James Tobin

James Tobin was born on March 5, 1918, in Champaign, Illinois, to a social worker mother and a father who became sports information director for the University of Illinois. Tobin grew into adulthood during the Depression. In a 1981 interview with The New York Times, he cited his experience growing up in that era as his inspiration for studying economics. “It was easy to get interested in economics,” he said, “because it was clear that the things that were wrong with the world had a lot to do with economics.”

He won an academic scholarship to Harvard in 1935. There Tobin was introduced to the theories of the British economist John Maynard Keynes, whose then newly published book “The General Theory of Employment, Interest and Money,” advocating governmental intervention in the economy, came to influence Tobin’s later academic research, including the work for which he received the Nobel Prize.

James Tobin earned his three academic degrees from Harvard: his bachelor’s in 1939; his master’s, the following year; and his Ph.D. in 1947, after wartime service.

In 1941 he went to work for the U.S. government in Washington, D.C., first in the Office of Price Administration and then with the Civilian Supply and War Production Board. Tobin enlisted in the Navy following the attack on Pearl Harbor. At the Navy officers training program at Columbia University, he met the future Secretary of State Cyrus R. Vance and the novelist Herman Wouk.

In his book, “The Caine Mutiny,” Wouk immortalized his friend as the character Tobit, a midshipman with “a mind like a sponge…ahead of the field by a spacious percentage.”

After serving four years on the U.S.S. Kearny in the Atlantic and Mediterranean, ending his naval duty as Executive Officer of the ship, Tobin returned to Harvard to earn his doctorate. He stayed at Harvard as a junior fellow until 1950. That year he received his academic appointment at Yale as associate professor of economics. He was promoted to full professor five years later, and was named the Sterling Professor of Economics in 1957.

James Tobin’s early research provided theoretical underpinnings for Keynesian macroeconomic theory, and led to the modern theory of portfolio choice and asset pricing.

In the early 1950s Tobin served as an editor at two prestigious economic journals, Econometrica and the Review of Economic Studies. In 1955, he was recognized by the American Economic Association’s John Bates Clark Medal as the “American economist under the age of forty…judged to have made a significant contribution to economic thought and knowledge.” The same year he became director of the Cowles Foundation for Research in Economics, an organization dedicated to connecting mathematical and statistical studies to economics, which had just moved from the University of Chicago to Yale.

In 1960, Tobin’s work came to the attention of President-elect John F. Kennedy, and won him a place on the President’s Council of Economic Advisers. When tapped for this post, Tobin initially resisted, identifying himself as “an ivory tower economist.” “That’s all right, professor,” Kennedy replied, “I am what you might call an ivory tower president.”

The report that Tobin wrote with the two other members of the Council, Kermit Gordon and Walter Heller, was a seminal statement of political and economic policy that was to dominate public discourse for many decades and is still hotly disputed today. Council members recommended goals of full employment, greater competition and stiffer enforcement of anti-trust legislation. The report also advocated increased investment in science and technology, industrial and commercial infrastructure, education and training.

After a year and one-half in the Kennedy administration, Tobin returned to Yale and to the concerns of the academy. At the same time, he became increasingly vocal in the political arena, taking strong issue with the presidential campaign of Barry Goldwater, writing articles in magazines of political opinion, such as Daedalus and The New Republic. In the 1960s he espoused the “negative income tax,” as a method for achieving income redistribution while maintaining incentives to work. In 1972 he joined George S. McGovern’s campaign for the presidency as an adviser on economic reform.

In 1981, Tobin received the highest honor awarded in his field. In presenting him with the Nobel Memorial Prize for economic science, the Royal Swedish Academy of Science cited his “creative and extensive work on the analysis of financial markets and their relations to expenditure decisions, employment, production and prices.” The Academy also noted, “Unlike many other theorists in the field, Tobin does not confine his analysis solely to money, but considers the entire range of assets and debts… Few economic researchers of today could be said to have gained so many followers or exerted such influence on contemporary research.”

The Academy recognized the importance of Tobin’s “portfolio theory,” which, summed up in his own words is simply, “Don’t put your eggs in one basket.”

Although Tobin formally retired in 1988, he continued to work at the highest level. Among the awards he received are the Eckstein Prize of Eastern Economic Association, 1988; Grand Cordon, Order of The Sacred Treasure, Japan, 1988; Centennial Medal, Harvard University Graduate School, 1989; and Medal of the Presidency of the Italian Republic, 1993. The James Tobin Professorship of Economics was established at Yale University in 1994.

The author of dozens of books and hundreds of articles, Tobin continued writing until the end of his life. Recent books include “Money, Credit and Capital,” 1997; “Full Employment and Growth,” 1996; and “Essays in Economics, vol. IV, Theory and Policy,” 1996.

James Tobin died on March 11, 2002, at the age of 84.

Tobin’s ideas continue to play a prominent role in political discourse. The “Tobin tax,” his 1971 proposal for a foreign currency exchange tax aimed at stabilizing exchange rates and reducing global financial speculation, has become a rallying cry of the anti-globalization movement, which, as a free trade advocate, he strongly disavowed.

Major Works of James Tobin

– Money, Wage Rates and Employment, 1947, in Harris, editor, The New Economics
– Liquidity Preference and Monetary Policy, 1947, REStat
– A Dynamic Aggregative Model, 1955, JPE
– The Interest Elasticity of the Transactions Demand for Cash, 1956, RES
– Liquidity Preference as Behavior Towards Risk, 1958, RES
– Estimation of Relationships for Limited Dependent Variables, 1958, Econometrica
– On the Predictive Value of Consumer Intentions and Attitudes, 1959, RES
– Consumer Expenditures and the Capital Account with Harold W. Watts, 1960, in Friend and Jones, editors, Proceedings of the Conference on Consumption and Saving
– Towards a General Kaldorian Theory of Income Distribution, 1960, RES
– Money, Capital and Other Stores of Value, 1961, AER
– An Essay on the Principles of Debt Management, 1963, in Fiscal and Debt Management Policies
– Comments on the Relevance of Psychology to Economic Theory and Research, with F.T. Dolbear, 1963, in Koch, editor, Psychology: A study of a science
– Commercial Banks as Creators of Money, 1963, in Carson, Banking and Monetary Studies
– Financial Intermediaries and the Effectiveness of Monetary Controls, with W.C. Brainard, 1963, AER
– Economic Growth as an Objective of Government Policy, 1964, AER
– Money and Economic Growth, 1965, Econometrica
– A Monetary Interpretation of History, 1965, AER
– Neoclassical Growth with Fixed Factor Proportions, with R.M. Solow, C.C. von Weizsacker and M. Yaari 1966, RES
– Life Cycle Saving and Balanced Growth, 1967, in Ten Economic Studies in the Tradition of Irving Fisher
– Pitfalls in Financial Model Building, with W.C. Brainard, 1968, AER
– The Consumption Function, 1968, IESS
– Notes on Optimal Monetary Growth, 1968, JPE
– Raising the Incomes of the Poor, 1968, in Gordon, editor, Agenda for the Nation
– Money and Permanent Income: Some Empirical Tests, with C. Swan, 1969, AER
– A General Equilibrium Approach to Monetary Theory, 1969, JMCB
– Deposit Interest Ceilings as a Monetary Control, 1970, JMCB
– Money and Income: Post Hoc Ergo Propter Hoc?, 1970, QJE
– Rejoinder to Professor Friedman, 1970, QJE
– Wealth, Liquidity and Consumption, with W. Dolde, 1971, in Consumer Spending and Monetary Policy
– Friedman’s Theoretical Framework, 1972, JPE
– Inflation and Unemployment, 1972, AER
– The Wage-Price Mechanism, 1973, in Weiner, editor, Econometrics of Price Determination
– Is Growth Obsolete?, with W.D. Nordhaus, 1973, in Moss, editor, Measurement of Economic and Social Performance
– Essays in Economics, two volumes, 1974-5
– Keynesian Models of Recession and Depression, 1975, AER
– Long-Run Effects of Fiscal and Monetary Policy, with W.H. Buiter, 1976, in Stein, editor, Monetarism
– Reply: Is Friedman a Monetarist?, 1976, in Stein, editor, Monetarism
– Asset Markets and the Cost of Capital, with W.C. Brainard, 1977, Economic Progress, Private Values and Public Policy
– How Dead Is Keynes?, 1977, Econ Inquiry
– Monetary Policies and the Economy: The transmission mechanism, 1978, Southern EJ
– A Proposal for International Monetary Reform, 1978, Eastern EJ
– Deficit Spending and Crowding Out in Shorter and Longer Runs, 1979, in Theory for Economic Efficiency
– A Model of U.S. Financial and Non-financial Economic Behavior, with W.C. Brainard, D. Backus and G. Smith, 1980, JMCB
– Debt Neutrality: A Brief Review of Doctrine and Evidence, with W.H. Buiter, 1979, in Fursternberg, editor, Social Security Versus Private Saving
– Stabilization Policy Ten Years After, 1980, BPEA
– The Short-Run Macroeconomics of Floating Exchange Rates: An Exposition, with J.B. de Macedo, 1980, in Chipman and Kindleberger, editors, Flexible Exchange Rates and the Balance of Payments
– Fiscal and Monetary Policies, Capital Formation, and Economic Activity, with W.H. Buiter, 1980, in Government and Capital Formation
– Are New Classical Models Plausible Enough to Guide Policy?, 1980, JMCB
– Government Deficits and Capital Accumulation, 1980, Contemporary Economic Activity
– Asset Accumulation and Economic Activity: Reflections on contemporary macroeconomic theory, 1980
– The Monetarist Counter-Revolution Today: An appraisal, 1981, EJ
– Money and Finance in the Macroeconomic Process, 1982, JMCB
– The Commercial Banking Firm: A simple model, 1982, Scandinavian JE
– The 1982 Economic Report of the President: Comment on the Annual Report of the Council of Economic Advisers, JME
– The State of Exchange Rate Theory: Some Skeptical Observations, 1982, in International Monetary System Under Flexible Exchange Rates
– Monetary Policy: Rules, Targets, and Shocks, 1983, JMCB
– On the Efficiency of the Financial System, 1984, Lloyd’s Bank Review
– A Mean–Variance Approach to Fundamental Valuations, 1984, J of Portfolio Management
– Financial Innovation and Deregulation in Perspective, 1985, Bank of Japan MES
– Neoclassical Theory in America: J. B. Clark and Fisher, 1985, AER
– The Monetary-Fiscal Mix: Long-Run Implications, 1986, AER
– Case for Preserving Regulatory Distinctions, 1987, Challenge
– Policies for Prosperity: Essays in a Keynesian mode, 1987
– Inventories, Investment, Inflation and Taxes, 1988, in Chikan and Lovell, editors, Economics of Inventory Management
– Growth and Distribution: A Neoclassical Kaldor-Robinson Exercise, 1989, Cambridge JE
– The Optimal Cash Balance Proposition: Maurice Allais’ Priority, with W.J. Baumol, 1989, JEL
– The Theory of Macroeconomic Policy, 1990, De Economist
– On Crotty’s Critique of Q-Theory, with W.C. Brainard, 1990, JPKE
– The Macroeconomics of Government Finance, with M. Haliassos, 1990, in Friedman and Hahn, editors, Handbook of Monetary Economics
– On the Internationalization of Portfolios, with W.C. Brainard, 1992, Oxford EP
– An Old Keynesian Counterattacks, 1992, Eastern EJ
– Price Flexibility and Output Stability: An Old Keynesian view, 1993, JEP
– Defense Spending, the Budget Deficit, and the U.S. Economy, 1993 Keynote speech at ECAAR
– International Currency Regimes, Capital Mobility and Macroeconomic Policy, 1993, Greek ER
– Poverty in Relation to Macroeconomic Trends, Cycles, and Policies, 1994, in Danziger et al., editors, Confronting Poverty
– Democratic Values and Capitalist Efficiency: The Liberal Reconciliation, 1995, in Taitte, editor, Moral Values in Liberalism and Conservatism
– The Natural Rate as New Classical Macroeconomics, 1995, in Cross, editor, The Natural Rate of Unemployment
– Some Economic Consequences of the Information Explosion, Keynote Speech, 1995, Nobels for the Future
– A Currency Transactions Tax, Why and How, 1996, Open Economies Review
– A Liberal Agenda: Response to R. Freeman, 1996, Boston Review
– Clinton’s Second Term And The American Economy, 1996
– Thinking About A ‘New World Order’, 1996 Keynote speech at ECAAR
– An Overview of The General Theory, 1997, in Harcourt and Riach, editors, A Second Edition of The General Theory
– Irving Fisher (1867–1947) in Retrospect, 1997, AER
– Why We Need Sand In the Market’s Gears, 1997, Washington Post
– Thoughts on Indexing the Elderly, 1997, FAS
– Judgemental Cuts in Consumer Price Indexation Are a Bad Idea, with R. Solow and K. Arrow, 1997, FAS
– Monetary Policy: Recent Theory and Practice, 1998, in Wagner, editor, Current Issues in Monetary Economics
– Flawed Fund: the IMF’s misplaced prioirities, with G. Ranis, 1998, New Republic
– Europe, Japan and the Ghost of John Maynard Keynes, 1998
– Financial Globalization, 1999, Proceedings of the American Philosophical Society
– Financial Globalization: Can National Currencies Survive?, 1999, Annual World Bank Conference of Development Economics
– Floating Currencies is the Only Way, 1999