Tobin, James

▪ 2003

      American economist (b. March 5, 1918, Champaign, Ill.—d. March 11, 2002, New Haven, Conn.), was awarded the Nobel Prize for Economics in 1981 for his portfolio selection theory—a theoretical formulation of investment behaviour that offered valuable insight into financial markets. After serving in the U.S. Navy during World War II, Tobin taught economics at Harvard University from 1946 to 1950 and earned a Ph.D. there in 1947. In 1950 he joined the faculty of Yale University, where he was appointed professor in 1955; he worked at Yale until his retirement in 1988. Tobin, perhaps the most prominent American supporter of the theories of British economist John Maynard Keynes, argued that monetary policy was particularly effective in the area of capital investment and that interest rates were an important factor in capital investment but not the only one. His portfolio selection theory explained the tendency of individuals to distribute their wealth among different investments. Tobin served for two years on the Council of Economic Advisers under Pres. John F. Kennedy. He also served as an adviser to Democratic presidential candidate George McGovern in 1972. That year his proposal for a tax on foreign-exchange transactions attracted wide attention; the “Tobin tax” was later championed by antiglobalization activists, though Tobin himself, an ardent supporter of free trade, repudiated them. A prolific writer, he published some 500 articles and 16 books, including National Economic Policy (1966), four volumes of Essays in Economics (1971–96), and The New Economics One Decade Older (1974).

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▪ American economist

born March 5, 1918, Champaign, Illinois, U.S.

died March 11, 2002, New Haven, Connecticut

      American economist whose contributions to the theoretical formulation of investment behaviour offered valuable insights into financial markets. His work earned him the Nobel Prize for Economics in 1981.

      After taking degrees from Harvard University (B.A., 1939; Ph.D., 1947), Tobin spent 1941–42 as an economist with the Office of Price Administration in Washington, D.C. During World War II he served in the Naval Reserve, rising to second in command of the destroyer USS Kearney. In 1950 he joined the faculty of Yale University, where in 1957 he became the Sterling Professor of Economics. In addition to teaching, he served as director of the Cowles Foundation for Research in Economics from 1955 to 1961 and again from 1964 to 1965.

      Tobin, regarded by many as the most distinguished American Keynesian (Keynesian economics) economist, argued that monetary policy is effective in only one area—capital investment—and that interest rates are an important factor in capital investment but not the only one. He introduced “Tobin's q,” the ratio of the market value of an asset to its replacement cost. If an asset's q is greater than one, then new investment in similar assets will be profitable.

      Tobin served as an adviser to Democratic presidential candidate George McGovern in 1972. Like many economists across the political spectrum, he pointed out the harmful consequences of government policies, such as the effect of a high minimum wage on the job prospects for inner-city youths. Tobin once wrote: “We should be especially suspicious of interventions that seem both inefficient and inequitable, for example, rent controls in New York or Moscow or Mexico City, or price supports and irrigation subsidies benefiting affluent farmers, or low-interest loans to well-heeled students.” Among his publications are The American Business Creed (with others, 1961), National Economic Policy (1966), Essays in Economics, 3 vol. (1971–82), and The New Economics One Decade Older (1974).

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