James Tobin and Growth Theory: Financial Factors and Long-Run Growth

James Tobin, while universally acknowledged as one of the leading macroeconomists of the twentieth century, is less well remembered as a growth economist, despite his continuing interest in growth throughout his career. His early work placed him near the origins of modern growth economics. Robert Solow (2004, 657) recalls that Tobin “published ‘A Dynamic Aggregative Model’ at just the time when I was working on economic growth, so I recognized a master hand.”1 According to Tobin, “My 1955 piece, ‘A Dynamic Aggregative Model,’ may be my favorite; it was the most fun to write. It differed from the other growth literature by explicitly introducing monetary government debt as a store of value, a vehicle of saving alternative to real capital, and by generating a business cycle that interrupted the growth process” (Breit and Spencer 1990, 130–31). That said, Tobin’s analysis has failed to claim a place as a classic in the literature. Although the model in his 1955 paper has “the key features of the one-sector neoclassical growth model (a neoclassical two-factor production function in capital and labour, smooth capital-labour substitution, competitive factor markets),” and although “it includes several other features (outside fi at money in the asset menu, money wage infl exibility and