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Early life and educationEdit

Modigliani was born on 18 June 1918, in Rome, Italy, to the Jewish Italian family of a pediatrician father and a voluntary social worker mother.[1]

He entered university at the age of seventeen, enrolling in the faculty of Law at the Sapienza University of Rome.[2] 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.[1][3] 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.[4]

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.[3]

The same year, they all emigrated 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's IS–LM model, was written under the supervision of Jacob Marschak and Abba Lerner, in 1944,[note 1] and is considered "ground breaking."[4]


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.[5]

In 1962, he joined the faculty of MIT, as an Institute Professor.[5]

Contributions to economic theoryEdit

Modigliani, from the 1950s, is the originator[6] of the life-cycle hypothesis, which attempts to explain the level of saving in the economy.[7] In the hypothesis it is proposed 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[8] to originate in the later-considered "seminal"[9] paper written by Modigliani and Emile Grunberg in 1954.[10][11]

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.[12][13] 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.[12][13]

In the early 1960s, his response,[14] co-authored with Albert Ando, to the 1963 paper[15] 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.[16]

In 1975, Modigliani, in a paper[17] 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.[18] 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."[19]

Appointments and awardsEdit

In October 1985, Modigliani was awarded that year's Nobel prize in Economics "for his pioneering analyses of saving and of financial markets."[20]

In 1985, Modigliani received MIT's James R. Killian Faculty Achievement Award.[21] 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"[22] 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."[5]

A collection of Modigliani's papers is housed at Duke University's Rubenstein Library.[23]


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,[24] as well as his general stance on fiscal deficits.[25] 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][26]

Nonetheless, they acknowledged his dissenting voice on the issue of unemployment, where Modigliani concurred early on[27] with heterodox economists that Europe-wide unemployment in the late 20th century was caused by the lack of demand induced by austerity policies.[28][note 7]

Personal lifeEdit

In 1939, while they were in Paris, after having left Italy, Modigliani married Serena Calabi. They had two children, Andre and Sergio Modigliani. Their grandchildren were Leah, Julia, David, and Amelia, and their great-grandchildren Micaela, Sophia, Serena, and Chiara.[29] When Franco Modigliani took the job at MIT, the couple bought a home on North Road overlooking Vineyard Sound, near Chilmark,[30] where they lived for the rest of their lives.[5]

Modigliani died in Cambridge, Massachusetts, in 2003, while still working at MIT, and teaching until the last months of his life.[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,[30] died in 2008.[29]

Selected bibliographyEdit


  • 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.


  • "Liquidity Preference and the Theory of Interest and Money". Econometrica. 12 (1): 45–88.
  • "Lessons learned from Barbara". Feminist Economics. 4 (3): 143–144.

See alsoEdit


  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. ^ 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
  2. ^ 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)
  3. ^ a b Franco Modigliani, autobiographical notes, Nobel Prize organization website, 1985
  4. ^ a b Mongiovi, Gary (2015) "Franco Modigliani and the Socialist State", Economics & Finance Department, St. John's, May 2015
  5. ^ a b c d Professor Franco Modigliani, obituary, The Independent, 28 September 2003
  6. ^ 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
  7. ^ 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.
  8. ^ Wade-Hands, Douglas (1986) Modigliani And Grunberg : A Precursor To Rational Expectations?, University of Puget Sound
  9. ^ Visco, Ignazio (1984) "Price expectations in rising inflation", Contributions to economic analysis, Volume 152, North-Holland, 1984, ISBN 0444868364, ISBN 9780444868367
  10. ^ Grunberg, E. & Franco Modigliani (1954) "The Predictability of Social Events," Journal of Political Economy, 62, pp. 465-478,December, 1954
  11. ^ Breit, William; Spencer, Roger W. (1990). Lives of the Laureates: Ten Nobel Economists. Massachusetts: MIT Press. ISBN 978-0262023085.
  12. ^ 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.
  13. ^ 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
  14. ^ Ando, Albert & Franco Modigliani (1965) "The relative stability of monetary velocity and the investment multiplier", The American Economic Review, 55.4, pp. 693–728
  15. ^ 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
  16. ^ Bias, Peter V. (2014) "A chronological survey of the Friedman–Meiselman / Andersen–Jordan single equation debate", Research in Business and Economics Journal, 10, October 2014, Academic and Business Research Institute
  17. ^ Modigliani, Franco; Papademos, Lucas (1975). "Targets for Monetary Policy in the Coming Year". Brookings Papers on Economic Activity. 1975 (1): 141–165. doi:10.2307/2534063. JSTOR 2534063.
  18. ^ Coe, David T. "Nominal Wages. The NAIRU and Wage Flexibility" (PDF). Organisation for Economic Co-operation and Development.
  19. ^ Modigliani, Franco & Leah Modigliani (1997) "Risk-Adjusted Performance", The Journal of Portfolio Management, Winter 1997, 23 (2), pp. 45–54
  20. ^ Press Release, Nobel Prize Organisation, 15 October 1985
  21. ^ 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.
  22. ^ The Newsletter for Economists Allied for Arms Reduction, Vol. 12, 1, April 2000
  23. ^ "Franco Modigliani Papers, 1936–2005 and undated, bulk 1970s–2003". Rubenstein Library, Duke University.
  24. ^ Mitchell, William (2016) "The Modigliani controversy: The break with Keynesian thinking", 21 January 2016
  25. ^ 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
  26. ^ Blejer, Mario I.Adrienne Cheasty (1993) "How to measure the fiscal deficit : analytical and methodological issues", Washington, DC : International Monetary Fund
  27. ^ Modigliani, Franco (2000) "Europe’s Economic Problems", Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiburg, 6 April 2000
  28. ^ Mitchell, William (2011) "Lies, damned lies, and statistics", 13 July 2011
  29. ^ a b Serena Calabi obituary, The Boston Globe, 24 September 2008
  30. ^ a b "Chilmarker Serena Modigliani, 91, Escaped Fascism", Vineyard Gazette, 9 October 2008
  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


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