James Tobin Quotes

I studied economics and made it my career for two reasons. The subject was and is intellectually fascinating and challenging, particularly to someone with taste and talent for theoretical reasoning and quantitative analysis. At the same time it offered the hope, as it still does, that improved understanding could better the lot of mankind.

[M]onetary assets fall into place as a part, but not the whole, of the menu of s; and the ing system is one sector, but not the only one, whose behavior must be specified.

In economic surveys of households, many variables have the following characteristics: The variable has a lower, or upper, limit and takes on the limiting value for a substantial number of respondents. For the remaining respondents, the variable takes on a wide range of values above, or below, the limit.

Keynesian economics was, in the context of those times, essentially conservative. The message was that capitalism was not doomed; its major failing, chronic large-scale unemployment, could be remedied fairly easily, by intelligent use of the fiscal and monetary instruments governments already had at their disposal. This message was not welcome news to Marxists committed to the view that the system was no longer structurally capable of prosperity and progress.

The historic terrain of macro-economic theory is the explanation of the levels and fluctuations of overall economic activity. Macro-economists have been especially interested in the effects of alternative fiscal, financial, and monetary policies.

With the publication of J. M. Keynes’s General Theory in 1936 and the mathematical formalizations of his theory by J. R. Hicks (1937) and others, the language of macro-economic theory became systems of simultaneous equations. These are general equilibrium systems of interdependence in the sense that the relationships describe an entire national economy, not just a particular industry or sector. The systems are usually not completely closed; they depend on exogenous parameters including instruments controlled by policy-makers. Seeking definite relationships of economic outcomes to policies and other exogenous variables, qualitative and quantitative, these models sacrifice detail and generality, limiting the number of variables and equations by aggregations over agents, commodities, assets, and time.

Treatment of the capital account separately from the production and income account of the economy is... a first step, a simplification... justified by convenience... The strategy is to regard income account variables as tentatively exogenous... and to find equilibrium in the markets for stocks of assets conditional upon assumed... outputs, incomes, and other flows.

The key behavioral assumption... spending... and portfolio decisions are independent... [A]ccumulation of wealth... [is] separable from... its allocation. As savers, people... add to their wealth; as portfolio managers, they... distribute among... assets and debts the net worth... The propensity to consume may depend upon interest rates, but... not... directly on the... mix of asset supplies or... rates... these... are growing.

The important Keynesian insight is that a high propensity to save will not generate high national saving unless it goes into investment, into accumulation of real capital. The "paradox of thrift" makes this point in an extreme way. In certain circumstances, when there is no demand for investment around, the economy can be no better off, or even worse off, if a thrifty public cuts consumption.

A[n]... example of this strategy is the "LM curve." Macroeconomics... immortalized Hick's decomposition of the Keynesian system into sub-models. One... tells what asset stock equilibrium corresponds to... tentative... aggregate real income and the commodity price level. ..."[T]he" interest rate equates... demand and supply of money and clears... markets for other assets.

According to [the general equilibrium approach to monetary theory], the principal way in which financial policies and events affect aggregate demand is by changing the valuations of physical assets relative to their replacement costs.

There is no reason to think that the impact [of monetary policy] will be captured in any single [variable]... , whether it is a monetary stock or a market interest rate.

I probably always say the same things; I hope people don't remember. One of the same things I say is that Japanese macroeconomic policy is perversely and inexcusably incompetent, and I surely would say that again. It's true-as Paul Krugman, a fellow participant in this program, has been saying and as I have said here in previous years-that Japan has reinvented the Keynesian liquidity trap. It can now reappear in classrooms where it had been long ignored or at best barely mentioned as a curiosum of the Great Depression.

A forthcoming book by Harry Markowitz, Techniques of Portfolio Selection, will treat the general problem of finding dominant sets and computing the corresponding opportunity locus, for sets of securities all of which involve risk. Markowitz's main interest is prescription of rules of rational behaviour for investors; the main concern of this paper is the implications for economic theory, mainly , that can be derived from assuming that investors do in fact follow such rules.

For me, growing up in the 1930s, the two motivations powerfully reinforced each other. The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters. The crisis triggered a fertile period of scientific ferment and revolution in economic theory.