James Tobin

207 Pages·2014·1.414 MB·English

by  Robert W. Dimand (auth.)

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James Tobin
Robert W. Dimand
Brock University, Canada
© Robert W. Dimand 2014
Softcover reprint of the hardcover 1st edition 2014 978-1-137-43194-3
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Dimand, Robert W. (Robert William)
James Tobin / Robert Dimand.
pages cm.—(Great thinkers in economics)
1. Tobin, James, 1918–2002. 2. Economists – United States.
3. Economics – United States – History. I. Title.
HB119.T6D53 2014
330.092—dc23 2014028138
[B]
Contents
Preface vi
Acknowledgments viii
Introduction 1
1 An American Keynesian 10
2 Transforming the IS-LM Model Sector by Sector 24
3 Consumption, Rationing, and Tobit Estimation:
Tobin as an Econometrician 4 4
4 Portfolio Balance, Money Demand, and Money Creation 6 3
5 Tobin’s q and the Theory of Investment 73
6 Money and Long-Run Economic Growth 9 0
7 To Improve the World: Limiting the Domain
of Inequality 106
8 Taming Speculation: The Tobin Tax 113
9 Tobin’s Legacy and Modern Macroeconomics 130
Notes 156
Bibliography 1 66
Index 191
v
Preface
I had the privilege and good fortune to know James Tobin and to
study with him. I came to Yale as an economics graduate student in
1978 already intending to work in the history of economic thought,
and specifically on John Maynard Keynes, after a bachelor’s degree
in history and economics at McGill. This choice of field was, then as
now, regarded by leading North American economics departments
as eccentric at best: in my first year at Yale, the only course offered
in the history of economic thought was Harry Miskimin’s history
department graduate course on French mercantilism, a fine course
but perhaps a bit specialized.
But Jim Tobin, who had taken Joseph Schumpeter’s sequence
of courses in the history of economic analysis while at Harvard,
provided encouragement and support (as did the economic historian
William Parker and, among untenured faculty, Katsuhito Iwai and
David Levine). After I had taken his courses in “Money and Finance”
(one taught jointly with John Taylor, then a visiting professor), I was
the teaching assistant for his course “The Keynesian Revolution and
the Counter-Revolutions,” and he supervised my dissertation, based
on surviving student notes of Keynes’s lectures (then being edited
by T. K. Rymes at Carleton). This dissertation, accepted in 1983,
eventually became the basis of my book, The Origins of the Keynesian
Revolution (1988).
In 1992, I returned to Yale as a visiting fellow to spend a sabbatical
and a leave as one of the two assistant editors (with Kevin Foster) for
William Barber’s edition of T he Works of Irving Fisher (14 volumes,
1997), for which Jim was consulting editor. Studying with Jim, and
discussing Keynes, Fisher, and the history of macroeconomics with
him, was a wonderful experience for a then-young historian of
macroeconomics – and not least the day in October 1981 that his
Nobel Memorial Prize was announced. Jim liked to recount that the
telephone call from Stockholm had gone to an unrelated teenage
Yale sophomore, the only “James Tobin” actually living on the Yale
campus, but the student’s roommate had refused to wake him with
vi
Preface vii
the news of the prize – and it was later discovered that the student
had previously received several phone calls from journalists and had
shared with them his opinions about politics and economics.
This is not a biography but rather, in keeping with the aims of
the Great Thinkers in Economics series, a book about James Tobin
as an economist, examining his contributions to economics, prima-
rily in monetary economics and macroeconomics (such as his money
demand models, the corridor of stability, Tobin’s q theory of invest-
ment, and the Tobin separation theorem), but also extended to
applied econometrics (notably the Tobit estimator and the 1950 food
demand study) and to proposals to fight poverty and inequality.
Beyond surveying his contributions, I consider the reasons for the
decline in influence of his approach to monetary economics, and
suggest that aspects of his work are of renewed interest in the wake
of the global financial crisis. In particular, I draw attention to his
modelling from 1975 onward of a “corridor of stability” – models of
economies that are self-adjusting most of the time but not for infre-
quent large shocks – as an alternative to models of economies that
are either always stable or never stable.
The theme of this book is that James Tobin’s work in economics was
not just an assortment of individual contributions, but a coherent
research program shaped by how he first came to economics: during
the Great Depression of the 1930s that followed a stock market crash
and a breakdown of financial intermediation, reading Keynes’s
General Theory (before even reading an economic principles text-
book) with a bent for expressing ideas in formal ideas, and seeing
economics as a path to economic stabilization, not as a collection of
abstract puzzles.
Acknowledgments
In researching and writing this book, I have benefited from, and
am grateful for, financial support from Brock University’s Faculty of
Social Sciences and Committee for Research in the Social Sciences,
and for a sabbatical in which to complete the manuscript. I am
also grateful for visiting fellowships at the Center for the History of
Political Economy at Duke University from September to December
2013 and at the John F. Kennedy Institute for North American Studies
at the Free University of Berlin from April to July 2014. I thank the
editor of this series, Tony Thirlwall, for his comments on the manu-
script, and for his invitation to write this book.
Earlier versions of much of this material were presented at confer-
ences (at which I received many helpful comments) and published
in conference proceedings. For permission to make use of material
drawn from co-authored papers, both published and unpublished,
I am grateful to Harald Hagemann for material in Chapter 5, to
Steven N. Durlauf for material in Chapter 6, and to Mohammed
H. I. Dore for material in Chapter 8. I thank Duke University Press
and the editor of H istory of Political Economy , Kevin D. Hoover, for
permission to reprint in revised form three articles that appeared in
the annual conference supplement to HOPE : “James Tobin and the
Transformation of the IS-LM Model,” in Michel DeVroey and Kevin
D. Hoover, eds. T he IS-LM Model: Its Rise, Fall, and Strange Persistence ,
Annual Supplement to History of Political Economy 36 (2004), 165–189;
“James Tobin and Growth Theory: Financial Factors and Long-Run
Economic Growth” (with Steven N. Durlauf), in Mauro Boianovsky
and Kevin D. Hoover, eds. Robert Solow and the Development of
Growth Economics , Annual Supplement to H istory of Political Economy
41 (2009), 182–199; and “Tobin as an Econometrician,” in Marcel
Boumans, Arianne Dupont-Kiefer, and Mary S. Morgan, eds.
Histories on Econometrics , Annual Supplement to History of Political
Economy 43 (2011), 166–187. I am grateful for comments on these
papers from conference participants, the editors of the supplements,
anonymous referees, and, for the 2009 paper on long-run growth,
Donald Hester.
viii
Acknowledgments ix
For discussion of these and other papers, I thank the participants
in the University of Toronto workshop in the history of economic
thought, particularly Avi Cohen, Susan Howson, J. Allan Hynes,
David Laidler, Donald Moggridge, and Allan Olley, and also partici-
pants in sessions at annual conferences of the Canadian Economics
Association, the History of Economics Society, and the Allied Social
Science Associations.
I am grateful to the volume editors and to Edward Elgar Publishing
for permission to reprint in revised form two papers that appeared in
conference volumes published by Edward Elgar Publishing: “Minsky
and Tobin on the Instability of a Monetary Economy,” in Marc
Lavoie and Mario Seccareccia, eds., Central Banking in the Modern
World (Cheltenham, UK, and Northampton, MA: Edward Elgar,
2004), 226–243, and “Tobin, Globalization, and Capital Flows,” in
Claude Gnos and Louis-Phillipe Rochon, eds., M onetary Policy and
Financial Stability (Cheltenham, UK, and Northampton, MA: Edward
Elgar, 2009), 190–205. I thank the volume editors and conference
participants for their comments.
I thank the volume editors and Harvard University Press for
permission to reprint in revised form a paper from the proceedings
of the Keynes symposium at Sophia University in Tokyo: “Tobin’s
Keynesianism,” reprinted by permission of the publisher from The
Return to the Keynes, edited by Bradley Bateman, Toshiaki Hirai, and
Maria Cristina Marcuzzo, pp. 94–107, Cambridge, Mass.: The Belknap
Press of Harvard University Press, Copyright © 2010 by the President
and Fellows of Harvard College. I am grateful to the editors, sympo-
sium participants, and referees for their comments.
I am grateful to the Eastern Economic Journal and Palgrave Macmillan
for their stated policy of permitting authors to reuse their articles in
their own books, which permits me to make use of “On Limiting the
Domain of Inequality: The Legacy of James Tobin,” E astern Economic
Journal 29:4 (Fall 2003), 559–564, and I am grateful to the late Kenneth
Koford for his invitation to contribute to that symposium in memory
of James Tobin, the first occasion on which I wrote about Jim.
I thank the Manuscripts and Archives Section of the Yale University
Library for permission to quote in Chapter 9 several brief passages
from two sets of unpublished lectures given by Tobin – the John
Danz Lectures presented at the University of Washington in 1974
and the Gaston Eyskens Lectures presented at the University of
Leuven in 1982.