Simon Kuznets

For more information on Simon Smith Kuznets, visit Britannica.com.

American economist, researcher, and author, Simon Kuznets (1901-1985) won the Nobel Prize in 1971 for pioneering the use of a nation's gross national product to analyze economic growth.

Simon Kuznets was born in Kharkov, Russia, in 1901. At an early age he and his family emigrated from Russia to the United States. Kuznets and his family settled in New York City, where he attended school. He received his bachelor's degree from Columbia University in 1923. He also attended Columbia University to do his graduate work, completing his master's degree in 1924 and his doctorate in 1926. His doctoral dissertation was entitled "Cyclical Fluctuations in Retail and Wholesale Trade." This work, in principle, set the stage for many of his future research efforts. In 1929 he married Edith Handler. They raised two children.

Kuznets' fields of specialization were economic growth, economic development, and economic planning theory and policy; the economics of technological change; and demographic economics. He taught in all of these areas and did research in them as well. He was especially interested in researching the relationship of population size and population traits to the process of long-term economic growth. His research was not restricted to the experience of the United States; quite to the contrary, he was interested in and did extensive analysis of the national income and growth data of a number of industrialized nations. In addition, Kuznets did a significant amount of research on secular movements in production levels and prices.

He was employed at the rank of professor in the Economics Department at the University of Pennsylvania from 1936 until 1954. He then joined the Economics Department at Johns Hopkins University as a full professor from 1954 until 1960. From 1960 until 1971, he was professor of economics at Harvard University and then professor of economics emeritus there until his death in 1985.

Kuznets was well known for his analysis involving national income data. Indeed, Kuznets was the intellectual "father" of modern methods of national income accounting. He was credited with having developed the basic format for studying both national income and product accounts and the composition of such accounts. In the process of his pioneering work on national income and related data, many important contributions to economic policy and economic understanding were developed. For example, digging back to the year 1870 Kuznets estimated national income and the components of national income for the United States for both the latter part of the 19th century and the early part of the 20th century. As a result, his studies involved him in a number of important national economic policy issues and debates. In point of fact, his involvement in such issues and debates won him recognition in a wide variety of economics textbooks.

One of the main issues in which Kuznets' studies played an important role involved the relationship among the levels of aggregate consumer spending, aggregate consumer saving, and aggregate household disposable income. For instance, the relationship between the level of aggregate consumer spending and the level of aggregate disposable income is critical to the effectiveness of public economic policy and to the formulation of public economic policy. Kuznets found that the proportion of per capita income that is saved had not significantly changed since the year 1870.

To many analysts, Kuznets' finding of a proportional relationship between the level of aggregate consumer spending and the level of aggregate disposable income was seemingly at odds with Keynesian theory and Keynesian policy analysis. In point of fact, the findings by Kuznets essentially related to the long run, whereas the theory of Keynes related essentially to the short run. The findings by Kuznets and the theories of Keynes actually supplemented each other. Indeed, the findings by Kuznets provided a most suitable format for the study of long-term economic growth. Among other things, Kuznets' findings helped to shape the evolution of modern theories of both macroeconomic growth and development and regional economic growth and development.

The work by Kuznets on national income accounting led to a myriad of other contributions. For example, Kuznets was apparently the first economist to observe a 15 to 25 year long business cycle involving business construction. As a result, Kuznets was able to contribute substantively to the study and the theory of business cycles in industrialized nations. In addition, Kuznets had several insightful observations to make regarding the components of the national income and product accounts. For instance, national defense expenditures are classified as "regrettable necessities."

Kuznets received recognition and honors on many occasions. For example, he was voted in as the president of the prestigious American Economic Association in 1954. In itself, this is an honor of enormous proportions, for only an economist of true distinction is ever awarded such recognition.

In 1971 Kuznets received the Nobel Prize for his empirically founded interpretation of economic growth. Kuznets' receipt of this honor is an example of a prize awarded for inductive analysis rather than deductive analysis. In point of fact, Kuznets' greatest strength had been to reveal new facts and new relationships about the real world. He was able to find "new truths" about the real world with the aid of common sense and rational thinking and with a minimum of the elegant, formal economic models with which most economic researchers are so enamored. An example of a "new truth" derived by Kuznets is his celebrated "law" of the relationship between long-term economic growth in a society and the distribution of income in that society.

In certain respects, the Nobel Prize to Simon Kuznets may be regarded as an award for interdisciplinary research. In integrating techniques from economic analysis, statistics, and history, Kuznets attempted to give quantitative precision to fields of study that were supposed to be pertinent to the understanding of the processes of economic development and social development. He was a pathbreaker in the integrated use of technology, population, marketing, and industrial structure.

Further Reading

The work of Simon Kuznets is perhaps best represented in his two-volume work entitled National Income and Its Composition, 1919-1938 (1941). Kuznets also examined long-term economic growth in 14 Western industrial nations in his book Modern Economic Growth: Rate, Structure, and Spread (1966).

Simon Kuznets

Birth	April 30, 1901(1901-04-30) Pinsk, Russian Empire
Death	July 8, 1985 (aged 84) Cambridge, Massachusetts
Nationality	United States
Institution	NBER Harvard University (1960-1971) Johns Hopkins University (1954-1960) University of Pennsylvania (1930-1954)
Field	Econometrics
Alma mater	Columbia University
Influences	Wesley Clair Mitchell
Influenced	Robert Fogel Milton Friedman
Contributions	National income data Empirical business cycle research Characteristics of economic growth
Awards	Nobel Memorial Prize in Economic Sciences (1971)

Simon Smith Kuznets (April 30, 1901 – July 8, 1985) was a Russian American economist at the Wharton School of the University of Pennsylvania who won the 1971 Nobel Memorial Prize in Economic Sciences "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development".

Contents 1 Biography 2 His work and its impact on Economics 3 See also 4 References 5 External links

Biography

He was born into a Jewish family at Pinsk, Russian Empire (now in Belarus) and was educated in Kharkiv, Ukraine, but moved to the United States in 1922 and was educated at Columbia University, receiving his B.Sc. in 1923, M.A. in 1924, and Ph.D. in 1926.

From 1925 to 1926, Kuznets spent time studying economic patterns in prices as the Research Fellow at the Social Science Research Council. It was this work that led to his book Secular Movements in Production and Prices, published in 1930.

From 1930 until 1936, Kuznets was a part-time professor at the University of Pennsylvania and as professor of Economics and Statistics from 1936 until 1954. He was elected to the Pi Gamma Mu social science honor society chapter at the University of Pennsylvania and actively served as a chapter officer in the 1940s. In 1954, Kuznets moved to Johns Hopkins University, where he was Professor of Political Economy until 1960. From 1960 until his retirement in 1971, Kuznets taught at Harvard University.

Simon Kuznets died on July 8, 1985, at the age of 84.

His work and its impact on Economics

Kuznets is credited with revolutionising econometrics, and this work is credited with fueling the so-called Keynesian "revolution". An important book of his is National Income and Its Composition, 1919–1938. Published in 1941, it contains a historically significant work on Gross National Product. His work on the business cycle and disequilibrium aspects of economic growth helped launch development economics. He also studied inequality over time, and his results formed the Kuznets Curve.

Another important development was Kuznets' empirical examination of Keynes' 1936 Absolute Income Hypothesis. The hypothesis gave birth to what would become the first formal consumption function. However Kuznets shook the economic world by finding that Keynes' predictions, while seemingly accurate in short-run cross-sections, broke down under more rigorous examination. In his 1942 tome Uses of National Income in Peace and War, published by the National Bureau of Economic Research, Kuznets became the first economist to show that the Absolute Income Hypothesis gives inaccurate predictions in the long run (by using time-series data). Keynes had predicted that as aggregate income increases, so will marginal savings. Kuznets used new data to show that, over a longer span of time (1870's – 1940's) the savings ratio remained constant, despite large changes in income. This paved the way for Milton Friedman's Permanent Income Hypothesis, and several more modern alternatives such as the Life-cycle Income Hypothesis and the Relative Income Hypothesis.

There are two developments at Kuznets time: the emergence of econometrics and the Keynesian Revolution, both of which found in Kuznets's data an important resource for their advancement. Kuznets, however, was neither a Keynesian nor an econometrician—he took his cues from Mitchell's Institutionalism—as exemplified in his 1930 methodological pieces. Whereas Mitchell devoted his life to the study of business cycles, Kuznets turned to other fluctuations—seasonal ones and secular movements—then to national income estimation, and later to studies of economic growth. As a result, his initial work was on the empirical analysis of business cycles (1930)—a 15-20 year cycle he identified was later attached to his name, the "Kuznets Cycle". These cycles were referred to by Kuznets as long-cycles and long-swings.

Kuznets's life work was the collection and organization of the national income accounts of the United States (1934, 1941, and 1946). Kuznets was interested in statistical fact finding focusing specifically on seasonal fluctuations, secular movements, national income estimation, and economic growth. He computed national income back to 1869. He broke it down by industry, by final product, and by use. He also measured the distribution of income between rich and poor. Although Kuznets was not the first economist to try this, his work was so comprehensive and meticulous that it set the standard in the field.

Kuznets helped the U.S. Department of Commerce to standardize the measurement of GNP. He disapproved, however, of its use as a general indication of welfare^[1], writing that "the welfare of a nation can scarcely be inferred from a measure of national income."^[2]

Kuznets was also one of the earliest workers on development economics, in particular collecting and analyzing the empirical characteristics of developing countries (1965, 1966, 1971, and 1979). His major thesis, which argued that underdeveloped countries of today possess characteristics different from those that industrialized countries faced before they developed, helped put an end to the simplistic view that all countries went through the same "linear stages" in their history and launched the separate field of development economics—which now focused on the analysis of modern underdeveloped countries' distinct experiences.

Among his several discoveries which sparked important theoretical research programs was his discovery of the inverted U-shaped relation between income inequality and economic growth (1955, 1963). In poor countries, economic growth increased the income disparity between rich and poor people. In wealthier countries, economic growth narrowed the difference. By noting patterns of income inequality in developed and underdeveloped countries, he proposed that as countries experienced economic growth, the income inequality first increases and then decreases. The reasoning was that in order to experience growth, countries had to shift from agricultural to industrial sectors. While there was little variation in the agricultural income, industrialization led to large differences in income. Additionally, as economies experienced growth, mass education provided greater opportunities which decreased the inequality and the lower income portion of the population gained political power to change governmental policies. He also discovered the patterns in savings-income behavior which launched the Life-Cycle-Permanent-Income Hypothesis of Modigliani and Friedman.

See also

• Capital formation
• Kuznets curve

References

1. ^ http://harpers.org/archive/2008/06/0082042
2. ^ Simon Kuznets, 1934. "National Income, 1929-1932". 73rd US Congress, 2d session, Senate document no. 124, page 7. http://library.bea.gov/u?/SOD,888

• Fogel , Robert W. (2000). "Simon S. Kuznets: April 30, 1901-July 9, 1985". NBER Working Paper No. W7787
• Munir Khasru Syed, Muaz Jalil Mohammad (2004), Revisiting Kuznets Hypothesis: An Analysis with Time Series and Panel Data,Bangladesh Development Studies, Vol 30 No 3-4, pg 89-112
• Munir Khasru Syed, Muaz Jalil Mohammad (2004), Revisiting Kuznets Hypothesis: An Analysis with Time Series and Panel Data (Draft) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1240658

External links

Two brief summaries of his life and work:

• Liberty Fund.
• New School for Social Research. With partial bibliography and web links.
• Kuznets's Nobel Prize lecture.
• Fogel, Robert, 2000, "Simon S. Kuznets: 1901-1985," NBER Working Paper No. 7787.
• IDEAS/RePEc.

v • d • e Nobel Memorial Laureates in Economics Ragnar Frisch / Jan Tinbergen (1969) · Paul Samuelson (1970) · Simon Kuznets (1971) · John Hicks / Kenneth Arrow (1972) · Wassily Leontief (1973) · Gunnar Myrdal / Friedrich Hayek (1974) · Leonid Kantorovich / Tjalling Koopmans (1975) Complete roster · 1969–1975 · 1976–2000 · 2001–present

Persondata
NAME	Kuznets, Simon
ALTERNATIVE NAMES
SHORT DESCRIPTION	Economist
DATE OF BIRTH	April 30, 1901
PLACE OF BIRTH	Pinsk
DATE OF DEATH	July 8, 1985
PLACE OF DEATH	Cambridge, Massachusetts

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