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.