Franco Modigliani

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American economist Franco Modigliani (1918 - 2003) won the Nobel Prize for Economics in 1985 for a career that began in his native Italy when he won a prize for an economics essay during his second year at the University of Rome. With prospects for a bright future dimming under the rise of Fascism in Mussolini's Italy as it began to collaborate with Hitler's Germany, he left Italy and joined his future wife and her parents in Paris. With World War II about to engulf Europe, Modigliani, himself a Jew, decided it best to leave for America. In August 1939, a few days before the war in Europe broke out, they arrived in New York.

Privilege Was No Escape

Modigliani was born on June 18, 1918, in Rome, Italy. His father, Enrico Modigliani, was a prominent pediatrician and his mother, Olga Flaschel Modigliani, was a volunteer social worker. He described himself in his autobiography for the Nobel Prize committee as being a "good" student "though not outstanding." When he was 13 his father died unexpectedly due to an operation. Modigliani was traumatized, and for the next three years his performance at school reflected his grief. It was inconsistent at best. He then transferred to Liceo Visconti, considered the best high school in Rome, and there he began to flourish. Because of his excellent progress, he took the university exam and was able to skip his last year in high school and begin his college career at age 17. Family hopes that he would follow his father's path into medicine did not last for Modigliani, who admitted a low tolerance for suffering and blood. Instead he initially decided on pursuing a law degree which he saw as opening the door to many possibilities in Italy. That plan, too, was about to change.

In his second year at the University of Rome Modigliani entered an economics essay in a contest by a student organization. He won. It was at that moment that he realized his interest was in economics. Prospects for getting a proper education there were not good due to fascism. Economics education was grim. Instead he decided he would continue to study on his own with the assistance of a few economists he knew personally and whom he valued, especially Riccardo Bachi. He began to read the English and Italian versions of the classics in the field. The same organization that had sponsored the prize, I Littoriali della Coltura, had also helped put him into contact with other anti-fascists. His political philosophy changed in that direction, as did his involvement with his future wife, Serena Calabi, and her father, Giulio, both anti-fascists.

Modigliani recalled that, "In 1938 the Italian racial laws were promulgated and at the invitation of my future in-laws, I joined them in Paris, where, in May 1939, Serena and I were married." What was a joyful time in his personal life was shadowed by the state of affairs in Europe. He was not impressed with his classes at the Sorbonne in Paris, and spent his time studying on his own at the St. Genevieve Library (Bibliotheque St. Genevieve). In June he had returned briefly to Italy to discuss his thesis and to receive his Doctor of Juris degree from the University of Rome. But with the certainty of war, Modigliani, his wife, and her parents applied for immigration to the United States. They arrived in August 1939, and the war in Europe began a few days later.

New School for a New Life

When it was apparent that Modigliani would not be returning to Europe for quite a long time, he enrolled at the New School for Social Research in New York City and was awarded with a free tuition scholarship by the Graduate Faculty of Political and Social Science. The New School had been newly created and provided an academic haven for many Europeans, especially Jews, who had escaped the persecutions that had come with Hitler and the other fascist dictatorships. He began studies in the fall of 1939 and continued his studies for three years at night, while he sold European books during the day to support his growing family that would eventually include his two sons, Andre and Sergio. In 1941 he began his first teaching job at the New Jersey College for Woman. The following year he became an instructor in economics at Bard College, which was at the time a residential college of Columbia University. In 1944, he received his doctorate in economics from the New School. His first publication, in January 1944, was in Econometrica, which, he noted, was essentially his dissertation, entitled, "Liquidity Preference and the Theory of Interest and Money." It was Modigliani's model present in his dissertation that would provide the core of the Neo-Keynesian Synthesis of post-war macroeconomics, according to the New School website page on Modigliani. An explanation of the economics system he proposed noted that, "In sum, Modigliani proposed that with sticky wages money is non-neutral: an increase in the nominal money supply M raises the price level less-then-proportionally, decreases the interest rate and raises employment and output. If money wages are fully flexible, as in the earlier case, then money is neutral it affects neither interest nor employment nor output and increases the price level proportionally. Thus, Modigliani concludes, Keynes' (Economist John Maynard Keynes) theory only works if there is sticky or rigid money wages."

He returned to the New School to become a lecturer and research associate at the Institute of World Affairs. His project was published in National Income and International Trade. He also created his first proposal for saving, known as the Duesenberry-Modigliani hypothesis.

Modigliani left New York in 1948 to study at the University of Chicago after receiving the nod for the Political Economy fellowship. At the same time he joined the Cowles Commission for Research in Economics as a research consultant. He soon accepted a position as director of a research project at the University of Illinois on "Expectations and Business Fluctuations." In 1952 Modigliani left Chicago to join the faculty at the Carnegie Institute of Technology, now Carnegie-Mellon University, and stayed there until 1960. While there he completed two important papers that would set the foundation of his "Life Cycle Hypothesis," as well as a collaboration on a book and two essays with another economist, Merton H. Miller. He then spent a year at Massachusetts Institute of Technology (MIT) as a visiting professor. After another year teaching at Northwestern, he returned to MIT and stayed the duration of his career.

With Nobel, Criticism for President

Modigliani was announced as the recipient of the 1985 Nobel Prize for Economics in October 1985, the 13th American to win the prize since its establishment in 1969. David Warsh of the Boston Globe broke the story on the local honoree that was more than simply one expressing Modigliani's pleasure in receiving the nod. "After receiving news of the award," Warsh wrote, "he immediately rebuked President Reagan for coining political positions that contradicted virtually all of the findings of Modigliani's 40 years of investigations." Modigliani seemed to be leveling only criticism at the president that first year of his second term for insisting that the growing deficit did nothing to hurt savings. He also criticized the president for doing everything to undermine the economy except to raise taxes. On a lighter note at his press conference that day in Cambridge, Modigliani said that, "I sometimes think that my work on this subject was colored by the savings bank where I was banking at the time when I was working on this. Their motto was, 'Save it when you need it least, have it when you need it most.'" He also mentioned his appreciation of an early collaborator at Illinois. Richard Brumberg was a "brilliant" graduate student, according to Modigliani, who had been working with him as the "Life Cycle Hypothesis" began to unfold. The plan that was outlined in 1953 and 1954 had laid the foundation for the future evolution of the project. Each of them then went to pursue other work: Brumberg to Johns Hopkins to complete his Ph.D. studies, and Modigliani to Carnegie. Brumberg died suddenly in 1955 of a brain tumor. Modigliani's shock and grief over the untimely death prevented him from publishing the second paper until 1980. Paul Samuelson, the first Nobel Economics winner in 1970 and an MIT colleague of Modigliani, reacted to the announcement of his prize as saying, "With many people with respect to the Nobel Prize, it's a question of 'if;' with Franco, it was only a question of 'when.'"

Modigliani's fame in the United States among his peers, students, and the circle of economists was not nearly as great as it was in Italy, where he was actually a celebrity. He wrote for a leading news magazine there, advised politicians and bankers, and sponsored many Italian students to attend MIT. John Bossons, an economist at the University of Toronto, noted at the time of his Nobel that Modigliani was "a very enthusiastic advocate," and had "inspired a lot of people."

Modigliani published prolifically, particularly in economic journals. In 2003 he published an autobiography titled, Adventures of an Economist.

Modigliani, a naturalized United States citizen, was a member of the National Academy of Sciences and the American Academy of Arts and Sciences, and at the time he was honored with the Nobel, the only man to serve as president of both the American Economic Association and the American Finance Association. He also served as president of the American Econometric Society. In addition to advising Italian banks and politicians, Modigliani acted as a consultant to the United States Treasury, the Federal Reserve System, and numerous European banks.

Modigliani died in his sleep on September 25, 2003, at his home in Cambridge, Massachusetts, at the age of 85. When he died, an obituary in the Economist related an interesting, and amusing, story. "Serena Modigliani warned her husband not to turn around if someone shouted his name on the streets of Rome. 'Otherwise they'll shoot you,' she said. It was the winter of 1978, and Italy was gripped by political violence and economic chaos. Franco Modigliani, an economist at the Massachusetts Institute of Technology, had returned to the country of his birth to take part in a televised debate, urging unpopular reforms. When Mr. Modigliani left his hotel the next morning, he heard a man behind him call his name. He tried to walk faster, but his pursuer drew nearer, and finally caught him, grabbing his jacket. An assassin? No: a cobbler, in fact, desperate to tell him that, of all the bigwigs on the television the previous night, Mr. Modigliani had been the only one to say, 'anything comprehensible.'"

Periodicals

Boston Globe, October 16, 1985; December 5, 1985.

CFO, The Magazine for Senior Financial Executives, November 2003.

Economist, October 4, 2003.

The Guardian, October 1, 2003.

MIT News, September 25, 2003.

Science, November 7, 1986.

Online

" Adventures of an Economist, by Franco Modigliani," Texere Publishing website,http://www.etexere.com (January 16, 2004).

"Dining With Nobel Laureate Franco Modigliani," Massachusetts Institute of Technology (MIT) News website,http://www-tech.mit.edu (January 16, 2004).

"Franco Modigliani," New School for Social Research website,http://cepa.newschool.edu (December 31, 2003).

"Franco Modigliani," Sloan School of Management, personal home page,http://www.elsevier.com (January 16, 2004).

"Franco Modigliani Autobiography," Nobel Museum website,http://www.nobel.se (December 31, 2003).

"In memory of Franco Modiglian, (Pierleone Ottolenghi)," Open Democracy website,http://www.opendemocracy.net (January 16, 2004).

"Neoclassical Keynesian Synthesis," New School for Social Research website,http://cepa.newschool.edu (January 16, 2004).

"A Solution to the Social Security Reform," Massachusetts Institute of Technology web,http://web.mit.edu/francom/ (January 16, 2004).

Franco Modigliani

Neo-Keynesian economics
Birth	June 18, 1918(1918-06-18)
Death	September 25, 2003 (aged 85)
Nationality	Italian American
Field	Financial economics
Influenced	Jacques Drèze Robert Shiller
Contributions	Modigliani-Miller theorem Life-cycle hypothesis MPS model

Franco Modigliani (June 18, 1918 – September 25, 2003) was an Italian American economist at the MIT Sloan School of Management and MIT Department of Economics, and winner of the Nobel Memorial Prize in Economics in 1985.

Born in Rome, Italy, he left Italy in 1939 because of his Jewish origin and antifascist views. He first went to Paris with the family of his then-girlfriend, Serena, whom he married in 1939, and then to the United States. From 1942 to 1944, he taught at Columbia University and Bard College as an instructor in economics and statistics. In 1944, he obtained his D. Soc. Sci. from the New School for Social Research working under Jacob Marschak. In 1946, he became a naturalized citizen of the United States, and in 1948, he joined the University of Illinois at Urbana-Champaign faculty.

When he was a professor at the Graduate School of Industrial Administration of Carnegie Mellon University in the 1950s and early 1960s, Modigliani made two path-breaking contributions to economic science:

• Along with Merton Miller, he formulated the important Modigliani-Miller theorem in corporate finance. This demonstrated that under certain assumptions, the value of a firm is not affected by whether it is financed by equity (selling shares) or debt (borrowing money).

• He was also the originator of the life-cycle hypothesis, which attempts to explain the level of saving in the economy. Modigliani proposed that consumers would aim for a stable level of consumption throughout their lifetime, for example by saving during their working years and spending during their retirement.

In 1962, he joined the faculty at MIT, achieving distinction as an Institute Professor, where he stayed until his death. In 1985 he received MIT's James R. Killian Faculty Achievement Award.^[1]

Modigliani also co-authored the textbooks, "Foundations of Financial Markets and Institutions" and "Capital Markets: Institutions and Instruments" with Frank J. Fabozzi of Yale School of Management.

Active until the end, Modigliani enlisted fellow Nobel laureates Paul Samuelson and Robert Solow in 2003 to write a letter published in The New York Times chiding the Anti-Defamation League for honoring Italy's prime minister, Silvio Berlusconi.

Modigliani was a trustee of the Economists for Peace and Security.

For many years, he lived in Belmont, Massachusetts; he died in Cambridge, Massachusetts.

Bibliography

• Modigliani, Franco (2001). Adventures of an Economist. London, New York: Texere. ISBN 1-587-99007-5. 
• Fabozzi, Frank J.; Franco Modigliani, Michael G. Ferri (1998). Foundations of Financial Markets and Institutions. Upper Saddle River, NJ: Prentice Hall. ISBN 0-136-86056-7. 
• Fabozzi, Frank J.; Franco Modigliani (1996). Capital Markets: Institutions and Instruments. Upper Saddle River, NJ: Prentice Hall. ISBN 0-133-00187-3. 
• Modigliani, Franco; Andrew B Abel, Simon Johnson (1980). The Collected Papers of Franco Modigliani. Cambridge, Mass.: MIT Press. ISBN 0-262-13150-1. 

References

1. ^ Fabozzi, Frank J.; Frank J. Jones, Franco Modigliani (2010). Foundations of Financial Markets and Institutions (Fourth Edition). Pearson Education, Inc.. pp. Dedication. ISBN 0-13-613531-5. 

External links

• Franco Modigliani autobiography
• About Franco Modigliani from nobel-winners.com
• Memorial for Franco Modigliani - MIT Sloan
• his pioneering analyses of saving and of financial markets.
• School performance in the early years was good though not outstanding
• IDEAS/RePEc
• Arno Tausch (2005) ‚World Bank Pension reforms and development patterns in the world system and in the “Wider Europe”. A 109 country investigation based on 33 indicators of economic growth, and human, social and ecological well-being, and a European regional case study’. A slightly re-worked version of a paper, originally presented to the Conference on “Reforming European pension systems. In memory of Professor Franco Modigliani. 24 and 25 September 2004”, Castle of Schengen, Luxembourg Institute for European and International Studies

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Persondata
NAME	Modigliani, Franco
ALTERNATIVE NAMES
SHORT DESCRIPTION	Economist
DATE OF BIRTH	June 10, 1918
PLACE OF BIRTH	Rome
DATE OF DEATH	September 25, 2003
PLACE OF DEATH	Cambridge, Massachusetts

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