The Godley-Tobin Memorial Lecture

This paper offers a comparison of the macroeconomic views held by Wynne Godley and James Tobin. Both authors were more concerned than their contemporaries with monetary matters. Both authors contributed, in different ways, to the stock–flow consistent approach, with Tobin providing to Godley the portfolio analysis he was missing. Both authors held Keynesian policy positions, but both were accused at times of not being Keynesian enough. While Tobin stuck with Neoclassical theory, Godley rejected it as he could never make any sense of it. The differences between these two authors are particularly evident when dealing with the traverse of economic activity from the short run to the long run. The biggest difference has to do with their conceptions of banking: Tobin argued that banks are barely different from other financial intermediaries, essentially providing a portfolio choice, and ultimately he relies on a variable multiplier view tied to the fractional-reserve theory of banking; by contrast, Godley emphasized the credit-creating ability of banks and their essential role in an economy where production takes time and where inventories are needed, with central banks providing reserves on demand, at the interest rate of their choice, as argued by central bankers today.