James Tobin, Keynesian economist of first rank

This obituary was published in Wednesday's London edition Financial Times.

The "Tobin tax" - a levy on foreign exchange transactions intended to restrict market fluctuations - is a live political issue today.

But economists will remember Professor Tobin better for his ground-breaking work on the theory of portfolio decisions, which won him the Nobel memorial prize in 1981, and his equally far-reaching work on stock market valuations and the analysis of household behaviour.

He was also one of the staunchest defenders of Keynesian economics against the monetarist challenge in the 1960s and 1970s. Paul Samuelson of MIT once described him as "an unregenerate Democrat". He was an adviser to president John F Kennedy in 1961-62 and to the unsuccessful liberal Democratic candidate George McGovern in the 1972 presidential election.

In his autobiography for the Nobel Foundation, he said that his motive in making his career in economics was the hope "that improved understanding could better the lot of mankind".

Born in Champaign, Illinois in 1918 and graduating from Harvard in 1939, Professor Tobin joined the US navy when America entered the second world war, and served in a destroyer protecting Atlantic convoys. Herman Wouk was a fellow officer and thinly disguised as a midshipman named Tobit, he appears in The Caine Mutiny.

In 1950 he moved from Harvard to Yale, where he remained for the rest of his career. Before the end of the decade, he made big breakthroughs in two very different fields: a feat to confound today's generally highly-specialised academic economists.

His Nobel-winning work on portfolio selection filled in what had previously been a rather sketchy area of Keynesian theory: the mechanisms by which fiscal and monetary policy work.

Professor Tobin provided a coherent intellectual framework for thinking about the impact of financial markets on the real economy.

He also developed what became known as the Tobit analysis: a method of estimating the effect of household characteristics on behaviour one of the foundations of modern micro-economics.

His third great intellectual innovation was Tobin's q: a measure of the ratio of the stock market value of a company to its net worth, which currently has the disturbing implication that equities in general are highly overvalued.

Despite all these achievements, however, Professor Tobin is still best known for the tax on currency dealing which bears his name, which he first proposed in 1971.

Today the Belgian parliament is expected to follow France's lead in adopting a law supporting such a tax, and War on Want, the London-based development campaign, had by chance already named today "Tobin tax day".

Backed by Ewan McGregor, star of Moulin Rouge, and the rock group Radiohead, the campaign is an attempt to put pressure on the British government to back the tax as a means of raising finance for development.

The enormous range of contexts in which his name appears is testimony to the breadth of his legacy.