Franco Modigliani | |
|---|---|
 Modigliani in 2000 | |
| Born | (1918-06-18)18 June 1918 Rome, Italy |
| Died | 25 September 2003(2003-09-25) (aged 85) Cambridge, Massachusetts, U.S. |
| Citizenship |
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| Academic background | |
| Alma mater | The New School (PhD) Sapienza University of Rome (Laurea) |
| Doctoral advisor | Jacob Marschak |
| Influences | J. M. Keynes,Jacob Marschak |
| Academic work | |
| Discipline | Financial economics |
| Doctoral students | Albert Ando Robert Shiller Mario Draghi Lucas Papademos |
| Notable ideas | Modigliani–Miller theorem Life-cycle hypothesis MPS model |
Franco Modigliani (US:/ˌmoʊdiːlˈjɑːni/;Italian:[modiʎˈʎaːni]; 18 June 1918 – 25 September 2003)[1] was an Italian-Americaneconomist and the recipient of the 1985Nobel Memorial Prize in Economics. He was a professor atUniversity of Illinois at Urbana–Champaign,Carnegie Mellon University, andMIT Sloan School of Management.
Modigliani was born on 18 June 1918 inRome to the Jewish family of apediatrician father and a voluntarysocial worker mother.[2]
He entered university at the age of seventeen, enrolling in the faculty of Law at theSapienza University of Rome.[3] In his second year at Sapienza, his submission to a nationwide contest ineconomics sponsored by the officialstudent organization of the state, won first prize and Modigliani received an award from the hand ofBenito Mussolini.[2][4]He wrote several essays for the fascist magazineLo Stato[5] where he showed an inclination for the fascist ideological currents critical of liberalism.[6]
Among his early works in Fascist Italy was an article about the organization and management of production in asocialist economy, written inItalian and arguing the case for socialism along lines laid out by earliermarket socialists likeAbba Lerner andOskar Lange.[7]
But, that early enthusiasm evaporated soon after the passage ofracial laws in Italy. In 1938, Modigliani left Italy forParis together with his then-girlfriend, Serena Calabi, to join her parents there. After briefly returning toRome to defend hislaurea thesis at the city's university, he obtained his diploma on 22 July 1939, and returned to Paris.[4]
The same year, they all immigrated to the United States and he enrolled at the Graduate Faculty of theNew School for Social Research. HisPh.D. dissertation, an elaboration and extension ofJohn Hicks'IS–LM model, was written under the supervision ofJacob Marschak andAbba Lerner, in 1944,[note 1] and is considered "ground breaking."[7]
From 1942 to 1944, Modigliani taught atColumbia University andBard College as an instructor ineconomics andstatistics. In 1946, he became anaturalized citizen of the United States. In 1948, he joined theUniversity of Illinois at Urbana–Champaign faculty. From 1952 to 1962, he was a member of theCarnegie Mellon University faculty.[8]
In 1962, he joined the faculty ofMIT, as anInstitute Professor.[8]
Modigliani, beginning in the 1950s, was an originator[9] of thelife-cycle hypothesis, which attempts to explain the level ofsaving in the economy.[10] The hypothesis thatconsumers aim for a stable level ofconsumption throughout their lifetime (for example by saving during their working years and then spending during theirretirement).
Therational expectations hypothesis is considered by economists[11] to originate in the[12] paper written by Modigliani and Emile Grunberg in 1954.[13][14]
When he was a member of theCarnegie Mellon University faculty, he formulated in 1958, along withMerton Miller, theModigliani–Miller theorem forcorporate finance.[15][16] The theorem posits that, under certain assumptions,[note 2] the value of a firm is not affected by whether it is financed byequity (selling shares) or bydebt (borrowing money), meaning that thedebt-to-equity ratio is unimportant for private firms.[15][16]
In the early 1960s, his response,[17] co-authored withAlbert Ando, to the 1963 paper[18] ofMilton Friedman andDavid I. Meiselman, initiated the so-called "monetary/fiscal policy debate" among economists, which went on for more than sixty years.[citation needed]
In 1975, Modigliani, in a paper[19] whose co-author was his former studentLucas Papademos,[note 3] introduced the concept of the "NIRU", the non-inflationary rate ofunemployment,[note 4] ostensibly an improvement over the "natural rate of unemployment" concept.[20] The terms refer to a level of unemployment below whichinflation rises.[note 5]
In 1997, Modigliani and his granddaughter, Leah Modigliani, developed what is now called the "Modigliani Risk-Adjusted Performance," a measure of the risk-adjusted returns of aninvestment portfolio that was derived from theSharpe ratio, adjusted for the risk of the portfolio relative to that of a benchmark, e.g. the "market."[21]
In October 1985, Modigliani was awarded theNobel prize in Economics "for his pioneering analyses ofsaving and offinancial markets."[22]
In 1985, Modigliani received MIT's James R. Killian Faculty Achievement Award.[23] In 1997, he received anhonoris causa degree inManagement Engineering from theUniversity of Naples Federico II in 1997.
Late in his life, Modigliani became a trustee of theEconomists for Peace and Security organization, formerly "Economists Allied for Arms Reduction"[24] and was considered an "influential adviser": in the late 1960s, on a contract with theFederal Reserve, he designed the "MIT-Pennsylvania-Social Science Research Council" model, a tool that "guidedmonetary policy in Washington for many decades."[8]
A collection of Modigliani's papers is housed atDuke University'sRubenstein Library.[25]
Modigliani's work on fiscal policy came under criticism from followers ofPost-Keynesian economics, who disputed the "Keynesianism" of his viewpoints, pointing out his contribution to theNAIRU concept,[26] as well as his general stance onfiscal deficits.[27] The Modigliani-Miller theorem implies that, for a closed economy, state borrowing is merely deferredtaxation, since state spending can be financed only by "printing money", taxation, or borrowing, and therefore monetary financing of state spending implies the subsequent imposition of a so-called "inflation tax," which ostensibly has the same effect onpermanent income as explicit taxation.[note 6][28]
Nonetheless, they acknowledged his dissenting voice on the issue of unemployment, in which Modigliani concurred early on[29] withheterodox economists that Europe-wide unemployment in the late 20th century was caused by the lack ofdemand induced byausterity policies.[30][note 7]
In 1939, while they were in Paris, Modigliani married Serena Calabi. They had two children, Andre and Sergio Modigliani.
Modigliani died inCambridge, Massachusetts, in 2003, while still working at MIT, and teaching until the last months of his life. He was 85.[31] Serena Modigliani-Calabi, active to the end inprogressive politics, most notably with theLeague of Women Voters, and an outspoken believer inparticipatory democracy,[32] died in 2008.[33]
| Awards | ||
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| Preceded by | Laureate of the Nobel Memorial Prize in Economics 1985 | Succeeded by |
