What is Simon Kuznets?

Simon Kuznets

Born	March 30 1901(1901--) Pinsk
Died	July 8 1985 (aged 84) Cambridge, Massachusetts
Residence	United States
Nationality	Russian
Field	Economics
Institutions	NBER Harvard University (1960-1971) Johns Hopkins University (1954-1960)
Alma mater	Columbia University
Academic advisor	Wesley Clair Mitchell
Notable students	Robert Fogel Milton Friedman
Known for	National income data Empirical business cycle research Characteristics of economic growth
Notable prizes	Nobel Prize in Economics (1971)

Simon Smith Kuznets (April 30, 1901 – July 8, 1985) was an American economist at Wharton School of the University of Pennsylvania who won the 1971 Nobel Prize in Economics "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 Jewish family at Pinsk, Russia (now in Belarus) and was educated in Kharkiv, Ukraine, but moved to the United States in 1922 and was educated at Columbia University and received 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 1931 until 1936, Kuznets was a part-time professor at the University of Pennsylvania and as professor of Economics and Statistics from 1936 until 1954. 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".

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. In the late forties, however, he broke with the Commerce Department over its refusal to use GNP as a measure of economic well-being.

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

• Fogel , Robert W. (2000). "Simon S. Kuznets: April 30, 1901-July 9, 1985". NBER Working Paper No. W7787

External links

• econlib.org - an efficient summary of Kuznets and his work
• nobel-winners.com
• cepa.newschool.edu
• 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.
• A recent biography of Kuznets.
• Limitations of space prevent the presentation of a documented summary

•  • [ e] Nobel Memorial Prize in Economics Laureates
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)

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