James Tobin

Lore & Background

James Tobin was born on March 5, 1918, in Champaign, Illinois. His father was a journalist and his mother a social worker. He attended the University Laboratory High School of Urbana, Illinois, and in 1935 entered Harvard College with a national scholarship. There he first read Keynes' The General Theory of Employment, Interest and Money, published in 1936. Tobin graduated summa cum laude in 1939 with a thesis on Keynes' mechanism for involuntary unemployment. He earned a master's degree at Harvard in 1940, worked for the Office of Price Administration and Civilian Supply and the War Production Board in 1941, and enlisted in the US Navy in 1942, serving as an officer on destroyers including the USS Kearny. After the war he returned to Harvard, receiving his Ph.D. in 1947 with a thesis on the consumption function supervised by Joseph Schumpeter. He was elected a Junior Fellow of Harvard's Society of Fellows, allowing three years of research.

In 1950 Tobin moved to Yale University, where he remained for the rest of his career. He joined the Cowles Foundation, serving as its president between 1955–1961 and 1964–1965. In 1957 he was appointed Sterling Professor of Economics at Yale. During 1961–62 he served on John F. Kennedy's Council of Economic Advisers, then acted as a consultant between 1962 and 1968, helping design the Keynesian economic policy of the Kennedy administration. He also served as a member of the Board of Governors of Federal Reserve System Academic Consultants and as a consultant of the US Treasury Department. In 1972, with William Nordhaus, he published 'Is Growth Obsolete?', introducing the Measure of Economic Welfare. He formally retired from Yale in 1988 but continued to lecture as Professor Emeritus. He died on March 11, 2002, in New Haven, Connecticut.

Reader's Guide

James Tobin's significance lies in his foundational contributions to Keynesian economics, monetary theory, and econometrics. He provided microfoundations to Keynesian economics, focusing on monetary economics, and developed the Tobit model for censored dependent variables, a standard econometric technique. His 'q' theory of investment, the Baumol–Tobin model of transactions demand for money, and his model of liquidity preference as behavior toward risk are staples of economics textbooks. Tobin also proposed nominal GDP targeting with James Meade in 1977, and his suggestion of a tax on foreign exchange transactions—the Tobin tax—aimed to reduce speculation in international currency markets. His work on utility maximization under uncertainty simplified investment choice to a tradeoff between risk and expected return. Tobin's legacy includes the Nobel Memorial Prize in Economic Sciences in 1981, the John Bates Clark Medal in 1955, and ongoing influence on financial regulation and macroeconomic policy.

Did You Know?

• Tobin proposed the Tobin tax on foreign exchange transactions to reduce speculation in international currency markets.
• He developed the Tobit model, an econometric technique for censored dependent variables.
• Tobin served on John F. Kennedy's Council of Economic Advisers and helped design the Kennedy administration's Keynesian economic policy.
• He was awarded the Nobel Memorial Prize in Economic Sciences in 1981.

Notable Quotes (Wikiquote)

"Tobin, James. "Liquidity preference as behavior towards risk." The review of economic studies (1958): 65-86." — James Tobin "Tobin, James. "Estimation of relationships for limited dependent variables." Econometrica: journal of the Econometric Society (1958): 24-36." — James Tobin "Journal of Money, Credit and Banking Vol. 1, No. 1 (Feb 1969) pp. 15-29." — James Tobin "I... set forth and illustrate a general framework for monetary analysis. It is not... new... but... shared... in spirit with many monetary economists. My purpose... is exposition and recapitulation." — James Tobin