On March 11, one of the world's truly great and enormously influential economists passed away. Aged 84, James Tobin was still intellectually active at the prestigious Yale University in the US. Incidentally, Yale is named after Elihu Yale, governor of Madras during 1687-1692 who bequeathed his loot to the institution in 1718 after losing his job over a corruption scandal. One of the stars of its economics department for long has been T.N. Srinivasan, among the most brilliant economic minds India has produced.

Tobin was awarded the Nobel Prize in economics in 1981 for his seminal contributions to the understanding of financial markets and their linkages with the "real" economy and also for his theory of portfolio selection by households-for proving, as he said, that you don't put all your eggs in one basket. He was among the chosen few who have fundamentally altered the nature of economic theory, profoundly influenced the practice of economic policy and decisively shaped the course of economic debate.

In 1961, Tobin shot into wider prominence when he became a member of US President John F. Kennedy's Council of Economic Advisers along with Walter Heller and Kermit Gordon. This council had among its staff members Kenneth Arrow who shared the Nobel Prize in 1972, Robert Solow who won the accolade in 1987 and Arthur Okun. It has enjoyed the highest reputation among all such councils and is given credit for having laid the practical foundations of "new economics" based on the works of John Maynard Keynes. This was felt necessary because, as Michael Bernstein puts it in his recent account of economists and public purpose in 20th century America A Perilous Journey, even though a remarkably prosperous decade in the US, the 1950s were punctuated by three recessions. In the early 1960s, American unemployment rates fell sharply from about 7 per cent to 4 per cent. The revival recipe was huge tax cuts. At that time, this appeared heretical because, in the words of Bernstein, it entailed the "first deliberate peacetime indulgence of federal budget deficits".

In 1972, building on a concept originally propounded by Keynes himself, Tobin put forward a proposal to cushion fluctuations in exchange rates that were becoming a matter of serious concern following the abandonment of the fixed exchange-rate system in the winter of 1971. His idea was simple: at each exchange of a currency into another, a small tax could be levied. His motivation was not to have a new revenue-raising device but to have an instrument to curb trafficking in foreign exchange, which he felt would multiply phenomenally with electronic money exchanges. But Tobin's idea generated little enthusiasm for much of the 1970s and 1980s on the ground that in a world of tax havens, it could always be circumvented. Some economists also argued that far from dampening volatility, the levy would discourage growth in forex markets that is essential for lubricating global trade.

The Tobin Tax, as it came to be called,was rescued from the groves of academia by the eruption of currency crises first in Europe in 1992 and 1993 and then in Mexico in 1994. In October 1995, Mahbub-ul-Haq, the eminent Pakistani economist who had been Tobin's student, organised an international meeting in New York under the aegis of the UN. This resulted in a comprehensive book The Tobin Tax: Coping with Financial Volatility, co-edited by Haq. The East Asian crisis of 1997, the Brazilian turmoil of 1998 and the Russian disaster of 1999 all led to renewed support for a Tobin Tax. It has been championed aggressively by the anti-globalisation brigade and NGOs, leading Tobin himself to bemoan that his ideas had been hijacked by those with whose cause he had little sympathy. Ironically, the most powerful and dreaded foreign-exchange trader, George Soros, has also backed the tax.

The tax has invited a positive reaction from European legislatures also, although the US Congress rejected it in 1996. A group of eminent world personalities, including Manmohan Singh, assembled by the UN under the chairmanship of former Mexican president Ernest Zedillo, submitted a report in June 2001 extending cautious support to the Tobin Tax. The International Labour Organisation has just set up a high-level commission to study the social dimensions of globalisation. It is co-chaired by the presidents of Finland and Tanzania and includes Joseph Stiglitz, the 2001 economics Nobel laureate and Deepak Nayyar, vice-chancellor of Delhi University. This commission will also undoubtedly support the Tobin Tax when it submits its report next year.

Tobin was also the only economist, other than John Nash, to figure in a novel-Herman Wouk's The Caine Mutiny (1951) where "a mandarin-like midshipman named Tobit with a domed forehead, measured quiet speech, and a mind like a sponge, was ahead of the field by a spacious percentage". Wouk's thinly veiled reference to his friend cannot be bettered as an epitaph.