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World Finance and Economic Stability

Selected Essays of James Tobin

James Tobin

Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact.
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Chapter 9: An idea that gained currency but lost clarity

James Tobin


* More than 30 years after I first explored the idea of a levy on cross-border currency speculation, the ‘Tobin tax’ is gaining popularity. In Europe, France’s Lionel Jospin and Germany’s Gerhard Schröder have both expressed enthusiasm, so, too, have various critics of globalization. Of course, there are no such transactions within the eurozone. But it may be time to recall the origins of the proposal and the uses to which, I believe, it should properly be put. In 1971, I gave the Janeway lectures at Princeton. My subject was macroeconomic policy, in which my long-time academic interest had been deepened by service on President J.F. Kennedy’s Council of Economic Advisers 10 years earlier. The early 1970s were troubled times for the US dollar and currency markets were becoming crucial for policy-makers everywhere. In my lectures, I found myself giving much more attention to foreign payments balances and exchange rates than had seemed necessary in America in 1961. The Bretton Woods system of exchange rates had collapsed after the US withdrawal. As financiers and economists surveyed the wreckage, they mainly debated whether to restore fixed exchange rates or settle for marketfloating rates. I though the difference was exaggerated, because fixed rates were not really fixed. They were ‘adjustable pegs’, vulnerable to change when central banks lost reserves because of trade deficits or speculative runs. The International Monetary Fund still allowed exchange controls of capital outflows but these defences were crumbling. Private claims on central banks’ reserves...

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