Early life Tobin was born on March 5, 1918, in
Champaign, Illinois. His father was Louis Michael Tobin (b. 1879), a journalist working at the
University of Illinois Urbana–Champaign and was credited as the inventor of "Homecoming." His mother, Margaret Edgerton Tobin (b. 1893), was a social worker. Tobin attended the
University Laboratory High School of Urbana, Illinois, a
laboratory school on the university's campus. In 1935, he was admitted to
Harvard College with a national scholarship. During his studies he first read
Keynes'
The General Theory of Employment, Interest and Money, published in 1936. Tobin graduated
summa cum laude in 1939 with a thesis centered on a critical analysis of Keynes' mechanism for introducing equilibrium
involuntary unemployment. His first published article, in 1941, was based on this senior thesis. Tobin earned his master degree at Harvard in 1940. In 1941, he worked for the
Office of Price Administration and Civilian Supply and the
War Production Board. In 1942 he enlisted in the
US Navy, spending the war as an officer on destroyers including (among possibly others) the . After the war he returned to Harvard, receiving his Ph.D. in 1947 with a thesis on the
consumption function written under the supervision of
Joseph Schumpeter. In 1947 Tobin was elected a Junior Fellow of Harvard's
Society of Fellows, which allowed him the freedom and funding to spend the next three years studying and doing research.
Academic activity and consultancy In 1950 Tobin moved to
Yale University, where he remained for the rest of his career. He joined the
Cowles Foundation, which moved to Yale in 1955, also serving as its president between 1955–1961 and 1964–1965. His main research interest was to provide
microfoundations to
Keynesian economics, with a special focus on
monetary economics. One of his frequent collaborators was his Yale colleague
William Brainard. In 1957 Tobin was appointed
Sterling Professor of Economics at Yale. Besides teaching and research, Tobin was also strongly involved in the public life, writing on current economic issues and serving as an economic expert and policy consultant. During 1961–62, he served as a member of
John F. Kennedy's
Council of Economic Advisers, under the chairman
Walter Heller, then acted as a consultant between 1962 and 1968. Here, in close collaboration with
Arthur Okun,
Robert Solow and
Kenneth Arrow, he helped design the Keynesian economic policy implemented by the Kennedy administration. Tobin also served for several terms as a member of the Board of Governors of
Federal Reserve System Academic Consultants and as a consultant of the
US Treasury Department. Tobin was awarded the
John Bates Clark Medal in 1955 and, in 1981, the
Nobel Memorial Prize in Economics. He was a fellow of several professional associations, holding the position of president of the
American Economic Association in 1971. He was an elected member of the
American Academy of Arts and Sciences, the
American Philosophical Society, and the United States
National Academy of Sciences. In 1972 Tobin, along with fellow Yale economics professor
William Nordhaus, published
Is Growth Obsolete?, an article that introduced the
Measure of Economic Welfare as the first model for economic
sustainability assessment, and economic
sustainability measurement. In 1982–1983, Tobin was Ford Visiting Research Professor of economics at the
University of California, Berkeley. In 1988 he formally retired from Yale, but continued to deliver some lectures as
Professor Emeritus and continued to write. He died on March 11, 2002, in
New Haven, Connecticut. Tobin was a trustee of
Economists for Peace and Security.
Personal life James Tobin married Elizabeth Fay Ringo, a former
M.I.T. student of Paul Samuelson, on September 14, 1946. They had four children.
Legacy In August 2009 in a
roundtable interview in
Prospect magazine,
Adair Turner supported the idea of new global taxes on financial transactions, warning that the "swollen" financial sector paying excessive salaries had grown too big for society. Lord Turner's suggestion that a "
Tobin tax" – named after James Tobin – should be considered for financial transactions made headlines around the world. Tobin's
Tobit model of regression with
censored endogenous variables (Tobin 1958a) is a standard econometric technique. His
"q" theory of investment (Tobin 1969), the
Baumol–Tobin model of the transactions demand for money (Tobin 1956), and his model of liquidity preference as behavior toward risk (the asset demand for money) (Tobin 1958b) are all staples of economics textbooks. In his 1958 article Tobin also led the way in showing how to deal with utility maximization under uncertainty with an infinite number of possible states. As Palda explains "One way to get out of the mess of figuring out asset prices using a model of maximizing the expected utility of investing in stocks is to make assumptions about either preferences or the probabilities of the different possible states of the world. Nobelist James Tobin (1958) took this line and discovered that in some cases you do not need to worry about the utility of income in thousands of states, and the attached probabilities, to solve the consumer's choice on how to spread income among states. When preferences contain only a linear and a squared term (a case of diminishing returns) or the probabilities of different stock returns follow a normal distribution (an equation that contains a linear and squared terms as parameters), a simple formulation of a person's investment choices becomes possible. Under Tobin's assumptions we can reformulate the person's decision problem as being one of trading off risk and expected return. Risk, or more precisely the variance of your investment portfolio creates spread in the returns you expect. People are willing to assume more risk only if compensated by a higher level of expected return. One can thus think of a tradeoff people are willing to make between risk and expected return. They invest in risky assets to the point at which their willingness to trade off risk and return is equal to the rate at which they able to trade them off. It is difficult to exaggerate how brilliant is the simplification of the investment problem that flows from these assumptions. Instead of worrying about the investor's optimization problem in potentially millions of possible states of the world, one need only worry about how the investor can trade off risk and return in the stock market." ==Publications==