Capital Ideas - Summer 2013 - page 41

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Capital Ideas |
Summer 2013
39
Who was Simon Kuznets?
Simon Kuznets, winner of the third Nobel Memorial Prize in
Economic Sciences in 1971, helped transform the field of economics
into an empirically-based social science. Born in Pinsk, Russia, in
1901, Kuznets briefly served in Ukraine’s labor statistics office before
emigrating to the United States at age 21. He received a PhD from
Columbia University, where he met his lifelong mentor Wesley Clair
Mitchell, founder of the National Bureau of Economic Research.
It was at the NBER that Kuznets developed his pioneering work
in measuring national income and its components. In 1945 he wrote
Income from Independent Professional Practice with the University of
Chicago’s Milton Friedman, which was pivotal in demonstrating that
human capital investments can explain differences in average earnings
by professionals.
Kuznets went on to teach at the University of Pennsylvania, Johns
Hopkins, and Harvard. Chicago Booth Professor
Robert W. Fogel
was
one of his students.
—Vanessa Sumo
much more rapid in the M and S sectors than in the A
sector. In general, the shift in the structure of the labor
force from agriculture to higher- productivity sectors
by itself accounted for about one- fifth of the overall
growth in labor productivity, and the remainder was
due to productivity growth within each sector.
This monograph was not the first time that Kuznets
had shown the relative importance of intersectoral
shifts in total economic growth. But never before had
he or any other scholar applied this analysis to so many
countries over such a long stretch of time.
Kuznets devoted two subsequent entries in the
monograph series
7
to the contribution of capital for-
mation to economic growth. One of his principal
findings was that rich countries saved more than poor
countries (both in cross section for recent years and
over time). Moreover, as countries became rich, saving
shifted from being concentrated in households to be-
ing concentrated in businesses and governments. Sur-
prisingly, the association between savings rates and the
growth rates of nations was highly variable, which led
Kuznets to conclude that the intensity of capital utili-
zation was more important than sheer accumulation.
The seventh entry in the series
8
dealt with the share
and composition of national product. Kuznets found
that, in eleven countries, the household share of con-
sumption was declining while government consump-
tion was on the rise. He also found that, although the
share of GDP spent on consumption tended to decline
with the rise of per capita income, that decline was lim-
ited because changes in technology promoted demand
for new goods that satisfied new wants. Consumption
was also promoted by the decrease in the inequality of
the income distribution.
The eighth entry in the series
9
reported that the
distribution of income in the 1950s was more equal in
rich countries than in poor countries. It also reported
that inequality of income distribution had narrowed
over time, but this narrowing had not generally oc-
curred until after World War I.
The last two monographs in the series
10
dealt with
the level and structure of foreign trade. From the late
nineteenth century to World War I, the foreign trade
of most developed countries expanded more rapidly
than per capita income. Although this process ground
to a halt during the Great Depression of the 1930s, it
resumed after the close of World War II. Most of in-
ternational trade between 1870 and the 1960s was
accounted for by Western Europe, the United States,
Canada, and Japan either trading among themselves or
with underdeveloped countries. Trade purely among
underdeveloped countries was minuscule.
Reprinted with permission from Political Arithme-
tic: Simon Kuznets and the Empirical Tradition in
Economics, by Robert William Fogel, Enid M. Fogel,
Mark Guglielmo, and Nathaniel Grotte, published by
the University of Chicago Press. © 2013 The University
of Chicago. All rights reserved.
1
de Rouvray, C. 2004. “Old Economic History in the United
States: 1939–1954.” Journal of the History of Economic Thought
26, no. 2: 221–39.
2
Kuznets, S. 1961a. Capital in the American Economy: Its For-
mation and Financing. Princeton, NJ: Princeton University Press.
3
For an overview, see Jorgenson, D.W. 1991. “Productivity and
Economic Growth.” In Fifty Years of Economic Measurement: The
Jubilee of the Conference of Research in Income and Wealth, ed.
E.R. Berndt and J.E. Tripplett, 19–118. Chicago: University of Chi-
cago Press.
4
Kuznets. Capital in the American Economy.
5
Kuznets, S. 1956. “Quantitative Aspects of the Economic Growth
of Nations: 1, Levels and Variability of Rates Growth.” Economic
Development and Cultural Change, vol. 5, no. 1 (October).
6
Kuznets, S. 1957. “Quantitative Aspects of the Economic Growth
of Nations: 2, Industrial Distribution of National Product and Labor
Force.” Economic Development and Cultural Change, vol. 5, no.
4, suppl. (July).
7
Kuznets, S. 1960. “Quantitative Aspects of the Economic Growth
of Nations: 5, Capital Formation Proportions: International Com-
parisons for Recent Years.” Economic Development and Cultural
Change, vol. 8, no. 4, pt. 2 (July); and Kuznets, S. 1961b. “Quan-
titative Aspects of the Economic Growth of Nations: 6, Long-Term
Trends in Capital Formation Proportions.” Economic Development
and Cultural Change, vol. 9, no. 4, pt. 2 (July).
8
Kuznets, S. 1962. “Quantitative Aspects of the Economic Growth
of Nations: 7, The Share and Structures of Consumption.” Eco-
nomic Development and Cultural Change, vol. 10, no. 2, pt. 2
(January).
9
Kuznets, S. 1963. “Quantitative Aspects of the Economic Growth
of Nations: 8, Distribution of Income by Size.” Economic Develop-
ment and Cultural Change, vol. 11, no. 2, pt. 2 (January).
10
Kuznets, S. 1964. “Quantitative Aspects of the Economic
Growth of Nations: 9, Level and Structure of Foreign Trade: Com-
parisons for Recent Years.” Economic Development and Cultural
Change, vol. 13, no. 1, pt. 2 (October); and Kuznets, S. 1967.
“Quantitative Aspects of the Economic Growth of Nations: 10, Lev-
el and Structure of Foreign Trade: Long-Term Trends.” Economic
Development and Cultural Change, vol. 15, no. 2, pt. 2 (January).
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