Professor James Tobin (1918-2002)

James Tobin, a Nobel laureate in economics, believed deeply in the power of ideas. Over the course of an esteemed career, he served as Sterling Professor at Yale University, a member of President Kennedy’s Council of Economic Advisers, and an academic consultant to the Board of Governors of the Federal Reserve. Not only did his research in macroeconomics greatly advance the discipline, but his dedication to scholarship in the public interest also inspired generations of students as well as the Tobin Project.

Early Life

James Tobin was born in 1918 in Champaign, Illinois. His mother was a social worker and his father a journalist; from a young age, he developed a strong social conscience and appreciation for intellectual pursuits. By 1935, Tobin was enrolled as an undergraduate at Harvard College, having been awarded one of the first-ever Conant Prize Fellowships upon admission.[1] Just a year later, John Maynard Keynes published his General Theory of Employment, Interest and Money, which caught the attention of Tobin’s tutorial leader at Harvard, who suggested they read it together. Although Tobin had considered studying law or mathematics, he decided to major in economics after reading Keynes’s work.[2] Decades later, Tobin would write: “I studied economics and made it my career [because] the subject was and is intellectually fascinating. . . [and] it offered the hope, as it still does, that improved understanding could better the lot of mankind."[3]

Tobin graduated summa cum laude from Harvard in 1939, having written an honors thesis that challenged Keynes’s notion of an unemployment equilibrium.[4] He stayed on at Harvard for two years of graduate coursework, moving in 1941 to work for the Office of Price Administration and Civilian Supply and the War Production Board in Washington, D.C.[5] After the U.S. entered WWII, Tobin joined the Navy and, for almost four years, served as an officer on a destroyer in the Atlantic and Mediterranean.[6] A colleague from his Naval Reserve training, Herman Wouk, would later write a novel (The Caine Mutiny) based on his experience, with a character modeled after his friend James Tobin. The character, named “Tobit,” was described in the book as having “measured, quiet speech, and a mind like a sponge . . . ahead of the field by a spacious percentage."[7]

Career in Academia and Public Service

Tobin returned to Harvard in 1946 to complete his dissertation, ultimately staying an additional three years as a Junior Fellow in Harvard’s Society of Fellows. In 1950, when Yale University offered him an associate professorship in economics, Tobin moved with his wife Elizabeth to New Haven, where they settled and raised their four children, Margaret, Louis, Hugh, and Roger.

Building on his continued interest in Keynes’s work, Professor Tobin’s research focused on key issues in the emerging field of macroeconomics, including monetary and fiscal policy. Professor Tobin characterized his research as an effort to “improve the theoretical foundations of macro models, to fit them into the main corpus of neoclassical economics, and to clarify the roles of monetary and fiscal policies."[8]

Over the course of his career, Professor Tobin authored or edited sixteen books and more than four-hundred articles, while also publishing essays for a popular audience.  Several key concepts also bear his name, including “Tobin’s q,” the “Tobit” regression model, and the “Tobin tax”. The latter – a very small tax on foreign exchange transactions – was originally conceived by Tobin in the 1970s as a way to discourage destabilizing speculation in the global capital markets; the idea has received renewed attention in recent years (this time in a domestic context as well) in the wake of the financial crisis of 2007-2009.[9]

Throughout his career, Professor Tobin was invited to lead numerous academic organizations and was honored with many of the highest awards for scholarship the academy had to offer. In 1955, he became research director for the Cowles Foundation for Research in Economics, a group that he had admired for its “innovative and seminal work in mathematical economics and econometrics."[10] The same year, the American Economic Association awarded him the John Bates Clark Medal, given biennially “to that American economist under the age of forty who is adjudged to have made a significant contribution to economic thought and knowledge."[11] In 1971, he served as president of the American Economic Association and in 1972, he was selected as a member of the National Academy of Sciences. He was awarded the Nobel Memorial Prize in Economic Sciences in 1981 “for his analysis of financial markets and their relations to expenditure decisions, employment, production and pricec."[12]

Regarding the social value of economics, Tobin noted: “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."[13] Bringing his economic expertise to bear on major problems facing society, Tobin made significant contributions in the public sphere. In 1961, President Kennedy invited him to serve on the Council of Economic Advisers, a three-person team of economists who offer expertise to the executive branch on issues of economic policy. Professor Tobin accepted and contributed “a powerful intellect that served . . . to ground the Council’s work on the sturdiest possible analytic grounds."[14] Regarding the experience, Professor Tobin commented that “[t]he Kennedy council was effective and influential because the president and his immediate White House staff took academics seriously, took ideas seriously, took us seriously."[15] In addition to his work with the Council, Tobin served multiple terms as an academic consultant to the Board of Governors of the Federal Reserve and to the U.S. Treasury Department.

Motivation and Philosophy

Professor Tobin liked to say that he became an economist for two reasons: “One . . . economic theory is a fascinating intellectual challenge . . . [and two] the obvious relevance of economics to understanding and perhaps overcoming the great depression and all the frightening political developments associated with it throughout the world."[16] These interests – in rigorously pursuing intellectual challenges and in applying economic knowledge to real-world problems – guided Professor Tobin’s work throughout his career.

Professor Tobin firmly believed that academics have a responsibility to serve the public through their research. As a scholar who regularly provided his expertise to those in government, he believed that social scientists should not only look inward, at debates within the literature, but also (and perhaps especially) outward, at problems in the world. “The most important decisions a scholar makes are what problems to work on,” Professor Tobin said. “Choosing them just by looking for gaps in the literature is often not very productive and at worst divorces the literature itself from problems that provide more important and productive lines of inquiry. The best economists have taken their subjects from the world around them."[17]

Professor Tobin recalled from his own years as a graduate student in the 1940s a shared commitment to pursuing research that would increase understanding of major societal problems and inform public policymaking. As a professor, Tobin impressed upon his students both the practical import of macroeconomics and the responsibility incumbent upon them to serve society through their work. “The overarching memory I have of Jim Tobin is his powerful humanity,” says a former student. “He taught economics not as a bag of analytic tricks, but as an exercise of identifying analytically the tradeoff frontiers at which moral choices come into play. He took great care that the dimensions of that tradeoff frontier were ethically relevant."[18]

While focused on questions pertinent to public policy, Tobin was relentless in his pursuit of (and adherence to) the highest academic standards, careful never to let his audience or political pressures shape the results of his research. As described by Robert Solow, a fellow Nobel Laureate and close friend, James Tobin “possessed a kind of unassuming moral authority. It came from the clarity of his mental picture of the economy’s working, his uncompromising insistence on getting arguments right and expressing them plainly and lucidly, and his unsparing accounting of exactly what was being given up when something had to be given up to win acceptance of a better rather than a worse stance. This aura of integrity stayed with him always."[19]

Professor Tobin was a mentor and inspiration to hundreds of leading academics and public figures, including Mario Monti (Prime Minister of Italy), Janet Yellen (Vice Chairman of the Board of Governors of the Federal Reserve System), and Austan Goolsbee (Chair of President Obama’s Council of Economic Advisers).  David Moss, a student of Professor Tobin’s in the 1980s at Yale, went on to teach at Harvard Business School as an economic and policy historian. Following Tobin’s death in 2002, and with the permission of the Tobin family, Professor Moss founded the Tobin Project to pursue a goal he shared with his mentor: to facilitate scholarship on society’s most pressing problems, with both rigorous academic standards and ongoing links to public policy and practice. Professor Tobin’s legacy continues to motivate and inspire the work of the Tobin Project.

“Knowledge advances when striking real-world events and issues pose puzzles we have to try to understand and resolve. The most important decisions a scholar makes are what problems to work on."
- James Tobin, Lives of the Laureates
 

Selected Works by James Tobin:

Tobin, James.  “Liquidity Preference and Monetary Policy.” The Review of Economics and Statistics 29.2 (May 1947): 124–131.

Tobin, James. “A Dynamic Aggregative Model.” Journal of Political Economy 63.2 (April 1955): 103–115.

Tobin, James. "The Interest-Elasticity of Transactions Demand for Cash." The Review of Economics and Statistics 38.3 (Aug 1956): 241-247. Available at: http://cowles.econ.yale.edu/P/cp/p01a/p0106.pdf

Tobin, James. “Estimation of Relationships for Limited Dependent Variables.” Econometrica 26.1 (Jan 1958): 24-36. Available at: http://cowles.econ.yale.edu/P/cp/p01a/p0117.pdf.

Tobin, James. “Liquidity Preference as Behavior Towards Risk.” The Review of Economic Studies 25.2 (Feb 1958): 65-86. Available at: http://cowles.econ.yale.edu/P/cp/p01a/p0118.pdf.

Tobin, James. "A General Equilibrium Approach to Monetary Theory." Journal of Money, Credit and Banking 1.1 (Feb 1969): 15–29.

Tobin, James. "On Limiting the Domain of Inequality." Journal of Law and Economics 13.2 (Oct 1970): 263-277.

Brainard, William C. and Tobin, James. “Asset Markets and the Cost of Capital.” Economic Progress, Private Values and Public Policy, Essays In Honor of William Fellner. Ed. Balassa Bela. North-Holland, 1977: 235-262. Available at: http://cowles.econ.yale.edu/P/cp/p04a/p0440.pdf.

Tobin, James. “A Proposal for International Monetary Reform.” The Eastern Economic Journal, 4.3-4 (July/October 1978): 153-159. Available at: http://cowles.econ.yale.edu/P/cp/p04b/p0495.pdf.

Tobin, James. “Money and Finance in the Macro-Economic Process.” Nobel Memorial Lecture. Dec 8, 1981. Available at: http://nobelprize.org/nobel_prizes/economics/laureates/1981/tobin-lecture.pdf.