The Leontief-BLS partnership: a new framework for measurement

Monthly Labor Review, June, 2001 by Martin C. Kohli

The ongoing collaboration between Wassily Leontief and the Bureau of Labor Statistics was mutually beneficial, bringing to Leontief confirmation of the utility of input-output analysis and to the Bureau tables that remained useful for decades to come

"The Department of Labor," according to Wassily Leontief, "was the first government agency to take an active interest in the `input-output' approach to the study of the American economy and the continual cooperative relationship with its Bureau of Labor Statistics has benefited our work most decisively."(1) The specifics of the Bureau's role, however, are not well known. Referring to the forecasts the Bureau made during the last year of World War II that the postwar demand for steel would be strong, contrary to the opinion of many experts, Leontief held that the accuracy of this forecast provided evidence that input-output analysis was a useful tool for decisionmakers.(2)

Although he cited this episode, Leontief never provided a comprehensive account of the Bureau's role in the development of input-output analysis, thus leaving the door open for a number of interpretations. Robert Dorfman pointed out that the Bureau's resources made it possible for the Agency to formulate and develop "very large and detailed input-output tables."(3) Tjalling C. Koopmans described the early work on interindustry economics as "initiated, developed, and stimulated largely by Leontief and given statistical expression by measurements and tabulations produced by the Bureau of Labor Statistics," thereby distinguishing between the intellectual work accomplished by Leontief and the presumably routine data gathering done by the Bureau.(4) These accounts suggest that the Bureau's relationship with Leontief was significant largely because the Agency supplied the resources needed to transform his ideas from an academic curiosity into an operational tool for policymakers.

Indeed, a closer examination shows that the Bureau did more than just supply resources. This article proposes that the Department of Labor's interest stimulated the development of tables that were more useful for policymakers than Leontief's first formulation was. While the Battelle Memorial Institute summarizes many of the key facts, it gives short shrift to the Bureau's conceptual contributions.(5)

The Bureau's work with Leontief also had a number of effects on the Agency itself. When a still-being-assembled UNIVAC computer inverted a 1947 matrix, the Bureau found itself at the vanguard of computing technology. However, neither the Battelle study nor the history of Government statistics from 1926 to 1976 by Joseph W. Duncan and William C. Shelton examined how the input-output work affected the relationships among the Bureau's programs.(6) Such an examination, undertaken in this article, shows that, as a result of its input-output work, the Bureau attempted to treat some of its measured price, quantity, and value magnitudes as part of a new framework--a consistent system of national economic accounts--and this approach revealed inadequacies in at least one BLS program.

In 1953, Defense Department funding for input-output analyis dried up, and in 1954, the Bureau's work on the subject came to a halt. In 1961, the Bureau and Leontief began a second chapter in their partnership, but that story will need to be told elsewhere; this article confines itself to the developments that occurred between 1941 and 1953 and to some of their consequences.

The first input-output tables

In 1932, freshly arrived at Harvard after a brief stint with the National Bureau of Economic Research, Leontief began the unusual project of constructing a tableau economique for the United States. Francois Quesnay, the 18th-century French economist, had used his tableau to analyze how changes, such as an increase in spending on luxuries, would affect the net product of France and its distribution among the various French social classes. In a similar manner, Leontief used his table to demonstrate "how the outputs of various industries and the prices of their products would have reacted" to changes in parameters for industrial productivity and savings.(7) Leontief treated this demonstration of conditional reactions as a goal toward the satisfaction of which he assembled and reconciled a massive amount of information.

Having set his goal, Leontief began the journey by describing an accounting scheme that covered "all branches of industry, agriculture, and transportation [and] also the individual budgets of all private persons."(8) The key account was the expenditure and revenue account, which included all expenditures leaving, and all revenues entering, an establishment over a particular period. For the purpose of understanding the development of input-output analysis, the critical feature of Leontief's schema was that the expenditure account explicitly included "capital outlays."(9) The accounts for an industry could be derived by consolidating the accounts of the establishments within it--adding up all the purchases from and sales to other establishments. Because one industry's sales to another would be recorded as the latter's purchases from the former, the industry accounts could be represented in what we now call a transactions table. Table 1 provides part of the transactions table for 1929. Note that for any individual sector, expenditures could exceed, equal, or fall short of receipts. But for the economy as a whole, the sum of expenditures would necessarily equal the sum of receipts.