Friday, January 27, 2012

Hero Worship: Simon Kuznets

Economics is a bit like a religion.  It is often centered around cult of personalities.  The individual is often promoted as much as the idea that is actually useful, and that individual becomes a bit of a demi god.  I am as guilty (or more) of this as anyone, and this is my forum for presenting my heroes.

Simon Kuznets is one of the giants of economics.  He was given one of the first Nobel Prizes in economics, and is best regarded as the economist who helped the U.S. Department of Commerce develop the measure of national income, the Gross National Product.  Unlike other giants of twentieth century economics, Kuznets is not even close to a household name.  He did not write books to attract a popular following, but rather technical books to be read by fellow economists and interested lay people.

I own two books by Simon Kuznets, and they are important parts of my collection.  In Population, Capital, and Growth, He adds another nail in the coffin of Thomas Malthus's Essay on Population by pointing out that "the assumption of the inability of human knowledge and technology to cope with the constraints imposed by the scarcity of natural resources" has been proven wrong.  He also takes on Marxist and Classical thinkers viewed scarcity of land, diminishing returns created the iron law of wages.  In this sense, he has something in common with Julian Simon, who later became famous for predicting that human knowledge would be the variable that would solve population and resource issues, although I'm not certain that Kuznets would agree with Simon line for line.

To Kuznets, population growth and the limited availability of resources are central topics in economics despite these false starts based on the labor theory of value.  He places great importance on capital being available for individuals to use in order for their productivity to rise to levels where they are not wasteful of natural resources.  This suggests that efficiency has capital requirements, or that it is not an accident.  To this, he points to the work of Theodore Schultz and Gary Becker on the subject of human capital.  The idea that education is a critical element that fosters technology, innovation and greater efficiency.  The higher the level of education, the more efficient a society is, and then the less resources they need to satisfy the same number of wants (and greater).

Much of Kuznets work have become truisms in economic literature, but at the time they were written they were groundbreaking and somewhat controversial.  Perhaps his most seminal paper, "Economic Growth and Income Inequality" is when he introduced the Kuznets curve.  Kuznets is an important figure for all economists, but especially for anyone studying development economics.  Both, Population, Capital, and Growth and Economic Change are available inexpensively on the used book market.

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