Who Was Wassily Leontief?
Wassily Leontief was a Nobel Prize-winning Russian-American economist and professor who contributed several insightful theories to economics. Leontief’s Nobel Prize research focused on input-output analysis, which breaks down the sectors of the economy and discusses how changes in one sector of the economy can affect other sectors.
- Wassily Leontief was a Russian-American economist who made 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 for the Leontief Paradox and the Composite Commodity Theorem.
Understanding Wassily Leontief
Leontief was born in Germany in 1906 and died in New York City 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 development of input-output analysis, which won him the Nobel Memorial Prize in Economics in 1973. Leontief is also credited for his discovery of the Leontief Paradox and the Composite Commodity Theorem.
Throughout his professional life, Leontief promoted the use of quantitative data in economics. Leontief campaigned for broader and deeper developments in the area of quantitative data analysis throughout his career. He was also one of the first economists to employ a computer for quantitative research.
Leontief taught at Harvard for 44 years and then New York University afterward. He served as President of the American Economic 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).
Leontief broke down the U.S. economy into 500 sectors, providing one of the first establishments of economic sector classification. He developed input-output tables for sector analysis that estimated the impact 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 analysis to estimate the impacts of positive and negative economic shocks by showing the changing demand for inputs when the production of outputs changes. This helps to analyze ripple effects throughout an economy as changes in demand for final goods work their way up the supply chain. Leontief’s input-output analysis has been used by the World Bank, the United Nations, and the U.S. Department of Commerce.
The Leontief Paradox
Leontief also studied trade flows in the 1950s. Based on input-output analysis of international trade discovered that the U.S., a country with a great deal of capital, was importing capital-intensive commodities and exporting labor-intensive commodities. This is in contrast to prior theories of international trade, which predict that countries will specialize in and export goods that they have a comparative advantage in producing. This means that a capital rich country, such as the U.S., would be expected to export capital-intensive goods.
The Leontief Paradox, as it came to be known, led many economists to question the Heckscher-Ohlin Theorem, which states that countries produce and export what they can create most efficiently, depending on their factors of production. Moreover, they import goods that they cannot produce as efficiently. Several later economists proposed solutions to this apparent paradox, including the Linder Hypothesis and the Home Market Effect.
Composite Commodity Theorem
The Composite Commodity Theorem was a third major development credited to Leontief, who fathered the concept with John Hicks. This states that if the relative prices of a basket of goods are assumed to be fixed, then they can be treated as a single composite good for the purpose of mathematical modeling. This simplified the equations needed to model price theory.