Article thumbnail

James Tobin : an appreciation of his contribution to economics.

By Willem H. Buiter

Abstract

Jim Tobin, who died on March 11, 2002 at the age of 84, was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation. Tobin’s influence on macroeconomic theory is so pervasive - so much part of our professional ‘acquis’ - that many younger economists often are not even aware that it is his ideas they are elaborating, testing, criticising, refuting or re-inventing. In this Appreciation, I consider Tobin’s scholarly contributions, made over a period of more than 50 years. Tobin received the 1981 Nobel Memorial Prize “for his analysis of financial markets and their relations to expenditure decisions, employment, production and prices”. I consider his contributions to mean-variance portfolio demand and asset pricing theory, especially the Portfolio Separation Theorem; pitfalls in financial model building; portfolio balance and flow of funds models and the ‘credit channel’; the life-cycle model and social security; econometric methodology, including the Tobit estimator and his pioneering work using both time series and cross-sectional data to estimate food demand functions; economic growth; Tobin’s q; the ‘Tobin Tax’ ; the monetary and fiscal policy effectiveness debate, first with Milton Friedman and then with the New Classical Macroeconomics and Real Business Cycle schools; and Tobin’s approach to methodological questions including microfoundations and aggregation.

OAI identifier: oai:RePEc:ner:lselon:http://eprints.lse.ac.uk/847/

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

Suggested articles

Citations

  1. [1871], Through the Looking Glass and What Alice Found There.
  2. [1930], The Theory of Interest,
  3. [1947a], A Theoretical and Statistical Analysis of Consumer Saving,
  4. [1947b], “Liquidity Preference and Monetary Policy”,
  5. [1948], “A Rejoinder to Dr. Wharburton”,
  6. [1952a], “Asset Holdings and Spending Decisions”,
  7. [1955a], “Multiple Probit Regression of Dichotomous Economic Variables”, Cowles Foundation Discussion Paper No. 1, reprinted
  8. [1955b], “A Dynamic Aggregative Model”,
  9. [1956], “The Interest-Elasticity of Transactions Demand for Cash”, Review of Economics and
  10. [1956], The Accumulation of Capital,
  11. [1957], A Theory of the Consumption Function,
  12. [1958a], “Estimation of Relationships for Limited Dependent Variables”,
  13. [1958b], “Liquidity Preference as Behaviour Towards Risk”,
  14. [1958c], “Milton Friedman’s Theory of the Consumption Function”,
  15. [1960], “Consumer expenditures and the capital account”,
  16. [1963a], “An Essay on the Principles of Debt Management”,
  17. [1963b], “Commercial Banks as Creators of “Money””,
  18. [1965b], “The Monetary Interpretation of History (A Review Article)”,
  19. [1965c], “On Improving the
  20. [1967a], “Life Cycle Saving and Balanced Growth”,
  21. (1987). [1967b], “The Cruel Dilemma”, in Price Issues in Theory, Practice and Policy, Almarin Phillips ed.
  22. (1987). [1968a], “Phillips Curve Algebra”,
  23. [1968b], “Notes on Optimal Monetary Growth”,
  24. [1968c], “Raising the Incomes of the Poor”, in Agenda for the Nation,
  25. [1969], The Optimum Quantity of Money and other Essays,
  26. [1969a], “Comment on: "Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection"”,
  27. [1969b], “A general Equilibrium Approach to Monetary Theory”,
  28. [1970], “Comment on Tobin”,
  29. [1970a], “Money and Income: Post Hoc Ergo Propter Hoc”,
  30. [1970b], “On limiting the domain of inequality”,
  31. [1970c], “Rejoinder”,
  32. [1970d], “Deposit Interest Ceilings as a Monetary Control”,
  33. [1972], “Comments on the critics”,
  34. [1972a], “Inflation and Unemployment”,
  35. [1972b], “Friedman’s Theoretical Framework”,
  36. [1973], “Do Walras’ identity and continuity characterize the class of community excess demand functions?,”
  37. [1973a], “Is Growth Obsolete”,
  38. [1974], “Excess demand functions,”
  39. [1974], “Market excess demand functions,”
  40. [1974a], The New Economics One Decade Older,
  41. [1974b], “Technological Development and Employment”,
  42. [1974c], “What is Permanent Endowment Income?”
  43. [1975b], “Keynesian Models of Recession and Depression”,
  44. [1977], “”Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule.”
  45. [1980], Asset Accumulation and Economic Activity,
  46. [1981], “Reflections Inspired by Proposed Constitutional Restrictions on Fiscal Policy”,
  47. [1981b], “Tobin and Monetarism: A Review Article”,
  48. [1982a], “Money and Finance in the Macroeconomic Process”,
  49. [1982b], “Against the Balanced Budget and Tax Limitation Amendment”,
  50. [1983], “Mandatory Retirement Saving and Capital Formation”,
  51. [1983], “Staggered Contracts in a Utility-Maximizing Framework,”
  52. [1983a], “Liquidity Preference, Separation and Asset Pricing”,
  53. [1983b], “Macroeconomics under Debate”, Mitsui Lecture,
  54. [1986a], “On the Welfare Macroecomics of Government Financial Policy”,
  55. [1986b], “A Professional Autobiography”,
  56. [1987], Policies for Prosperity; Essays in a Keynesian Mode, Edited by
  57. [1988], “The Future of Social Security: One Economist’s Assessment”,
  58. (1990). [1990a], “Social Security, Public Debt and Economic Growth”,
  59. [1990b], “On the Theory of Macroeconomic Policy”,
  60. [1991a], New Keynesian Economics, Volume 1, Imperfect Competition and Sticky Prices,
  61. [1991b], New Keynesian Economics, Volume 2, Coordination Failures and Real Rigidities,
  62. [1991b], Papers in Experimental Economics,
  63. [1992b], “The invisible hand in modern macroeconomics”,
  64. [1992c], “An Old Keynesian Counterattacks”,
  65. [1993], “Price Flexibility and Output Stability: An Old Keynesian View”,
  66. [1995], “The Natural Rate as New Classical Macroeconomics”, in Rod Cross ed. The Natural Rate Hypothesis Twenty-Five Years on, Cambridge,
  67. [1996a], Full Employment and Growth; Further Keynesian Essays on Policy,
  68. (1997). [1996b], Essays in Economics; National and International,
  69. [1997], “Address by the Governor of the South African Reserve Bank”,
  70. (1998). [1998], “Would a Privatized Social Security System Really Pay a Higher Rate of Return?” in Framing the Social Security Debate.
  71. [1999], Monetary Policy Rules,
  72. (2001). [2003], “Nominal wage rigidity and the rate of inflation”, Discussion
  73. (1956). A contribution to the Theory of Economic Growth”,
  74. (1998). A Frictionless model of U.S. Inflation",
  75. A Game Theoretic Approach to the Theory of Money and Financial Institutions”, in Handbook of Monetary Economics, edited by B. Friedman and F.Hahn,
  76. (1963). A Monetary History of the United States 1879-1960,
  77. (1971). A Monetary Theory of Nominal Income,"
  78. A note on the money wage problem”,
  79. A Proposal for International Monetary Reform”,
  80. (1968). A simple macroeconomic model with a government budget constraint”,
  81. (1994). A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy’,
  82. (1999). A Statistical Demand Function for Food in the U.S.A.”,
  83. (2003). Adaptive Learning and the Transition to Fiat Money”,
  84. (1989). Agency Costs, Net Worth, and Business Fluctuations,"
  85. (1980). Aggregate Dynamics and Staggered Contracts”,
  86. (1982). An Evolutionary Theory of Economic Change,
  87. (1958). An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money”,
  88. an Seppo Honkapohja [2001], Learning and Expectations in Macroeconomics,
  89. and Franco Modigliani [1963], “The life cycle hypothesis of saving”,
  90. and Murray Weidenbaum eds. [1988], Two Revolutions
  91. Andrei [2000] Clarendon Lectures: Inefficient Markets,
  92. (1974). Are Government Bonds Net Wealth”,
  93. (1982). Asset Accumulation and Economic Activity: Reflections on Contemporary Macroeconomic Theory, by James Tobin,
  94. (2000). Bargaining and Market Behavior : Essays in Experimental Economics,
  95. (1993). Bounded Rationality in Macroeconomics,
  96. Brainard [1977], “Asset Markets and the Cost of Capital”,
  97. Buiter [1976], "Long-Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Ch.
  98. (1979). Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica,
  99. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk”,
  100. (1988). Coordinating Coordination Failures in Keynesian Models,"
  101. (1985). Costs and Benefits of an AntiInflationary Policy: Questions and Issues,"
  102. (1988). Credit, Money, and Aggregate Demand,"
  103. (1978). Crowding Out or Crowding In? The Economics Consequences of Financing Government Deficits”,
  104. de Macedo [1980], “The Short-Run Macroeconomics of Floating Exchange Rates: An Exposition”,
  105. (1985). Debt, deficits and finite horizons”,
  106. Deficit Spending and Crowding Out in Shorter and Longer Runs”,
  107. (1993). Did Technology Shocks Cause the 1990-91 Recession?" American Economic Review Papers and
  108. (1993). Discretion Versus Policy Rules
  109. (1976). Discussion: of “Public Pension Funding and U.S. Capital Formation: A Medium-Run View”, by Benjamin M Friedman,” in Funding Pensions: Issues and Implications for Financial Markets, Federal Reserve Bank of Boston,
  110. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?”,
  111. (1987). Dynamic Macroeconomic Theory,
  112. E.[1965], “The uncertain lifetime, life insurance and the theory of the consumer”,
  113. (1976). Econometric Policy Evaluation: A Critique”, in Lucas [1981a],
  114. Economic Growth and An Objective of Government Policy”,
  115. (1984). Efficiency Wage Models of Unemployment”,
  116. (1966). Equilibrium in a Capital Asset
  117. (2000). Equilibrium Unemployment Theory, Second Edition,
  118. (1952). Estimates of the Free Demand for Rationed Foodstuffs”,
  119. (1972). Expectations and the Neutrality of Money”,
  120. (1964). Financial Intermediaries and a Theory of Monetary Control”,
  121. Fiscal and Monetary Policies, Capital Formation and Economic Activity”,
  122. Franco and Richard Brumberg [1954], “Utility Analysis and the Consumption Function: An Interpretation of Cross Section Data,”
  123. from Tobin’s “Comment”,
  124. Fudenberg [1993], “Rules of Thumb for Social Learning”,
  125. Fumio [1982], “Tobin’s Marginal q and Average q:
  126. Gregory [1989]: "Real Business Cycles: A New Keynesian Perspective."
  127. (1983). House of Commons.
  128. (1999). Human Behavior and the Efficiency of Financial Markets,"
  129. (1949). Income, Saving and the Theory of Consumer Behavior,
  130. Increasing Returns and the Foundation of Unemployment Theory",
  131. (1967). Inflation and Economic Growth”,
  132. (1972). Inflation Policy and Unemployment Theory,
  133. (1988). Intertemporal Substitution in Consumption,”
  134. (2000). Irrational Exuberance,
  135. Jr [1980], “Methods and Problems in Business Cycle Theory”,
  136. Kahneman [1992],”Advances in prospect theory: Cumulative representation under uncertainty”,
  137. Katsuhito [1981], Disequilibrium Dynamics - A Theoretical Analysis of Inflation and Unemployment, Cowles Foundation Monograph 27,
  138. Kotlikoff [1987], Dynamic Fiscal P olicy, Cambridge,
  139. (1982). Leaning, Estimation, and the Stability of Rational Expectations Equilibria”,
  140. (1997). Learning from Learning in Economics”,
  141. (1969). Lifetime Portfolio Selection by Dynamic Stochastic Programming."
  142. (1969). Lifetime Portfolio Selection Under Uncertainty: The Continuous-Time Case”,
  143. (1990). Liquidity and interest rates”,
  144. (1992). Liquidity effects and the monetary transmission mechanism’, American Economic Review,
  145. (1995). Liquidity effects, monetary policy and the business cycle’,
  146. (1992). Liquidity, loanable funds, and real activity”.
  147. (1969). Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection",
  148. (1999). Methodology and Tacit Knowledge: Two Experiments in Econometrics,
  149. Mieszkowski [1967], “Is a Negative Income Tax Practical”,
  150. (1993). Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance,"
  151. (1984). Monetary Theory and Practice: The U .K.
  152. (1969). Money and Permanent Income: Some Empirical Tests",
  153. (1961). Money, Capital, and Other Stores of Value”,
  154. (1972). Money, Debt, and Economic Activity”,
  155. (1991). Monopolistic competition and the effects of aggregate demand”,
  156. (1965). National Debt in a Neoclassical Growth Model”,
  157. Neil and JamesTobin [1977], “Macroeconomic Effects of Selective Public Employment and Wage Subsidies”,
  158. (1966). Neoclassical Growth with Fixed Factor Proportions",
  159. (1973). New York: National Bureau of Economic Research,
  160. Nobuhiro Kiyotaki and Randall Wright [1993], “More on Money as a Medium of Exchange”,
  161. (1990). On Crotty’s critique of q-theory”,
  162. On living and trading with Japan: United States commercial and macroeconomic policies”,
  163. (1989). On Money as a Medium of Exchange,"
  164. (1974). On the characterization of aggregate excess demand,”
  165. On the Efficiency of the Financial System”, Fred Hirsch Memorial Lecture,
  166. On the Predictive Value of Consumer Intentions and Attitudes”,
  167. (1968). Optimal Multiperiod Portfolio Policies,”
  168. (1990). Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment”,
  169. (1959). Portfolio Section,
  170. (1970). Portfolio Selection: Efficient Diversification of Investments (Yale
  171. (1952). Portfolio Selection”,
  172. (1995). Price-level Determinacy Without Control of a Monetary Aggregate’,
  173. (1981). Prices and Quantities: A Macroeconomic Analysis, The Brookings Institution,
  174. (1979). Prospect theory: An analysis of decision under risk”
  175. (1976). Public Pension Funding and U.S. Capital Formation: A Medium-Run View”, in Funding Pensions: Issues and Implications for Financial Markets, Federal Reserve Bank of Boston,
  176. Randall Morck and Bernard Yeung [2003], “Value Enhancing Capital Budgeting and Firm-Specific Stock Returns Variation”, forthcoming
  177. Rapping [1969], “Real Wages, Employment, and Inflation”,
  178. Rational choice – the contrast between economics and psychology”,
  179. (1976). Rational Expectations and the Role of Monetary Policy”,
  180. (1975). Rational expectations, the optimal monetary instrument and the optimal money supply rule”,
  181. (1951). Relative Income, Absolute Income and Savings,"
  182. (1986). Response to a Skeptic." Federal Reserve Bank of Minneapolis Quarterly Review,10: (Fall). Reprinted in
  183. (1994). Rigid Wages”,
  184. (1988). Robustness Properties of a Rule for Monetary
  185. Sample Selection Bias as a Specification Error."
  186. Sargent [1978], “After Keynesian Macroeconomics”,
  187. Shapiro [1986], “Risk and Return: Consumption Beta versus Market Beta",
  188. Solow [1973], “Does Fiscal Policy Matter”,
  189. (1981). Some Unpleasant Monetarist Arithmetic”, Federal Reserve Bank of Minneapolis Quarterly Review,
  190. Spulber [1987], “Menu Costs and the Neutrality of Money”,
  191. (1979). Staggered Wage Setting in a Macro Model”,
  192. (1981). Staggered wage setting with real wage relativities: variations on a theme of Taylor”,
  193. (1982). Sticky Prices in the United States”,
  194. (1991). Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis,
  195. (1982). Tax Reform and Income Redistribution: Issues and Alternatives”,
  196. (1981). Taxation and corporate investment: a q-theoretic approach”,
  197. (1980). Testing for Causality: a Personal Viewpoint”,
  198. (1980). The choice of monetary instruments under alternative forms of price expectations”,
  199. (1979). The current state of the policy-ineffectiveness debate”,
  200. (1959). The Demand for Money: Some theoretical and empirical results",
  201. (1987). The Economic Institutions of Capitalism, the Free Press, Simon and Schuster,
  202. (1951). The Effects of Rationing on Demand Elasticities”,
  203. (1992). The Federal Funds Rate and the Channels of Monetary Transmission,"
  204. (1981). The financial valuation of the return to capital”,
  205. (2002). The Fiscal Theory of the Price Level: A Critique",
  206. (1936). The General Theory of Employment, Interest,
  207. The Macroeconomics of Government Finance”, in Benjamin Friedman and Frank Hahn eds.
  208. (2003). The New Financial Order: Risk in the 21st Century,
  209. (1989). The Optimal Cash Balance Proposition: Maurice Allais’s Priority”,
  210. (1983). The Stability of Rational Expectations in Macroeconomic Models”,
  211. (1981). The superiority of contingent rules over fixed rules in models with rational expectations”,
  212. (1952). The Transactions Demand for Cash: an Inventory Theoretic Approach”,
  213. (1979). The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure”,
  214. (1986). Theory Ahead of Business Cycle Measurement." Federal Reserve Bank of Minneapolis Quarterly Review,
  215. (1982). Time to Build and Aggregate Fluctuations." Econometrica,
  216. (1975). Tobin on Macroeconomics: A Review Article",
  217. (1989). Understanding Real Business Cycles."
  218. Vishny [1989], “Alternative Mechanisms for Corporate Control”,
  219. (1987). Wealth, Liquidity and the Propensity to Consume", in Human Behavior in Economic Affairs; Essays in Honor of
  220. (1971). Wealth, Liquidity, Consumption”,
  221. (1999). Why Wages Don’t Fall During a Recession,
  222. with Edward C. Prescott [1989], Recursive Methods in Economic Dynamics,