Editing Franco Modigliani

{{Short description|Italian-American economist (1918–2003)}}
{{Infobox economist
 | image      = Franco Modigliani.jpg
 | caption    = Modigliani in 2000
 | name             = Franco Modigliani
 | birth_date       = {{birth date|1918|6|18|df=y}}
 | birth_place      = [[Rome]], Italy
 | death_date       = {{death date and age|2003|9|25|1918|6|18|df=y}}
 | death_place      = {{nowrap|[[Cambridge, Massachusetts]], U.S.}}
 | citizenship    = {{hlist|Italy|United States}}
 | field            = [[Financial economics]]
 | alma_mater       = [[The New School]] ([[PhD]])<br /> [[Sapienza University of Rome]] ([[Laurea]])
 | doctoral_advisor = [[Jacob Marschak]]
 | doctoral_students= [[Albert Ando]]<br />[[Robert Shiller]]<br />[[Mario Draghi]]<br />[[Lucas Papademos]]
 | influences       = [[J. M. Keynes]], [[Jacob Marschak]]
 | contributions    = [[Modigliani–Miller theorem]]<br />[[Life-cycle hypothesis]]<br />MPS model
}}

'''Franco Modigliani''' ({{IPAc-en|US|ˌ|m|oʊ|d|iː|l|ˈ|j|ɑː|n|i}}; {{IPA|it|modiʎˈʎaːni|lang}}; 18 June 1918 – 25 September 2003)<ref>{{cite news |last1=Adams |first1=Richard |title=Franco Modigliani |url=https://www.theguardian.com/news/2003/oct/01/guardianobituaries.obituaries |access-date=18 August 2021 |work=[[The Guardian]] |date=1 October 2003}}</ref> 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.<ref name=klein>"Franco Modigliani" by [[Daniel B. Klein]] and Ryan Daza, in "[https://econjwatch.org/file_download/709/ProfilesSept2013.pdf?mimetype=pdf The Ideological Migration of the Economics Laureates]", ''[[Econ Journal Watch]]'', 10(3), September 2013, pp. 472–293</ref>

He entered university at the age of seventeen, enrolling in the faculty of Law at the [[Sapienza University of Rome]].<ref name=parisi>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 [[Italian language|language]])</ref> In his second year at Sapienza, his submission to a nationwide contest in [[economics]] sponsored by the official [[Gioventù Italiana del Littorio|student organization]] of the state, won first prize and Modigliani received an award from the hand of [[Benito Mussolini]].<ref name=klein /><ref name=auto>[https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1985/modigliani-bio.html Franco Modigliani], autobiographical notes, Nobel Prize organization website, 1985</ref> 
He wrote several essays for the fascist magazine ''[[Lo Stato]]''<ref>{{cite book|author1=Francesca Dal Degan|author2=Fabrizio Simon
|editor1=Massimo M. Augello|editor2=Marco E.L. Guidi|editor3=Fabrizio Bientinesi|title=An Institutional History of Italian Economics in the Interwar Period|year=2019|publisher=[[Palgrave Macmillan]]|location=Cham, Switzerland|isbn=978-3-030-32980-8|pages=146–147|chapter-url=https://doi.org/10.1007/978-3-030-32980-8_6|chapter=“Generalist” Journals between Dissemination of Economics and Regime Propaganda|volume=1|doi=10.1007/978-3-030-32980-8_6
|s2cid=213105744
}}</ref> where he showed an inclination for the fascist ideological currents critical of liberalism.<ref>[https://www.fupress.com/catalogo/il-nazional-fascismo-economico-del-giovane-franco-modigliani/3982 Luca Michelini, Il nazional-fascismo economico del giovane Franco Modigliani, Firenze, Firenze University Press], 2019</ref>

Among his early works in Fascist Italy was an article about the organization and management of production in a [[socialist]] economy, written in [[Italian language|Italian]] and arguing the case for socialism along lines laid out by earlier [[market socialist]]s like [[Abba Lerner]] and [[Oskar Lange]].<ref name=advisor>Mongiovi, Gary (2015) "[http://jepson.richmond.edu/conferences/summer-institute/papers2015/GMongioviSI.pdf Franco Modigliani and the Socialist State] {{Webarchive|url=https://web.archive.org/web/20201128083837/https://jepson.richmond.edu/conferences/summer-institute/papers2015/GMongioviSI.pdf |date=2020-11-28 }}", Economics & Finance Department, [[St. John's University (New York City)|St. John's]], May 2015</ref>

But, that early enthusiasm evaporated soon after the passage of [[Italian Racial Laws|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.<ref name=auto/>

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 [[Doctor of Philosophy|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,<ref group=note>The basis of his dissertation subsequently appeared in ''Econometrica''. See Modigliani (1944)</ref> and is considered "ground breaking."<ref name=advisor />

==Career==
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.<ref name=indy>[https://www.independent.co.uk/news/obituaries/professor-franco-modigliani-37186.html Professor Franco Modigliani], obituary, ''[[The Independent]]'', 28 September 2003</ref>

In 1962, he joined the faculty of [[MIT]], as an [[Institute Professor]].<ref name=indy />

==Contributions to economic theory==
Modigliani, beginning in the 1950s, was an originator<ref>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</ref> of the [[life-cycle hypothesis]], which attempts to explain the level of [[saving]] in the economy.<ref>{{cite journal |last=Modigliani |first=Franco |title=The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital |journal=[[Social Research (journal)|Social Research]] |year=1966 |volume=33 |issue=2 |pages=160–217 |jstor=40969831 }}</ref> The hypothesis that [[consumer]]s aim for a stable level of [[Consumption (economics)|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<ref name=exp>Wade-Hands, Douglas (1986) ''Modigliani And Grunberg : A Precursor To Rational Expectations?'', [[University of Puget Sound]]</ref> to originate in the <ref>Visco, Ignazio (1984) "Price expectations in rising inflation", ''Contributions to economic analysis'', Volume 152, North-Holland, 1984, {{ISBN|0444868364}}, {{ISBN|9780444868367}}</ref> paper written by Modigliani and Emile Grunberg in 1954.<ref name=grun>Grunberg, E. & Franco Modigliani (1954) "The Predictability of Social Events," ''[[Journal of Political Economy]]'', '''62''', pp. 465–478, December 1954</ref><ref>{{Cite book|title=Lives of the Laureates: Ten Nobel Economists|author1=Breit, William |author2=Spencer, Roger W.|publisher=MIT Press |year=1990 |isbn=978-0262023085 |location=Massachusetts}}</ref>

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]].<ref name=mm1>Miller, Merton H. & Franco Modigliani (1958) "[https://gvpesquisa.fgv.br/sites/gvpesquisa.fgv.br/files/arquivos/terra_-_the_cost_of_capital_corporation_finance.pdf 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.</ref><ref name=mm2>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</ref> The theorem posits that, under certain assumptions,<ref group=note>The theorem assumes an economic environment with an [[efficient market]] and without [[tax]]es, [[bankruptcy]] costs, [[agency cost]]s, and [[asymmetric information]].</ref> the value of a firm is not affected by whether it is financed by [[Stock|equity]] (selling shares) or by [[debt]] (borrowing money), meaning that the [[debt-to-equity ratio]] is unimportant for private firms.<ref name=mm1/><ref name=mm2/>

In the early 1960s, his response,<ref>[[Albert Ando|Ando, Albert]] & Franco Modigliani (1965) "The relative stability of monetary velocity and the investment multiplier", ''[[The American Economic Review]]'', 55.4, pp.&nbsp;693–728</ref> co-authored with [[Albert Ando]], to the 1963 paper<ref>[[Milton Friedman|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.&nbsp;165–268</ref> 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|date=November 2019}}

In 1975, Modigliani, in a paper<ref>{{cite journal |last1=Modigliani |first1=Franco |first2=Lucas |last2=Papademos |year=1975 |title=Targets for Monetary Policy in the Coming Year |journal=[[Brookings Papers on Economic Activity]] |volume=1975 |issue=1 |pages=141–165 |jstor=2534063 |doi=10.2307/2534063|url=https://www.brookings.edu/wp-content/uploads/1975/01/1975a_bpea_modigliani_papdemos.pdf }}</ref> whose co-author was his former student [[Lucas Papademos]],<ref group= note>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.</ref> introduced the concept of the "NIRU", the non-inflationary rate of [[unemployment]],<ref group=note>Subsequently known as the "[[NAIRU|non-accelerating inflation rate of unemployment]]" (NAIRU)</ref> ostensibly an improvement over the "[[natural rate of unemployment]]" concept.<ref>{{Cite web |last=Coe |first=David T |title=Nominal Wages. The NAIRU and Wage Flexibility. |publisher=Organisation for Economic Co-operation and Development |url=http://www.oecd.org/dataoecd/59/19/33917832.pdf}}</ref> The terms refer to a level of unemployment below which [[inflation]] rises.<ref group=note>Inflation "rises"; it does not "accelerate," as can often be misread from the acronym [[NAIRU]]</ref>

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."<ref>Modigliani, Franco & Leah Modigliani (1997) "Risk-Adjusted Performance", ''[[The Journal of Portfolio Management]]'',  Winter 1997, 23 (2), pp. 45–54</ref>

==Appointments and awards==
In October 1985, Modigliani was awarded the [[Nobel prize in Economics]] "for his pioneering analyses of [[saving]] and of [[financial market]]s."<ref>[https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1985/press.html Press Release], Nobel Prize Organisation, 15 October 1985</ref>

In 1985, Modigliani received MIT's James R. Killian Faculty Achievement Award.<ref>{{cite book|title=Foundations of Financial Markets and Institutions|last=Fabozzi|first=Frank J.|author2=Frank J. Jones |author3=Franco Modigliani |pages=Dedication|publisher=Pearson Education, Inc.|year=2010|isbn=978-0-13-613531-9}}</ref> 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"<ref>''[http://www.epsusa.org/publications/newsletter/2000/april2000/NewsNetworkApril2000.pdf The Newsletter for Economists Allied for Arms Reduction] {{Webarchive|url=https://web.archive.org/web/20160409185604/http://epsusa.org/publications/newsletter/2000/april2000/NewsNetworkApril2000.pdf |date=2016-04-09 }}'', Vol. 12, '''1''', April 2000</ref> and was considered an "influential adviser": in the late 1960s, on a contract with the [[Federal Reserve System|Federal Reserve]], he designed the "MIT-Pennsylvania-Social Science Research Council" model, a tool that "guided [[monetary policy]] in Washington for many decades."<ref name=indy/>

A collection of Modigliani's papers is housed at [[Duke University]]'s [[David Rubenstein#Duke University|Rubenstein]] Library.<ref>{{cite web |url=http://library.duke.edu/rubenstein/findingaids/modigliani/ |title=Franco Modigliani Papers, 1936–2005 and undated, bulk 1970s–2003 |publisher= [[David Rubenstein#Duke University|Rubenstein]] Library, [[Duke University]]}}</ref>

==Criticism==
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,<ref>[[Bill Mitchell (economist)|Mitchell, William]] (2016) "[http://bilbo.economicoutlook.net/blog/?p=32828 The Modigliani controversy: The break with Keynesian thinking]", 21 January 2016</ref> as well as his general stance on [[fiscal policy|fiscal deficits]].<ref>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</ref> The Modigliani-Miller theorem implies that, for a closed economy, state borrowing is merely deferred [[tax]]ation, since state spending can be financed only by "[[fiscal policy|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.<ref group=note>See "[[crowding out effect]]"</ref><ref>Blejer, Mario I.Adrienne Cheasty (1993) "How to measure the fiscal deficit : analytical and methodological issues", Washington, DC : [[International Monetary Fund]]</ref>

Nonetheless, they acknowledged his dissenting voice on the issue of unemployment, in which Modigliani concurred early on<ref>Modigliani, Franco (2000) "Europe"s Economic Problems", ''Carpe Oeconomiam Papers in Economics'', 3rd Monetary and Finance Lecture, Freiburg, 6 April 2000</ref> with [[heterodox economist]]s that Europe-wide unemployment in the late 20th century was caused by the lack of [[demand]] induced by [[austerity]] policies.<ref>[[Bill Mitchell (economist)|Mitchell, William]] (2011) "[http://bilbo.economicoutlook.net/blog/?p=15250 Lies, damned lies, and statistics]", 13 July 2011</ref><ref group=note>Demand-driven fiscal policies, as opposed to [[supply-side economics|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}}</ref>

==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.<ref>"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) "[http://www.csef.it/WP/wp139.pdf The Modigliani-Miller Theorems: A Cornerstone of Finance]", Center for Studies in Economics and Finance, May 2005</ref> 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]],<ref name=chil>"[https://vineyardgazette.com/obituaries/2008/10/10/chilmarker-serena-modigliani-91-escaped-fascism Chilmarker Serena Modigliani, 91, Escaped Fascism]", ''[[Vineyard Gazette]]'', 9 October 2008</ref> died in 2008.<ref name=serena>[http://www.legacy.com/obituaries/bostonglobe/obituary.aspx?n=serena-modigliani&pid=117938563 Serena Calabi] obituary, ''[[The Boston Globe]]'', 24 September 2008</ref>

==Selected bibliography==
=== Books ===
* {{cite book | last1 = Modigliani | first1 = Franco | last2 = Abel | first2 = Andrew B. | last3 = Johnson | first3 = Simon |title=The Collected Papers of Franco Modigliani |publisher=[[MIT Press]] |location=Cambridge, Massachusetts |year=1980 |isbn=978-0-262-13150-6}}
* {{cite book | last1 = Modigliani | first1 = Franco | last2 = Fabozzi | first2 = Frank J. |title=Capital Markets: Institutions and Instruments |publisher=Prentice Hall |location=Upper Saddle River, New Jersey |year=1996 |isbn=978-0-13-300187-7}}
* {{cite book | last1 = Modigliani | first1 = Franco | last2 = Fabozzi | first2 = Frank J. | last3 = Ferri  | first3 = Michael G. |title=Foundations of Financial Markets and Institutions |publisher=[[Prentice Hall]] |location=Upper Saddle River, New Jersey |year=1998 |isbn=978-0-13-686056-3}}
* {{cite book |last=Modigliani |first=Franco |title=Adventures of an Economist |publisher=Texere |location=London, New York |year=2001 |isbn=978-1-58799-007-6 |url-access=registration |url=https://archive.org/details/adventuresofecon00modi }}
* {{cite book | last1 = Modigliani | first1 = Franco | last2 = Muralidhar | first2 = Arun |title=Rethinking Pension Reform|url= http://catdir.loc.gov/catdir/samples/cam051/2003068726.pdf|publisher=Cambridge University Press | location = London | year = 2004 |isbn=978-0-521-83411-7}}

=== Articles ===
* {{Cite journal | title = Liquidity Preference and the Theory of Interest and Money | journal = Econometrica | volume = 12 | issue = 1 | pages = 45–88 | doi = 10.2307/1905567 | jstor = 1905567 | year = 1944 | last1 = Modigliani | first1 = Franco }}
* {{Cite journal | title = Lessons learned from Barbara | journal = Feminist Economics | volume = 4 | issue = 3 | pages = 143–144 | doi = 10.1080/135457098338347 | year = 1998 | last1 = Modigliani | first1 = Franco }}

==See also==
* [[Piero Sraffa]]
* [[List of Jewish Nobel laureates]]

==Notes==
{{reflist|group=note}}

==References==
{{reflist}}

==External links==
{{Commons category}}
{{Wikiquote}}
* {{Cite encyclopedia |title=Franco Modigliani (1918–2003) |url=http://www.econlib.org/library/Enc/bios/Modigliani.html |encyclopedia=[[The Concise Encyclopedia of Economics]] |edition=2nd |series=[[Library of Economics and Liberty]] |publisher=[[Liberty Fund]] |year=2008 }}
* [https://ideas.repec.org/e/pmo37.html Modigliani works], [[Research Papers in Economics|IDEAS/RePEc]]
*{{C-SPAN|51618}}
*"[http://ubs.com/franco-modigliani What influences our likelihood to save?]", [[Union Bank of Switzerland]] website, with filmed interviews by Franco Modigliani
* {{Internet Archive author |same = Franco Modigliani}}
* {{Nobelprize}}

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{{s-bef | before = [[Richard Stone]] }}
{{s-ttl | title = [[List of Nobel Memorial Prize laureates in Economics|Laureate of the Nobel Memorial Prize in Economics]] | years = 1985 }}
{{s-aft | after = [[James M. Buchanan Jr.]] }}
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{{Keynesians}}
{{Nobel laureates in economics 1976-2000}}
{{1985 Nobel Prize winners}}
{{Presidents of the Econometric Society}}
{{Presidents of the American Economic Association}}

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{{DEFAULTSORT:Modigliani, Franco}}
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