
18 October 1973
THE PRIZE IN ECONOMIC SCIENCES IN MEMORY OF ALFRED NOBEL TO THE FATHER OF INPUT-OUTPUT ANALYSIS
The
Royal Swedish Academy of Sciences has awarded the 1973 year's
Prize in Economic Science in Memory of Alfred Nobel to
Professor Wassily Leontief
for the development of the input-output method and for its
application to important economic problems.
Professor Leontief is the sole and
unchallenged creator of the input-output technique. This
important innovation has given to economic sciences an
empirically-useful method to highlight the general
interdependence in the production system of a society. In
particular, the method provides tools for a systematic analysis
of the complicated interindustry transactions in an
economy.
Professor Leontief outlined the input-output technique as early
as in the 1930s. A comprehensive version of the analysis was
published in 1941 in the book, The Structure of American
Economy, 1919-1929. A considerably extended version appeared
ten years later.
The input-output analysis describes the interdependence in the
production systems as a network of deliveries between the various
sectors of production. For every production sector, technical
coefficients define the quantities of intermediary products which
are required per unit produced of each commodity.
Final demands of products for consumption, investment and exports
in the model are usually treated as determined by conditions
outside the production system. The purpose of the analysis is
then to find out how much production has to be increased in the
various sectors of the economy to satisfy a given desired or
planned increase in final demand for consumption, investment and
exports. The increased production in each sector then has to
cover not only the change in final demand, but also the derived
changes in demand for intermediary products in the various
production sectors.
Applicability of the Method
The input-output system
has found extensive use especially in forecasting and planning,
both in the short and in the long run. The wide usefulness of the
input-output technique is indicated by the fact that it is used
in forecasting and planning in quite different types of economic
systems - decentralized market economies with mainly private
enterprise as well as centrally-planned economies dominated by
public ownership.
Examples of the Usefulness of the Method
The method
has proved particularly effective in the analysis of sudden and
large changes, as in the case of military mobilization or other
far-reaching tranformations of an economy. The method has also
been applied in studies of how cost and price changes are
transmitted through various sectors of an economy.
Among recent developments of the method may be mentioned its extension to include residuals of the production system - smoke, water pollution, scrap, etc., and the further processing of these. In this way the effects of the production on the environment can be studied.