Simon Kuznets

Simon Smith Kuznets was born in Belarus in the town of Pinsk to Lithuanian-Jewish parents, in the year 1901. He completed his schooling, first at the Kharkiv Commercial Institute at the University of Kharkiv of present-day Ukraine. There he began to study economics and became exposed to Joseph Schumpeter's theory of innovation and the Business cycle. In 1918, Kuznets entered the Kharkiv Institute of Commerce where he studied economic sciences, statistics, history and mathematics under the guidance of professors P. Fomin (political economy), A. Antsiferov (statistics), V. Levitsky (economic history and economic thought), S. Bernstein (probability theory), V. Davats (mathematics), and others. Basic academic courses at the Institute helped him to acquire “exceptional” erudition in economics, as well as in history, demography, statistics and natural sciences. According to the Institute’s curriculum, development of the national economies had to be analyzed in the wider context of changes in connected spheres and with involvement of proper methods and empirical data.

The first major research project in which Kuznets was involved was the study of long series of economic dynamics in the USA undertaken in the mid-1920s. The collected data covered the period from 1865 to 1925, and for some indices achieved 1770. Applying for the analysis of time series approximating Gompertz and logistic curves, Kuznets found that the characteristics of the curves with reasonable accuracy described the majority of economic processes. Fitting trend curves to data and analysis of the time series, comparison of theoretical and empirical levels, allowed him to identify medium-term extended cycles of economic activity, which lasted 15–25 years and had an intermediate position between the Kondratyev “long waves" and short Business cycles. Aspiring to determine the nature of these cycles, Kuznets analyzed the dynamics of population, the construction industry performance, capital, national income data and other variables. These movements became known among economists and economic historians as "Kuznets Cycles", and alternatively as "long swings" in the economy's growth rate (following the work of Moses Abramovitz [1912-1999].

In 1922, the Kuznets family emigrated to the United States. Kuznets then studied at Columbia University under the guidance of Wesley Clair Mitchell. He graduated with a B.S. in 1923, M.A. in 1924, and Ph.D. in 1926. As his magister thesis, he defended the essay “Economic system of Dr. Schumpeter, presented and analyzed”, written in Kharkiv. 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", defended as a doctoral thesis and published in 1930.

In 1927, he became a member of the research staff of the National Bureau of Economic Research (NBER), where he worked until 1961. From 1931 until 1936, Kuznets was a part-time professor at the University of Pennsylvania. In 1937 he was elected as a Fellow of the American Statistical Association. He was elected to the Pi Gamma Mu social science honor society chapter at the University of Pennsylvania and actively served as a chapter officer in the 1940s; becoming a full-time professor 1936 until 1954. In 1954, Kuznets moved to Johns Hopkins University, where he was Professor of Political Economy until 1960. From 1961 until his retirement in 1970, Kuznets taught at Harvard.

In 1931, at Mitchell’s behest, Kuznets took charge of the NBER’s work on U.S. national income accounts. In 1934, an assessment of the national income of the United States for the period 1929–1932 was given; further, it was extended to 1919–1938, and then, until 1869. 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.

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 hypothesis and the Relative Income Hypothesis.

After the War, he worked as an advisor for the governments of China, Japan, India, Korea, Taiwan, and Israel in the establishment of their national systems of economic information. Kuznets cooperated with the Growth Center of Yale University, the Social Science Research Council (SSRC). He guided extensive research holding a number of positions in research institutions,such as the Chairman of the Falk Project for Economic Research in Israel, 1953–1963; member of the Board of Trustees and honorary chairman, Maurice Falk Institute for Economic Research in Israel, from 1963; and Chairman, Social Science Research Council Committee on the Economy of China, 1961–1970.

Kuznets was elected as the President of the American Economic Association (1954), President of the American Statistical Association (1949), an honorable member of the Association of Economic History, the Royal Statistical Society of England and a member of the Econometric Society, the International Statistical Institute, the American Philosophical Society, the Royal Swedish Academy, a corresponding member of the British Academy. He was awarded the Medal of Francis Walker (1977).

Among his several discoveries which sparked important theoretical research programs was the Kuznets curve, an 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.

In his historical and economic studies of the 1970s, Kuznets expressed the idea of an interaction between science and Technology (innovations), and institutional shifts, as well as the role of factors external to the economy, such as those caused by the moral and political climate in society, and their impact on the progress and results of economic growth.

Kuznets was awarded by the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1971 “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”.

Simon Kuznets died on July 8, 1985, at the age of 84.

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.