In providing a basis for understanding how subjects actually
behave when they acquire different assets and incur debts, James Tobin invented
“portfolio theory” and the “Q-ratio” which measures the relationship of the
market value of physical assets to their replacement costs. He also served on John F. Kennedy’s Council
of Economic Advisers.
The Nobel Committee recognized Professor Tobin “for his
analysis of financial markets and their relations to expenditure decisions,
employment, production and prices.”
Quotes from James Tobin’s April 1985 lecture at
Rare is the child, I
suspect, who wants to grow up to be an economist, or a professor. I grew up in a university town and went to a
university-run high school, where most of my friends were faculty kids. I was so unfailing an A student that it was
boring even to me.
Cutting my teeth on The General Theory, I was hooked on
economics. Like many other economists of
my vintage, I was attracted to the field for two reasons. One was that economic theory is a fascinating
intellectual challenge, on the order of mathematics or chess. I liked analytics and logical argument. I thought algebra was the most eye-opening
school experience between the three Rs and college. The other reason was the obvious relevance of
economics to understanding and perhaps overcoming the great depression and all
the frightening political developments associated with it throughout the
world…Thanks to Keynes, economics offered me the best of both worlds. I was fascinated by his theoretical duel with
the orthodox classical economists.
Keyne’s uprising against encrusted error was an appealing crusade for
youth. The truth would make us free, and fully employed too.
I see in retrospect
that our professors left most of our education to us. They expected us to teach ourselves and learn
from each other, and we did. They
treated us as adult partners in scholarly endeavor, not as apprentices. I am afraid our graduate programs today try
too hard to convey a definite and vast body of material and to test how well
students master what we know.
A new mainstream,
synthesizing the Keynesian revolution and the classical economics against which
it was revolting, was in the making. I
am proud that Paul Samuelson called me a “partner in [this] crime. The building blocks of the Keynesian
structure were four in number: the relation of wages and employment; the
propensity to consume; liquidity preference and the demand for money; the
inducement to invest.
Economic knowledge
advances when striking real-world events and issues pose puzzles we have to try
to understand and resolve. The most
important decisions a scholar makes are what problems to work on. Choosing them just by looking for gaps in the
literature is often not very productive and at worst divorces the literature
itself from problems that provide more important and productive lines of
inquiry. The best economists have taken
their subjects from the world around them.
When my prize was
announced in
I have lived long
enough to see the revolution to which I was an eager recruit fifty years ago
become in its turn a mainstream orthodoxy and then the target of
counterrevolutionary attack. The tides
of political opinion and professional fashion have turned against me. Many of my young colleagues in the profession
are as enthusiastic exponents of the new classical macroeconomics as I and my
contemporaries were crusaders against old classical macroeconomics in the
1930s. Many of the issues are the same,
but the environment is quite different from the great depression. The contesting factions are better equipped –
our profession has certainly improved its mathematical, analytical, and
statistical tools. I do not despair over
the present divisions of opinion in economics.
Our subject has always thrived and advanced through controversy, and I
expect a new synthesis will evolve, maybe even in my lifetime.
Additional resources on James Tobin
are available at the Nobel web
site.