James Tobin was a pioneering economist who received the 1981 Nobel Prize in economics for his significant research into the financial system and its intricate effects on inflation and employment.
He is renowned for conceptualizing the Tobin Tax, a levy on foreign exchange transactions aimed at curbing currency speculation.
Tobin authored several influential books including Essays in Economics and Money, Credit, and Capital. His impactful work continued until his passing on March 11, 2002.
Key Takeaways
- James Tobin was a member of President Kennedy’s Council of Economic Advisers.
- He developed portfolio selection theory and the Tobin Tax.
- Tobin was awarded the Nobel Prize in economics in 1981.
Early Life and Education
James Tobin was born on March 5, 1918, in Champaign, Illinois. He obtained both his bachelor’s and master’s degrees from Harvard University. After graduating in 1940, Tobin launched his career at the Office of Price Administration and Civilian Supply in Washington, D.C. During World War II, he served honorably in the United States Navy.
Upon returning to Harvard, Tobin earned his Ph.D. in economics in 1947 and joined the faculty at Yale University in 1950, where he taught until his retirement in 1988.
Public Service
Throughout his career, Tobin applied economic principles to real-world problems. He famously stated, “Economics has always been a policy-oriented subject. Unless it is applied to the urgent policy issues of the day, it will become a sterile exercise, without use or interest.”
In 1961, President Kennedy appointed James Tobin as one of three economists on his Council of Economic Advisers. The group advised the executive branch on economic policies and released the 1962 Economic Report, a manifesto of stabilization and growth policies termed as the “new economics.”
In addition to his role in the Kennedy Administration, Tobin was an academic consultant to both the Board of Governors of the Federal Reserve and the U.S. Treasury Department.
Portfolio Selection Theory
Tobin was awarded the Nobel Prize in economics in 1981 for his analysis of financial markets and their relationship with expenditure decisions, employment, production, and prices. His portfolio selection theory delineates how financial markets affect, and are affected by, the investment decisions of households and businesses. Focusing on weighted risks and expected returns, Tobin highlighted that these microeconomic choices profoundly impact macroeconomic aggregates like overall consumption, employment, and inflation.
The Tobin Tax
In response to the collapse of the Bretton Woods Agreement in 1971, Tobin developed the
Related Terms: Neo-Keynesian economics, financial system, Tobin’s Q ratio, Baumol-Tobin model, Kennedy’s Council of Economic Advisers.
References
- The Tobin Project. “Professor James Tobin (1918-2002)”.
- Nobel Media. “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1981”.
- Financial Times. “The Tobin Tax Explained”.
- The Tobin Project. “About”.
