Franco Modigliani

Lore & Background

Modigliani was born on 18 June 1918 in Rome to the Jewish family of a pediatrician father and a voluntary social worker mother. He entered university at the age of seventeen, enrolling in the faculty of Law at the Sapienza University of Rome. 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. He wrote several essays for the fascist magazine Lo Stato where he showed an inclination for the fascist ideological currents critical of liberalism. 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. 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 defend his laurea thesis at the city's university, he obtained his diploma on 22 July 1939, and returned to Paris. 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, and is considered 'ground breaking.'

Reader's Guide

Modigliani, beginning in the 1950s, was an originator of the life-cycle hypothesis. The rational expectations hypothesis is considered by economists to originate in the paper written by Modigliani and Emile Grunberg in 1954. 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. In the early 1960s, his response, co-authored with Albert Ando, to the 1963 paper of Milton Friedman and David I. Meiselman, initiated the so-called 'monetary/fiscal policy debate' among economists. In 1975, Modigliani, in a paper whose co-author was his former student Lucas Papademos, introduced the concept of the 'NIRU', the non-inflationary rate of unemployment. In 1997, Modigliani and his granddaughter, Leah Modigliani, developed what is now called the 'Modigliani Risk-Adjusted Performance.'

Did You Know?

• Modigliani received his Nobel prize in October 1985 for his pioneering analyses of saving and of financial markets.
• He became a naturalized citizen of the United States in 1946.
• Modigliani died in Cambridge, Massachusetts, in 2003 at age 85, still working at MIT.

Notable Quotes (Wikiquote)

"Franco Modigliani and Merton H. Miller. "The cost of capital, corporation finance and the theory of investment." The American economic review (1958): 261-297." — Franco Modigliani "A situation where people can grow old without having a job that rewards them individually while adding to the collective well-being is morally unacceptable." — Franco Modigliani "Franco Modigliani (2001) Adventures of an economist, p. 41." — Franco Modigliani "Modigliani's theory was a powerful searchlight on what was happening... It is the best explanation of what has actually been happening in the great swing of American life since the 1950's." — Franco Modigliani