James Tobin

James Tobin received his PhD from Harvard University and spent most of his career at Yale University, where he was Sterling Professor of Economics. He received the Nobel Prize in Economics in 1981. His most famous contributions to finance and economics include two ideas that remain widely discussed. First, Tobin's Q: the ratio of the market value of a firm's assets to their replacement cost. A Q ratio above 1 suggests that a firm's assets are worth more than they cost to replace, implying profitability and investment incentives; below 1 suggests the opposite. The Q ratio has been used as a valuation measure for equity markets — the market-wide Q ratio (the ratio of total market capitalisation to corporate net worth) is regularly cited as an indicator of whether markets are over- or undervalued. Second, the Tobin Tax: a proposal to impose a small tax (e.g., 0.1-0.5%) on all foreign exchange transactions to reduce short-term speculative currency movements while having minimal impact on long-term productive capital flows. The Tobin Tax has been repeatedly proposed by policymakers seeking to curb financial speculation and generate revenue. Tobin was also an influential macroeconomist and served on President Kennedy's Council of Economic Advisers. He passed away in 2002.