James Tobin on the ‘paper economy’

Published by marco on

I found this quote in the tooltip of XKCD #2101[1].

“I [suspect] that 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.”
James Tobin on July 1984


The quote seems to be quite real. I did a bit of digging and came up with the original paper (scanned, JPG), called On the Efficiency of the Financial System (PDF). It has been much-cited in several papers, like How Big Is Too Big?
On the Social Efficiency of the Financial Sector in the United States
(PDF), Too Much Finance? (PDF) as well as the article Bankers: Who Needs Them? by David Futrelle (TIME). The post James Tobin on ‘paper economy’ and short-sighted speculation-generating financial instruments has a link to the PDF above and includes a longer version of the citation, showing it to continue with,

“[…] 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.”