Wassily Leontief: The Foreigner Who Visited Keio University

2017/10/10

The subject of this article is Professor Wassily Leontief, who received the Nobel Prize in Economics in 1973. Professor Leontief visited Japan in October 1992 to attend the 4th Nobel Prize Winners Japan Forum (sponsored by the Yomiuri Shimbun and NHK). Prior to that, he had also visited Japan in 1986 to attend the 6th International Conference on Input-Output Techniques held in Sapporo.

His visit to Keio University took place the day before the aforementioned Nobel Prize Winners Japan Forum. The purpose of his visit was to give a lecture at a special lecture meeting (held in the Large Conference Room of the Old University Library) organized by the Keio Economic Observatory (KEO) to coincide with his visit to Japan.

However, he did not visit Keio University simply to give a lecture. At that time, a full-time faculty member of Keio University, who used the Keio Economic Observatory (KEO) as a research base, had studied at Harvard University in the 1960s. During that time, they came into contact with Professor Leontief's research stance—specifically the construction of economic analysis models as an empirical science and their application to the real economy—and were greatly influenced academically. This influence was strongly reflected in the research activities undertaken by the faculty member upon their return to Japan, based at the Keio Economic Observatory (KEO). By the late 1970s, the Keio Economic Observatory (KEO) had become one of the few centers for empirical economic analysis in Japan at the time. Since then, academic exchange with Professor Leontief deepened. It was because of this relationship that the special lecture was planned as part of this ongoing exchange.

Unfortunately, no detailed records of the lecture content remain. Only the title (in English) has been preserved. A literal translation of that title would be "Research on Input-Output Structure Regarding Interdisciplinary Relationships." The latter part, "Research on Input-Output Structure," refers to research based on the input-output analysis model, which was cited as the primary reason (achievement) for his Nobel Prize. Surprisingly, the basic concept of this analysis model is said to have been conceived by Professor Leontief in his early 20s and finalized in his late 20s. Research achievements worthy of a Nobel Prize were achieved as early as his late 20s. When he visited Keio University for this lecture, the professor was 86 years old.

After approximately 60 years had passed, he brought the input-output analysis model he had founded and delivered a lecture that incorporated a new analytical perspective.

The new analytical perspective refers to the first half of the title, "interdisciplinary relationships." More specifically, it refers to the creation of various types of knowledge (intellectual property) and their supply-demand relationships. Knowledge produced and traded in a market economy is an intangible asset and a non-physical product. One might wonder if "knowledge," being an intangible asset and non-physical product, fits into an input-output analysis model. Strictly speaking, it is a question of whether the theoretical hypotheses regarding production technology and products, which will be discussed later, are valid. This was not mentioned at all during the special lecture. It is impossible to verify now. However, the lecture was a great success. The reason, above all, was likely that the speaker was the Nobel laureate Professor Leontief. On the other hand, there seem to have been few people interested in the "interdisciplinary relationships" of knowledge included in the title.

The input-output analysis model founded by Professor Leontief is characterized by the specification of the sectoral raw material (intermediate goods) input function, which forms the basis of the model. It is an extremely simple linear function. The parameters of this linear function are the input coefficients that define the input-output relationships between sectors, and the matrix of input coefficients by sector and commodity represents the relationship between industrial sectors (industrial structure). If each input coefficient is fixed, the relationship between industrial sectors is also fixed, forming a robust industrial structure. Furthermore, the input coefficient column vector of an industrial sector, represented as a column in the input coefficient matrix, represents the production technology of that industrial sector. These theoretical hypotheses are likely strictly valid only for physical products with physical units of quantity.

This type of input-output analysis model was used as a model for formulating and evaluating reconstruction policies during the post-war recovery period of countries exhausted by World War II. In the United States in particular, it was used to predict the supply capacity of each industrial sector required for peacetime during the transition from a wartime to a peacetime economy. In other words, a new peacetime industrial structure was sought from the perspective of supply capacity. Most notably, a controversial proposal was made regarding the supply capacity of the "steel industry," which had been significantly expanded to meet military demand under the wartime system, suggesting that even further expansion was necessary for peacetime. This proposal to Congress was the result of an analysis based on the input-output analysis model that Professor Leontief himself worked on.

In Japan as well, high economic growth was promoted in tandem with the Income Doubling Plan set as a national policy in the 1960s, and powerful industrial structure policies were formulated and implemented. Needless to say, the input-output analysis model was used as an important analytical tool. Meanwhile, in Japan, the estimation of input-output tables (industrial relation tables) essential for analysis began around the mid-1950s. The first official government statistic was the 1955 table. Prior to that, an unofficial 1951 table was produced as a trial. The estimation of this trial table was carried out by young bureaucrats at the time, some of whom had experience studying abroad and had received direct guidance from Professor Leontief. In particular, researchers at the Keio Economic Observatory (KEO) contributed greatly to the estimation of input-output tables as official government statistics and the verification of theoretical hypotheses. In Japan's case, input-output tables were estimated as government statistics at an early stage, second only to the United States, but what should be emphasized more than the timing is that, as Professor Leontief himself later marveled, large-scale and detailed input-output tables were estimated.

At the risk of being misunderstood, the estimation of statistical data and statistical surveys are often regarded as practical work. This is because, in many cases, the work proceeds without considering the mechanism by which data such as estimated values and observed values are generated (the data generation model). However, the framework of the input-output table itself represents a model, and observed values cannot be fitted without considering the structure of the model. The input coefficients mentioned earlier are estimated as the ratio of observed values for input and output.

There are two major academic societies associated with Professor Leontief and the input-output analysis model. One is the International Input-Output Association (IIOA), which involves participation from countries around the world, and the other is the Pan Pacific Association of Input-Output Studies (PAPAIOS), centered on Japan. The International Input-Output Association, initiated by European researchers, emphasizes the simplified input-output tables incorporated into the System of National Accounts (SNA) framework led by the UN Statistical Commission. "Simplified" means that they are estimated with an excessively consolidated number of sectors. The primary purpose of the SNA is to estimate GDP as a macro statistic. It is not intended to estimate input-output tables with a detailed number of sectors and perform input-output analysis based on them. In this respect, it seems he was incompatible with Professor Leontief. In contrast, he seemed to feel a certain sense of affinity toward the Pan Pacific Association of Input-Output Studies.

Depending on the definition of heterodoxy, one cannot say the professor was a heterodox economist simply based on his response to such academic societies.

When considering his heterodoxy, it is necessary to recall that the young Professor Leontief fled the chaos of the Russian Revolution to Germany and was eventually invited to the United States, which was considered the center of orthodox economics. It is said that the first research project Professor Leontief tackled at the National Bureau of Economic Research (NBER), where he was invited, was the problem of statistical estimation of demand functions. Is it a historical coincidence that Professor Milton Friedman was working on the same task at the same institute during the same period? Starting from this coincidence, these two giants of economics moved toward opposing types of economics, like opposing magnetic poles. Later, he moved to Harvard University, which accepted his empirical research on input-output analysis, and it is said that one of his early graduate students was Paul Samuelson. In supervising graduate students, he seems to have accepted orthodox economics. However, Professor Leontief did not reject orthodox economics. He simply did not recognize economics that was difficult to verify and therefore lacked empirical feasibility. The Keio Economic Observatory (KEO) at Keio University was greatly influenced by Professor Leontief's economics and analytical methods and has carried them on to this day. In 그 sense, it could be called a heterodox research institute.

Professor Wassily Leontief was born in Russia in 1906, and after obtaining his degree from the University of Berlin in Germany, he moved to the United States at a young age and passed away in 1999. Mourning the heterodox economist who lived through the 20th century, the New York Times promptly published a large obituary. The following English text is a portion of it.

When asked how he developed the input-output analysis recognized by his Nobel memorial prize, he would invariably begin, "Oh, it's really very simple – what I wanted to do was collect facts."

The facts he sought were those that explained how segments of production were interconnected. (New York Times February 7, 1999)