James Tobin

James Tobin was an American interventionist and Keynesian economist who served on the Board of Governors of the Federal Reserve and the Council of Economic Advisors, taught at Yale and Harvard universities, and was a recipient of the 1981 Nobel Prize for Economics for his work on the “Tobin Model” for econometric thought. Outside academia his most well-known idea is the “Tobin Tax”, a tax on foreign exchange transactions in order to reduce currency speculation, which Tobin believed to be wasteful and counterproductive to economic growth.

James Tobin was born on the 5th of March, 1918, in Champaign, Illinois. He was a precocious student who passed the Harvard entrance exam essentially on a whim, as his father suggested he take it and he made no attempt to prepare for it. He attended the school on a national scholarship and developed a strong interest in Keynesian thought. He graduated summa cum laude in 1939 and proceeded to graduate studies, also at Harvard. He received his Master’s Degree in 1940, before leaving to work for the Office of Price Administration and Civilian Supply and the War Production Board in Washington, D.C., before eventually enrolling in the United States Navy after the Pearl Harbor attacks. He served as an officer on the USS Kearny.

After the war he returned to Harvard to earn his Ph.D. in economics, which he completed in 1947. That year he was elected a Junior Fellow of the Harvard Society of Fellows. After doing research abroad for three years, he went to Yale in 1950, spending much of his time finding microfoundations to Keynesian theory. In 1957 he was appointed a Stirling Professor of Economics at Yale. Besides teaching and doing research, Tobin also acted as a consultant and contributor to several magazines and newspapers, commentating on current events and their economic implications. When Keynesian John F. Kennedy was elected to the Presidency, Tobin was put on his Council of Economic Advisors, and continued in his consulting role during the presidency of Lyndon Johnson. Dismissed by Johnson’s successor, Richard Nixon, Tobin moved on to become the President of the American Economic Association in 1971.

After winning the Nobel Prize in Economics in 1981, Tobin retired from teaching in 1983. He continued to write up until his death on March 11, 2002. It would only be in 2009, when Adair, Lord Turner, suggested a “Tobin Tax” to suppress an ever-larger currency speculation market, which Turner called “swollen, to the point where it is too big for society”, that Tobin’s work would make international headlines.

James Tobin won the Nobel Memorial Prize in Economics in 1981 for his development of the Tobin Model of portfolio-selection theory. Portfolio-selection theory requires a meta-analysis of financial analysis techniques to describe how investors mitigate risk in their investment portfolios. This risk is mitigated by choosing a combination of high-risk and low-risk investments, and Tobin described the way investors select these investments.