Raymond W. Goldsmith

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National
Bureau of Economic Research
Volume Title: Input-Output Analysis: An Appraisal
Volume Author/Editor:
Volume Publisher: UMI
Volume ISBN: 0-870-14173-2
Volume URL: http://www.nber.org/books/unkn55-2
Publication Date: 1955
Chapter Title: Introduction to "Input-Output Analysis: An Appraisal"
Chapter Author: Raymond W. Goldsmith
Chapter URL: http://www.nber.org/chapters/c2863
Chapter pages in book: (p. 1 - 8)Input-Output Analysis:
An AppraisalIntroduction
RAYMOND W. GOLDSMITH
INPUT-OUTPUT ANALYSIS, or the quantitative analysis of interindustry
relations, has in recent years absorbed more funds and more profes-
sional resources than any other single field of applied economics.
But, although expansion of scope and improvement of method have
been rapid, input-output analysis has remained a controversial sub-
ject among economists. This is partly because researchers have not
had enough operational information to assess the achievements,
problems, and possibilities of this kind of analysis. There has been
little communication between the practitioners, immersed in the
detail of their operations, and the body of economists, interested in
what the new approach might contribute to their own particular
disciplines.
To open the door to this kind of communication, the Executive
Committee of the Conference on Research in Income and Wealth
decided to devote the 1952 meeting to a double task: (1) to acquaint
Conference members and the economic profession with this new
source of information and tool of research, and (2), on that basis,
to make possible an assessment of the potentialities of the approach.
A wealth of specific data was newly available for consideration by
the Conference, since the Division of Interindustry Economics of
the Bureau of Labor Statistics had just finished the most detailed
input-output study yet attempted: the 200-industry table for 1947.
Both the speed of advance in input-output studies and the limited
time at the disposal of the Conference imposed one important re-
striction on the agenda. The recent and sometimes elaborate at-
tempts at "dynamization" of the conventional static input-output
models as well as the development of such methods as "linear pro-
graming" or "activity analysis" had to be excluded from the pro-
gram. The exclusion seemed warranted, since most of these new
techniques were still in the experimental stage when preparations
for the Conference were made.
Like most successful innovations, input-output analysis has devel-
oped from a basic idea of great simplicity: all transactions that in-
volve the sale of products or services within an economy during a
given period are arrayed in a square indicating simultaneously the
sectors making and the sectors receiving delivery. More specifically,
aINTRODUCTION
every row in an input-output table shows the sales made by one
economic sector to every other sector, and every column shows what
each economic sector purchased from every other sector. The nature
of the table and the individual entries are obviously determined by
the number and definition of the sectors distinguished. Most of the
current input-output tables divide the commodity-producing sector
(including transportation and service) very finely—in the most elab-
orate tables into more than 400 industries—so that interindustry
relations, i.e. sales of intermediary products between industries, can
be followed in great detail. By contrast, all other sectors, such as
households, governments, and financial enterprises, are highly aggre-
gated, and scarcely any interrelations among them are shown.
Nobody doubts that the preparation of input-output tables of this
kind has significantly added to our knowledge of the industrial
economy for those periods in the past covered by the tables—the
most recent one being for the year 1947. Moreover, the need to fit
data into a strict accounting mold and to fill every cell in the tables
has led to the discovery of some gaps and deficiencies in our sta-
tistics, and in some cases has provided the impetus for signfficant
improvements. To name only one example, major shortcomings in
our generally accepted statistics of construction were disclosed as a
by-product of the work on the 1947 input-output tables.1
From here on opinions diverge.. On the one side, we have the
skeptical economists, who deny that input-output tables are anything
but a convenient way of presenting information on transactions dur-
ing a period gone by—a framework for classifying data. On the other,
most of the people who have actually worked on input-output
studies, and some users of their tables, claim that they provide an
important new tool. They believe that, by basically simple though
very laborious calculations made practicable only by the advent of
high-speed electronic computing machines, the input-output tables
can yield cost ratios indicating dollars of given inputs per dollar of
given output that are much more than shorthand descriptions of
transactions in a past period. Most input-output analysts would prob-
ably go so far as to say that the cost ratios derived from their input-
output tables are applicable not only to the period covered by the
basic tables but also, with appropriate adjustments, to adjacent
periods up to a distance of several years, and possibly even a decade,
from the original bench mark. Some would base the extension on the
1Seepaper by D. I. Siskind in "Input-Output Analysis: Technical Supple-
ment," National Bureau of Economic Research, Multilithed, 1954.
4INTRODUCTION
slowness with which these ratios change, others on the conviction
that relevant changes can be detected and incorporated in the basic
tables and their inversions.
This "great debate" dominates this volume. Wassily Leontief,
W. Duane Evans and Marvin Hoffenberg, and, perhaps less unre-
servedly, Frederick T. Moore champion input-output analysis as a
method basically able—even if at the moment imperfectly so—to
provide an integrated picture of the industrial mechanism. They
believe it can measure with fair accuracy the changes in inter-
industry relations, particularly in requirements for materials, labor,
and equipment, that would follow assumed changes in the "final bill
of goods" to be produced. In practice, the most important change in
the bill of goods is that called for by war or large-scale rearmament.
It is hardly astonishing, therefore, that most of the development and
application of input-output studies have been connected with in-
dustrial mobilization. Moore mentions a few of them, but others—
possibly more significant ones—are hidden from appraisal by what
seems to be an exaggerated poiicy of secrecy.
The "outsiders," on the other hand, represented by Carl Christ
and by most of the discussants, are not yet willing to accept the
claims of the champions of input-output studies and appear uncon-
vinced by the results so far available for examination by the general
body of economists and statisticians. They point to the lack of any
clear "test" of the system of production functions derived from input-
output tables. Several comparisons have been made between actual
output in various industries and output values calculated from the
input-output tables, but the comparisons have been far from ex-
haustive and seem open to different interpretations. No test of the
1947 input-output tables has yet been made public, and for reasons
indicated in Ezra Glaser's comment it is doubtful whether any prac-
ticable comparison would permit an evaluation of the applicability
of the production functions derived from 1947 data to, say, the out-
put of 1953.
Apparently, many more years of work and experimentation with
interindustry relations tables, and clear evidence that the approach
produces results that can be checked against actual figures and can-
not be obtained by simpler methods, are necessary to convince
economists that input-output analysis actually does provide a rea-
sonable approximation of a system of dynamized Wairasian equa-
tions for the midcentury American economy. When the Conference
returns to this subject—in a decade, let us say—the editor of the pro-
5INTRODUCTION
ceedings will, I hope, be able to report agreement on what an input-
output approach can and cannot do. This is not possible at this
moment. It will not be possible even ten years hence unless input-
output studies—just now seriously endangered by the general re-
trenchment of statistical activities of the federal government—are
continued on a scale that at least permits periodic revision of the
tables, experimentation with improved methods, and comparison
of calculated with actual figures.
Although the far-reaching claims of the champions of input-output
analysis are still sub judice, there is no doubt that the approach has
contributed greatly to social accounting. Up to this time, theorists
and practitioners of social accounting have neglected the balance
sheet and have directed most of. their energies toward a rather spe-
cial form of the national income account, a form in which, to use
accounting terminology, the accounts of the few main sectors distin-
guished—households, enterprises, governments—are combined rather
than consolidated. As a result, the national income accounts, as we
now have them, disregard transactions among business enterprises,
as does the moneyflow approach in its present form. It is precisely
these transactions, the flows of payments from one industry to an-
other, that constitute the core of input-output tables. An integration
of input-output tables into a system of national accounts would,
therefore, seem both possible and helpful.
How great both the theoretical and the practical obstacles to
integration are will appear from the papers by Herman I. Liebling
and Stanley J. Sigel. It is, therefore, a declaration of faith, rather
than the enunciation of a generally accepted conclusion based on
actual experience, to say that input-output tables should ultimately
become part of a comprehensive, detailed, multipurpose system of
national accounting.2 Such a system of "universal" national account-
ing (which some of the discussants regard as quite utopian) must
be flexible enough to provide the data needed for standard national
income accounting, for moneyflow analysis, and for the very different
requirements of input-output studies. It will also have to produce
what is still missing—a national balance sheet and a perpetual inven-
tory of national wealth. This is undoubtedly a big order, one that
will not be filled until social accounting is adapted to machine book-
keeping and the collection of basic data tailored more specifically
than it now is to social accounting requirements. This stage of devel-
2 This statement does not prejudge the question whether, in addition, the
utilization of input-output tables can produce significant production functions.
6INTRODUCTION
opment will not, of course, be reached for decades, even if the trend
continues in the expected direction.
The papers read at the Conference fall easily into two categories.
One group, written mostly by economists not associated with the
Bureau of Labor Statistics, deals in rather general terms with prob-
lems of approach to input-output studies, or with the evaluation of
methods and results. This group includes: the introductory paper by
Leontief; the summary by Evans and Hoffenberg of the 1947 input-
output tables and the Bureau of Labor Statistics approach; the gen-
eral evaluations of the present status of input-output analysis and
possible future developments by Christ, Moore,3 and John De Witt
Norton; and the papers on the relation between input-output analysis
arid social accounting by Liebling and Sigel. These seven papers,
together with Amor Gosfield's report on his input-output study of
the Puerto Rican economy4 and comments by other participants,
constitute the present volume. A ninth paper, by Ronald W. Shep-
hard ("A Survey of Input-Output Research"), also belongs to this
group, but this paper, although read and discussed at the meeting,
is not included in this volume because it is being published sepa-
rately.5
A second group of papers was presented to the Conference by
members of the Division of Interindustry Economics of the Bureau
of Labor Statistics. These papers describe actual compilation of
input-output tables for different sectors of the economy. They may
have less general interest, but they are indispensable to specialists
who want to approach adequate understanding of the actual pro-
cedures used in building up input-output tables, or who want to
evaluate the reliability of the tables. Even these long papers do not
give their authors an adequate opportunity for exhaustive explana-
tion of all steps involved in building up the tables. The full story
will probably be forever hidden in the work sheets of the Bureau of
Labor Statistics. Thus, the old problem of complete disclosure of
sources, manipulations, and results of elaborate statistical inquiries
Moore's paper was not delivered at the meeting and hence not discussed,
but was prepared after the meeting at the suggestion of the Editorial Com-
mittee.
Although the meeting was in principle limited to input-output studies deal-
ing with the United States, the Executive Committee and the Editorial Com-
mittee felt justified in making an exception for Gosfleld's paper as representing
an interesting example of the application of input-output techniques to a less-
developed economy.
5Thispaper is expected to appear in a professional journal, but had not been
published at the time this vorume went to press.
7INTRODUCTiON
has not been entirely solved in this case either. The value of these
papers has been considerably enhanced by the apparent inability
of the Bureau of Labor Statistics, due to budgetary limitations, to
publish as detailed a description of the input-output work as it had
originally intended. These eleven papers have been assembled as a
supplement to this volume.° The Editorial Committee is greatly
indebted to Philip M. Ritz, who acted as editor of this supplement,
as well as to the members of the Division of Interindustry Economics
who contributed papers or participated in the Conference,
6"Input-OutputAnalysis: Technical Supplement," National Bureau of Eco-
nomic Multilithed, 1954.
8

Input-Output Analysis: An Appraisal

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