Leontief: Input-output economics

Leontief, Wassily. 1986. Input-output Economics. Oxford University Press.

This text was originally published in 1966. It begins by exploring better ways to forecast economic variables. Input-output tables are seen as being crucial for this endeavor. The first input-output table for the US was produced for the year 1947.

“Without entering into technical details, it suffices to say that such input-output tables show the flows of goods and services among all the different sectors of a national economy, but that a broad tabulation of economic activity is not enough for business purposes. To supply a reliable statistical base for coordinated market analysis on the part of business firms, an input-output table must be much more detailed. It should describe the actual state of the particular national economy in the base year—that is, the year from which the forward-demand projections are to be made—in terms of, say, 150, 200, or even as many as 300 or 400 separate industries or sectors” (8).

“This article is concerned with a new effort to combine economic facts and theory known as ‘interindustroy’ or ‘input-output’ analysis. Essentially it is a method of analysis that takes advantage of the relatively stable pattern of the flow of goods and services among the elements of our economy to bring a much more detailed statistical picture of the system into the range of manipulation by economic theory” (14).

The table can be used to calculate the effects of cost changes, i.e., the cost of wage increases on certain sectors, the cost of tax changes on sectors, etc. Also, the model can show the relative robustness of different sectors of the economy. “The input-output table is not merely a device for displaying or storing information; it is above all an analytical tool” (43).

“The great virtue of input-output analysis is that it surfaces the indirect internal transactions of an economic system and brings them into the reckonings of economic theory” (44).