James Tobin on ‘paper economy’ and short-sighted speculation-generating financial instruments

Nobel laureate in Economic Sciences James Tobin at the conclusions in his (open access) “On the Efficiency of the Financial System” paper:

“We are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this ‘paper economy’, not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges. For this reason perhaps, high technology has so far yielded disappointing results in economy-wide productivity. I fear that, as Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth-degree speculation which is short-sighted and inefficient.” (pp. 14-15)

Tobin, James. 1984. “On the Efficiency of the Financial System.” Lloyds Bank Review 153: 1-15.

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