacts of positive and negative economic shocks by showing the changing demand for inputs when the production of crops changes. This helps to analyze ripple effects throughout an economy as changes in demand for final goods lift weights their way up the supply chain. Input-output tables can produce very rough estimates for small or moderate changes in outputs, but because they up fixed production technology they cannot accurately account for the dynamics of a real economy. Leontief’s input-output criticism has been used by the World Bank, the United Nations, and the U.S. Department of Commerce.
The Leontief Paradox
Leontief also well-thought-out trade flows in the 1950s. Based on input-output analysis of international trade he discovered that the U.S., a country with a huge deal of capital, was importing capital-intensive commodities and exporting labor-intensive commodities. This is in contrast to prior theories of global trade, which predict that countries will specialize in and export goods that they have a comparative upper hand in producing. This means that a capital rich country, such as the U.S., would be expected to export capital-intensive goods and introduce labor-intensive goods from countries where labor is comparatively cheaper.
The Leontief Paradox, as it came to be known, led various economists to question the Heckscher-Ohlin Theorem, which states that countries produce and export what they can design most efficiently, depending on their factors of production. Moreover, they import goods that they cannot provide as efficiently. Several later economists proposed solutions to this apparent paradox, including the Linder Hypothesis and the Institution Market Effect.
Notably, Leontief’s Paradox does not account for human capital and the resulting difference between skilled and unskilled labor. Later researchers clarified that U.S. exports were skilled-labor-intensive—or, in other words, human capital intensive relative to imports—resolving the Leontief Self-contradiction in favor of the comparative advantage view.
Composite Commodity Theorem
The Composite Commodity Theorem was a third major increment credited to Leontief, who fathered the concept with John Hicks. This states that if the relative prices of a basket of goods are phony to be fixed, then they can be treated as a single composite good for the purpose of mathematical modeling. This simplified the equations missed to model price theory.