MEMORANDUM

In the Eisenaufsatz Leontief had become increasingly concerned with “vertical”
linkages between individual commodities, such as the dependence of the supply of iron
upon the supply conditions for the major inputs of iron production, such as iron ore and
coke. By pursuing such linkages further back the analytic framework was extended to
comprise interrelations between an increasing set of industries producing and consuming
commodities. The partial equilibrium approach of the Versuch was broadened to
encompass the joint equilibrium of several markets and industries. The general equilibrium
structure that emerged was pursued it on the assumption that the equations supporting the
structure could be solved mathematically.
Thinking about how to resolve the general equilibrium Leontief conceptualized it as a
simultaneous system in which primary changes took place. He spoke of “the isolation of
primary changes from secondary ones, … as the response of the total system.” The primary
changes would through the interdependencies of the system cause economic changes in the
entire system. Problems that could be posed comprised to study how primary changes
spread through the system, or conversely, from a disturbed system identify the primary
change(s). The archetypical kind of primary changes considered was a change in a supply
or demand elasticity.
Leontief’s conceptual system thus comprised demand and supply curves with linkages
between markets. The relationships were not linear, the comfortable linearity of the
Versuch could not be preserved. Business cycles were attempted taken into consideration.
Nothing is really known about the mathematical structures Leontief must have played
around with in this period. A remark about the need to study Determinantentheorie in one
of the letters to Schumpeter suggested structured simultaneous equations systems. These
could, however, easily grow out of hand with regard to numerical solvability with the
available computational equipment. At the same time it was vital for Leontief to have his
work firmly anchored in empirically. He kept his feet firmly anchored so to say in
economic statistics.
In the following we proceed step by step through the application from 1932 to 1937.
The 1932 and 1933 applications: the emergence of the first input-output
table
As soon as Leontief got back to New York from Harvard in March 1932 he submitted
the first application to the Harvard Committee. The title was stated as “Statistical analysis
in economic dynamics.” As background information the application stated that the
prospective study was “… based on my theoretical and statistical analysis of demand and
supply” which had been initiated at the Kiel Institute and “which I am now carrying further
as a research associate of the NBER.”
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