James Tobin

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James Tobin (March 5, 1918 – March 11, 2002) was an American economist, who developed the ideas of Keynesian economics, and advocated government intervention to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored endogenous variables, the well-known "Tobit model". Tobin received the Nobel Memorial Prize in Economic Sciences in 1981.


  • A forthcoming book by Harry Markowitz, Techniques of Portfolio Selection, will treat the general problem of finding dominant sets and computing the corresponding opportunity locus, for sets of securities all of which involve risk. Markowitz's main interest is prescription of rules of rational behaviour for investors; the main concern of this paper is the implications for economic theory, mainly comparative statics, that can be derived from assuming that investors do in fact follow such rules.
  • In economic surveys of households, many variables have the following characteristics: The variable has a lower, or upper, limit and takes on the limiting value for a substantial number of respondents. For the remaining respondents, the variable takes on a For the remaining respondents, the variable takes on a wide range of values above, or below, the limit.
  • A long decade ago economic growth was the reigning fashion of political economy. It was simultaneously the hottest subject of economic theory and research, a slogan eagerly claimed by politicians of all stripes, and a serious objective of the policies of governments. The climate of opinion has changed dramatically. Disillusioned critics indict both economic science and economic policy for blind obeisance to aggregate material "progress," and for neglect of its costly side effects. Growth, it is charged, distorts national priorities, worsens the distribution of income, and irreparably damages the environment. Paul Erlich speaks for a multitude when he says, "We must acquire a life style which has as its goal maximum freedom and happiness for the individual, not a maximum Gross National Product."
    • Nordhaus, William D., and James Tobin. "Is growth obsolete?." Economic Research: Retrospect and Prospect Vol 5: Economic Growth. Nber, 1972. 1-80.

"A general equilibrium approach to monetary theory," 1969[edit]

Tobin, James. "A general equilibrium approach to monetary theory." Journal of money, credit and banking 1.1 (1969): 15-29.

  • The rate of investment – the speed at which investors wish to increase the capital stock – should be related, if to anything, to q, the value of capital relative to its replacement cost.
    • p. 21 as cited in: Sılvio Rendon, "Non-Tobin’s q in Tests for Financial Constraints," 2009
  • According to [the general equilibrium approach to monetary theory], the principal way in which financial policies and events affect aggregate demand is by changing the valuations of physical assets relative to their replacement costs.
    • p. 29 As cited in: William Pool. Brookings Papers on Economic Activity, 2, (1976), p. 292
  • There is no reason to think that the impact [of monetary policy] will be captured in any single [variable]... , whether it is a monetary stock or a market interest rate.

"Money and Finance in the Macro-Economic Process," 1982[edit]

"Money and Finance in the Macro-Economic Process" in: Nobel Lectures, Economics 1981-1990, Editor Karl-Göran Mäler, World Scientific Publishing Co., Singapore, 1992

  • The historic terrain of macro-economic theory is the explanation of the levels and fluctuations of overall economic activity. Macro-economists have been especially interested in the effects of alternative fiscal, financial, and monetary policies.
    • p. 12
  • With the publication of J. M. Keynes’s General Theory in 1936 and the mathematical formalizations of his theory by J. R. Hicks (1937) and others, the language of macro-economic theory became systems of simultaneous equations. These are general equilibrium systems of interdependence in the sense that the relationships describe an entire national economy, not just a particular industry or sector. The systems are usually not completely closed; they depend on exogenous parameters including instruments controlled by policy-makers. Seeking definite relationships of economic outcomes to policies and other exogenous variables, qualitative and quantitative, these models sacrifice detail and generality, limiting the number of variables and equations by aggregations over agents, commodities, assets, and time.
    • p. 12

"James Tobin - Biographical," 1981[edit]

"James Tobin - Biographical", published in Nobel Lectures. Economics 1981–1990, Editor Karl-Göran Mäler, World Scientific Publishing Co., Singapore, 1992

  • I studied economics and made it my career for two reasons. The subject was and is intellectually fascinating and challenging, particularly to someone with taste and talent for theoretical reasoning and quantitative analysis. At the same time it offered the hope, as it still does, that improved understanding could better the lot of mankind.
  • For me, growing up in the 1930s, the two motivations powerfully reinforced each other. The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters. The crisis triggered a fertile period of scientific ferment and revolution in economic theory.

Quotes about Tobin[edit]

  • Back in 1982, a brief but brusque exchange … took place between James Tobin … and Robert Nozick … Tobin exclaimed at Nozick: ‘There is nothing more dangerous than a philosopher who’s learned a little bit of economics.’ To which Nozick immediately responded: ‘Unless it’s an economist who hasn’t learned any philosophy.’
    • Terence Hutchison, "On the Relations Between Philosophy and Economics" (1996)
  • The other economic camp made for quite a different story. James Tobin (an east-coast Ivy League policy advisor) had already won the Nobel Prize when I spoke with him. A true gentleman, he spoke softly about his life and his Keynesian approach to economics. With due respect, I worried after a time that the interview sounded so automatic, so “done” before, that it would add little to the book. Then I brought up Lucas’s criticism. Tobin began to speak much louder and faster (on transcribing the tape I actually had to adjust the volume). He remained reasonable and gentlemanly but his voice betrayed his indignation toward Lucas and his camp, about how they were misleading sensible Keynesian economic thought.
    • Arjo Klamer, Speaking of economics: how to get in the conversation (2007), Ch. 1 : The strangeness of the discipline
  • When I tried to sort out the pernicious disagreements between new classical and new Keynesian economists, I conducted a series of conversations with the protagonists (Klamer 1983). The personal differences were revealing. The viva cious Robert Solow (with a taste for the quick quip), the serious Robert Lucas (never less than self-composed), the chatty Franco Modigliani (not shy of self promotion), and the unassuming James Tobin (wanting an interview at least as long as Lucas’s) quickly taught me how trenchant the rhetorical differences were.
    • Arjo Klamer, Speaking of economics: how to get in the conversation (2007), Ch. 7 : Why disagreements among economists persist, why economists need to brace themselves for differences within their simultaneous conversations and their conversations over time, and why they may benefit from knowing about classicism, modernism, and postmodernism
  • When James Tobin, a Nobel Prize winner in economics, was on the US Council of Economic Advisors some years ago, I asked him if he used complicated macroeconometric models in his work for the Council. He responded that he didn’t because he and others could not understand the workings and output of such models and thus did not have much confidence in them. When I asked what he actually did use to analyse problems, he remarked that he used a simple multiplier–accelerator model on the back of an envelope and even though he didn’t have too much confidence in it, he said at least he understood what he was doing.
    • Arnold Zellner, "Keep it sophisticatedly simple", in Simplicity, Inference and Modelling: Keeping it Sophisticatedly Simple edited by Arnold Zellner, Hugo A. Keuzenkamp and Michael McAleer

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