Great Economists Since Petty and Boisguilbert
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 110: James Tobin (1918–2002)
The American economist James Tobin was awarded the 1981 Royal Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel for his contributions to monetary economics and macroeconomics (Purvis 1982; Myhrman 1982). Among the generation of American Keynesians who came to economics in the 1930s and 1940s, which included his fellow Nobel laureates Paul Samuelson, Robert Solow, Lawrence Klein and Franco Modigliani, Tobin stood out for his exploration of the working of the monetary system and especially of the transmission mechanism through which monetary policy affects the real economy (Tobin 1980, 1971–96; Purvis 1991; Buiter 2003; Dimand 2014). Tobin’s contributions ranged from models of the transactions demand for money (Tobin 1956) and demand for money as a store of value (Tobin 1958b) to the extension of the investment saving–liquidity preference money supply (IS–LM) macroeconomic framework to multi-asset portfolio balance models (Brainard and Tobin 1968; Tobin 1969, 1982a), introducing money in long-run growth theory (Tobin 1965), and scepticism about the macro efficiency of the financial system (Tobin 1984). Within the economics profession, he was best known for Tobin’s q theory of investment (Tobin’s q is the ratio of the market value of equity to the replacement cost of capital; Brainard and Tobin 1968), Tobit estimators for limited dependent variables (Tobin 1955b, 1958a), and the Tobin separation theorem (Tobin 1958b: if a riskless asset exists, differing degrees of risk aversion just affect the fraction of the portfolio to be placed in risky assets, but do not change...
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