Simon Kuznets
Encyclopedia
Simon Smith Kuznets 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".
-Jewish family at Pinsk
, Russian Empire
(now in Belarus
) and started his higher education in Kharkiv Commercial Institute
, Ukraine
, but moved to the United States
in 1922 and was educated at Columbia University School of General Studies
, 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.
, 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
(including his discovery of "Kuznets swing
s") 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 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, writing that "the welfare of a nation can scarcely be inferred from a measure of national income."
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
.
Russian American
Russian Americans are primarily Americans who traces their ancestry to Russia. The definition can be applied to recent Russian immigrants to the United States, as well as to settlers of 19th century Russian settlements in northwestern America which includes today's California, Alaska and...
economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
at the Wharton School of the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
who won the 1971 Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
"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".
Biography
He was born into a BelarusianBelarusians
Belarusians ; are an East Slavic ethnic group who populate the majority of the Republic of Belarus. Introduced to the world as a new state in the early 1990s, the Republic of Belarus brought with it the notion of a re-emerging Belarusian ethnicity, drawn upon the lines of the Old Belarusian...
-Jewish family at Pinsk
Pinsk
Pinsk , a town in Belarus, in the Polesia region, traversed by the river Pripyat, at the confluence of the Strumen and Pina rivers. The region was known as the Marsh of Pinsk. It is a fertile agricultural center. It lies south-west of Minsk. The population is about 130,000...
, Russian Empire
Russian Empire
The Russian Empire was a state that existed from 1721 until the Russian Revolution of 1917. It was the successor to the Tsardom of Russia and the predecessor of the Soviet Union...
(now in Belarus
Belarus
Belarus , officially the Republic of Belarus, is a landlocked country in Eastern Europe, bordered clockwise by Russia to the northeast, Ukraine to the south, Poland to the west, and Lithuania and Latvia to the northwest. Its capital is Minsk; other major cities include Brest, Grodno , Gomel ,...
) and started his higher education in Kharkiv Commercial Institute
Kharkiv National University of Economics
Kharkiv National University of Economics is the largest economic higher educational institution of the Eastern Ukraine. It's a state-owned higher school of the IV-level accreditation and belongs to the Ministry of Education and Science of Ukraine....
, Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
, but moved to the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
in 1922 and was educated at Columbia University School of General Studies
Columbia University School of General Studies
The School of General Studies, commonly known as General Studies or simply GS, is one of the three official undergraduate colleges at Columbia University. It is a highly selective Ivy League undergraduate liberal arts college designed for non-traditional students and confers Bachelor of Art and...
, 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
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
and as professor of Economics and Statistics from 1936 until 1954. He was elected to the Pi Gamma Mu
Pi Gamma Mu
Pi Gamma Mu or ΠΓΜ is the oldest and preeminent honor society in the social sciences. It is also the only interdisciplinary social science honor society. It serves the various social science disciplines which seek to understand and explain human behavior and social relationships as well as their...
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
Johns Hopkins University
The Johns Hopkins University, commonly referred to as Johns Hopkins, JHU, or simply Hopkins, is a private research university based in Baltimore, Maryland, United States...
, where he was Professor of Political Economy until 1960. From 1960 until his retirement in 1971, Kuznets taught at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
.
Simon Kuznets died on July 8, 1985, at the age of 84.
His work and its impact on economics
Kuznets is credited with revolutionising econometricsEconometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
, and this work is credited with fueling the so-called Keynesian
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
"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
Business cycle
The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...
(including his discovery of "Kuznets swing
Kuznets swing
Kuznets swing is a claimed medium-range economic wave with a period of 15–25 years found in 1930 by Simon Kuznets. Kuznets connected these waves with demographic processes, in particular with immigrant inflows/outflows and the changes in construction intensity that they caused, that is why he...
s") and disequilibrium aspects of economic growth helped launch development economics
Development economics
Development Economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic growth and structural change but also on improving the potential for the mass of the population, for example,...
. He also studied inequality over time, and his results formed the
Kuznets Curve
Kuznets curve
A Kuznets curve is the graphical representation of Simon Kuznets' hypothesis that economic inequality increases over time while a country is developing, and then after a certain average income is attained, inequality begins to decrease....
.
Another important development was Kuznets' empirical examination of Keynes' 1936 Absolute Income Hypothesis
Absolute Income Hypothesis
The Absolute Income Hypothesis is theory of consumption proposed by English economist John Maynard Keynes , and has been refined extensively during the 1960s and 1970s, notably by American economist James Tobin .-Background:...
. The hypothesis gave birth to what would become the first formal consumption function
Consumption function
In economics, the consumption function is a single mathematical function used to express consumer spending. It was developed by John Maynard Keynes and detailed most famously in his book The General Theory of Employment, Interest, and Money. The function is used to calculate the amount of total...
. 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
National Bureau of Economic Research
The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...
, 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
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
's Permanent Income Hypothesis
Permanent income hypothesis
The permanent income hypothesis is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term...
, and several more modern alternatives such as the Life cycle hypothesis
Life cycle hypothesis
The Life Cycle Hypothesis is an economic concept analysing individual consumption patterns.The life-cycle hypothesis considers that individuals plan their consumption and savings behaviour over the long term and intend to even out their consumption in the best possible manner over their entire...
and the Relative Income Hypothesis
Relative income hypothesis
Developed by James Duesenberry, the relative income hypothesis states that individual’s attitude to consumption and saving is dictated more by his income in relation to others than by abstract standard of living. So an individual is less concerned with absolute level of consumption than by...
.
There are two developments at Kuznets time: the emergence of econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...
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
Wesley Clair Mitchell
Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades....
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
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. 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
Long-cycles
There has been some confusion between the terms long-cycle and long-waves. Long-waves date back to Nikolai Kondratieff, the Russian economist whose name now represents the cycles that he expounded on, that is the Kondratieff Waves. Long-cycles properly belongs to Simon Kuznets, the second American...
and long-swings.
Kuznets's life work was the collection and organization of the national income accounts
National accounts
National accounts or national account systems are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting...
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
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. 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
GNP
Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...
. He disapproved, however, of its use as a general indication of welfare, writing that "the welfare of a nation can scarcely be inferred from a measure of national income."
Kuznets was also one of the earliest workers on development economics
Development economics
Development Economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic growth and structural change but also on improving the potential for the mass of the population, for example,...
, 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
Intertemporal consumption
Economic theories of intertemporal consumption seek to explain people's preferences in relation to consumption and saving over the course of their life...
of Modigliani
Franco Modigliani
Franco Modigliani was an Italian economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.-Life and career:...
and Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
.
See also
- Capital formationCapital formationCapital formation is a concept used in macroeconomics, national accounts and financial economics. Occasionally it is also used in corporate accounts. It can be defined in three ways:...
- Kuznets curveKuznets curveA Kuznets curve is the graphical representation of Simon Kuznets' hypothesis that economic inequality increases over time while a country is developing, and then after a certain average income is attained, inequality begins to decrease....
- Information Revolution
- List of economists
- List of Jewish Nobel laureates
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.