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Franco Modigliani

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Franco Modigliani
Modigliani in 2000
Born(1918-06-18)18 June 1918
Rome, Italy
Died25 September 2003(2003-09-25) (aged 85)
  • Italy
  • United States
Academic career
FieldFinancial economics
Alma materThe New School (PhD)
Sapienza University of Rome (Laurea)
Jacob Marschak
Albert Ando
Robert Shiller
Mario Draghi
Lucas Papademos
InfluencesJ. M. Keynes, Jacob Marschak
ContributionsModigliani–Miller theorem
Life-cycle hypothesis
MPS model

Franco Modigliani (18 June 1918 – 25 September 2003)[1] was an Italian-American economist and the recipient of the 1985 Nobel Memorial Prize in Economics. He was a professor at University of Illinois at Urbana–Champaign, Carnegie Mellon University, and MIT Sloan School of Management.

Early life and education


Modigliani was born on 18 June 1918 in Rome to the Jewish family of a pediatrician father and a voluntary social worker mother.[2]

He entered university at the age of seventeen, enrolling in the faculty of Law at the Sapienza University of Rome.[3] In his second year at Sapienza, his submission to a nationwide contest in economics sponsored by the official student organization of the state, won first prize and Modigliani received an award from the hand of Benito Mussolini.[2][4] He wrote several essays for the fascist magazine Lo 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 a socialist economy, written in Italian and arguing the case for socialism along lines laid out by earlier market socialists like Abba Lerner and Oskar Lange.[7]

But, that early enthusiasm evaporated soon after the passage of racial laws in Italy. In 1938, Modigliani left Italy for Paris together with his then-girlfriend, Serena Calabi, to join her parents there. After briefly returning to Rome to discuss his laurea 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 the New School for Social Research. His Ph.D. dissertation, an elaboration and extension of John Hicks' IS–LM model, was written under the supervision of Jacob Marschak and Abba Lerner, in 1944,[note 1] and is considered "ground breaking."[7]



From 1942 to 1944, Modigliani taught at Columbia University and Bard College as an instructor in economics and statistics. In 1946, he became a naturalized citizen of the United States. In 1948, he joined the University of Illinois at Urbana–Champaign faculty. From 1952 to 1962, he was a member of the Carnegie Mellon University faculty.[8]

In 1962, he joined the faculty of MIT, as an Institute Professor.[8]

Contributions to economic theory


Modigliani, beginning in the 1950s, was an originator[9] of the life-cycle hypothesis, which attempts to explain the level of saving in the economy.[10] The hypothesis that consumers aim for a stable level of consumption throughout their lifetime (for example by saving during their working years and then spending during their retirement).

The rational 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 the Carnegie Mellon University faculty, he formulated in 1958, along with Merton Miller, the Modigliani–Miller theorem for corporate 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 by equity (selling shares) or by debt (borrowing money), meaning that the debt-to-equity ratio is unimportant for private firms.[15][16]

In the early 1960s, his response,[17] co-authored with Albert Ando, to the 1963 paper[18] of Milton Friedman and David 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 student Lucas Papademos,[note 3] introduced the concept of the "NIRU", the non-inflationary rate of unemployment,[note 4] ostensibly an improvement over the "natural rate of unemployment" concept.[20] The terms refer to a level of unemployment below which inflation 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 an investment portfolio that was derived from the Sharpe ratio, adjusted for the risk of the portfolio relative to that of a benchmark, e.g. the "market."[21]

Appointments and awards


In October 1985, Modigliani was awarded the Nobel prize in Economics "for his pioneering analyses of saving and of financial markets."[22]

In 1985, Modigliani received MIT's James R. Killian Faculty Achievement Award.[23] In 1997, he received an honoris causa degree in Management Engineering from the University of Naples Federico II in 1997.

Late in his life, Modigliani became a trustee of the Economists 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 the Federal Reserve, he designed the "MIT-Pennsylvania-Social Science Research Council" model, a tool that "guided monetary policy in Washington for many decades."[8]

A collection of Modigliani's papers is housed at Duke University's Rubenstein Library.[25]



Modigliani's work on fiscal policy came under criticism from followers of Post-Keynesian economics, who disputed the "Keynesianism" of his viewpoints, pointing out his contribution to the NAIRU concept,[26] as well as his general stance on fiscal deficits.[27] The Modigliani-Miller theorem implies that, for a closed economy, state borrowing is merely deferred taxation, 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 on permanent 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] with heterodox economists that Europe-wide unemployment in the late 20th century was caused by the lack of demand induced by austerity policies.[30][note 7]

Personal life


In 1939, while they were in Paris, Modigliani married Serena Calabi. They had two children, Andre and Sergio Modigliani.

Modigliani died in Cambridge, 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 in progressive politics, most notably with the League of Women Voters, and an outspoken believer in participatory democracy,[32] died in 2008.[33]

Selected bibliography



  • Modigliani, Franco; Abel, Andrew B.; Johnson, Simon (1980). The Collected Papers of Franco Modigliani. Cambridge, Massachusetts: MIT Press. ISBN 978-0-262-13150-6.
  • Modigliani, Franco; Fabozzi, Frank J. (1996). Capital Markets: Institutions and Instruments. Upper Saddle River, New Jersey: Prentice Hall. ISBN 978-0-13-300187-7.
  • Modigliani, Franco; Fabozzi, Frank J.; Ferri, Michael G. (1998). Foundations of Financial Markets and Institutions. Upper Saddle River, New Jersey: Prentice Hall. ISBN 978-0-13-686056-3.
  • Modigliani, Franco (2001). Adventures of an Economist. London, New York: Texere. ISBN 978-1-58799-007-6.
  • Modigliani, Franco; Muralidhar, Arun (2004). Rethinking Pension Reform (PDF). London: Cambridge University Press. ISBN 978-0-521-83411-7.


  • Modigliani, Franco (1944). "Liquidity Preference and the Theory of Interest and Money". Econometrica. 12 (1): 45–88. doi:10.2307/1905567. JSTOR 1905567.
  • Modigliani, Franco (1998). "Lessons learned from Barbara". Feminist Economics. 4 (3): 143–144. doi:10.1080/135457098338347.

See also



  1. ^ The basis of his dissertation subsequently appeared in Econometrica. See Modigliani (1944)
  2. ^ The theorem assumes an economic environment with an efficient market and without taxes, bankruptcy costs, agency costs, and asymmetric information.
  3. ^ Papademos went on to become Governor of the Bank of Greece from 1994 until 2002, and Prime Minister of Greece from November 2011 to May 2012.
  4. ^ Subsequently known as the "non-accelerating inflation rate of unemployment" (NAIRU)
  5. ^ Inflation "rises"; it does not "accelerate," as can often be misread from the acronym NAIRU
  6. ^ See "crowding out effect"
  7. ^ Demand-driven fiscal policies, as opposed to supply-driven, are a cornerstone of Keynesian and Post-Keynesian economics. For a critique of European economic policies from a modern, Post-Keynesian point of view, see e.g. Mitchell, William (2016) Eurozone Dystopia: Groupthink and Denial on a Grand Scale, Edward Elgar, 2015, ISBN 978-1784716653


  1. ^ Adams, Richard (1 October 2003). "Franco Modigliani". The Guardian. Retrieved 18 August 2021.
  2. ^ a b "Franco Modigliani" by Daniel B. Klein and Ryan Daza, in "The Ideological Migration of the Economics Laureates", Econ Journal Watch, 10(3), September 2013, pp. 472–293
  3. ^ Parisi, Daniela (2005) "Five Italian Articles Written by the Young Franco Modigliani (1937–1938)", Rivista Internazional di Scienze Sociali, 113(4), pp. 555–557 (in language)
  4. ^ a b Franco Modigliani, autobiographical notes, Nobel Prize organization website, 1985
  5. ^ Francesca Dal Degan; Fabrizio Simon (2019). ""Generalist" Journals between Dissemination of Economics and Regime Propaganda". In Massimo M. Augello; Marco E.L. Guidi; Fabrizio Bientinesi (eds.). An Institutional History of Italian Economics in the Interwar Period. Vol. 1. Cham, Switzerland: Palgrave Macmillan. pp. 146–147. doi:10.1007/978-3-030-32980-8_6. ISBN 978-3-030-32980-8. S2CID 213105744.
  6. ^ Luca Michelini, Il nazional-fascismo economico del giovane Franco Modigliani, Firenze, Firenze University Press, 2019
  7. ^ a b Mongiovi, Gary (2015) "Franco Modigliani and the Socialist State Archived 2020-11-28 at the Wayback Machine", Economics & Finance Department, St. John's, May 2015
  8. ^ a b c Professor Franco Modigliani, obituary, The Independent, 28 September 2003
  9. ^ Modigliani, Franco & Richard H. Brumberg (1954) "Utility analysis and the Consumption Function: An Interpretation of Cross-Section Data", Kenneth K. Kurihara (editor) Post-Keynesian Economics, New Brunswick: Rutgers University Press, 1954, pp. 388–436
  10. ^ Modigliani, Franco (1966). "The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital". Social Research. 33 (2): 160–217. JSTOR 40969831.
  11. ^ Wade-Hands, Douglas (1986) Modigliani And Grunberg : A Precursor To Rational Expectations?, University of Puget Sound
  12. ^ Visco, Ignazio (1984) "Price expectations in rising inflation", Contributions to economic analysis, Volume 152, North-Holland, 1984, ISBN 0444868364, ISBN 9780444868367
  13. ^ Grunberg, E. & Franco Modigliani (1954) "The Predictability of Social Events," Journal of Political Economy, 62, pp. 465–478, December 1954
  14. ^ Breit, William; Spencer, Roger W. (1990). Lives of the Laureates: Ten Nobel Economists. Massachusetts: MIT Press. ISBN 978-0262023085.
  15. ^ a b Miller, Merton H. & Franco Modigliani (1958) "The cost of capital, corporate finance and the theory of investment", The American Economic Review, Vol. XLVIII, June 1958, #3, pp. 261–297. The article was a revised version of a paper delivered at the annual meeting of the Econometric Society in December 1956.
  16. ^ a b Miller, Merton H. & Franco Modigliani (1963) "Corporate Income Taxes and the Cost of Capital: A Correction", The American Economic Review, Vol. 53, No. 3, June 1963, pp. 433–443
  17. ^ Ando, Albert & Franco Modigliani (1965) "The relative stability of monetary velocity and the investment multiplier", The American Economic Review, 55.4, pp. 693–728
  18. ^ Friedman, Milton & David I. Meiselman (1963) "The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897–1958", Stabilization Policies: A Series of Research Studies Prepared for the Commission on Money and Credit by E. C. Brown et al, Englewood Cliffs, NJ: Prentice-Hall: 1963, pp. 165–268
  19. ^ Modigliani, Franco; Papademos, Lucas (1975). "Targets for Monetary Policy in the Coming Year" (PDF). Brookings Papers on Economic Activity. 1975 (1): 141–165. doi:10.2307/2534063. JSTOR 2534063.
  20. ^ Coe, David T. "Nominal Wages. The NAIRU and Wage Flexibility" (PDF). Organisation for Economic Co-operation and Development.
  21. ^ Modigliani, Franco & Leah Modigliani (1997) "Risk-Adjusted Performance", The Journal of Portfolio Management, Winter 1997, 23 (2), pp. 45–54
  22. ^ Press Release, Nobel Prize Organisation, 15 October 1985
  23. ^ Fabozzi, Frank J.; Frank J. Jones; Franco Modigliani (2010). Foundations of Financial Markets and Institutions. Pearson Education, Inc. pp. Dedication. ISBN 978-0-13-613531-9.
  24. ^ The Newsletter for Economists Allied for Arms Reduction Archived 2016-04-09 at the Wayback Machine, Vol. 12, 1, April 2000
  25. ^ "Franco Modigliani Papers, 1936–2005 and undated, bulk 1970s–2003". Rubenstein Library, Duke University.
  26. ^ Mitchell, William (2016) "The Modigliani controversy: The break with Keynesian thinking", 21 January 2016
  27. ^ E.g. Modigliani Andre & Franco Modigliani (1987) "The Growth of the Federal Deficit and the pole of public attitudes", Public Opinion Quarterly, Volume 51, University of Chicago Press, pp. :459–480
  28. ^ Blejer, Mario I.Adrienne Cheasty (1993) "How to measure the fiscal deficit : analytical and methodological issues", Washington, DC : International Monetary Fund
  29. ^ Modigliani, Franco (2000) "Europe"s Economic Problems", Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiburg, 6 April 2000
  30. ^ Mitchell, William (2011) "Lies, damned lies, and statistics", 13 July 2011
  31. ^ "In March 2003, only few months before his demise, I was at MIT and witnessed Franco [Modigliani] still teaching with the same enthusiasm another class at the Sloan School of Management" : from Pagano, Marco (2005) "The Modigliani-Miller Theorems: A Cornerstone of Finance", Center for Studies in Economics and Finance, May 2005
  32. ^ "Chilmarker Serena Modigliani, 91, Escaped Fascism", Vineyard Gazette, 9 October 2008
  33. ^ Serena Calabi obituary, The Boston Globe, 24 September 2008
Preceded by Laureate of the Nobel Memorial Prize in Economics
Succeeded by