Modigliani, Franco

(b. 18 June 1918 in Rome, Italy; d. 25 September 2003 in Cambridge, Massachusetts), Italian-American economist of Jewish descent and MIT professor emeritus whose innovative work on savings and financial markets earned him the Nobel Prize in Economic Sciences in 1985.

Modigliani was the second of two sons of Enrico Modigliani, a pediatrician, and Olga (Flaschel) Modigliani, a volunteer social worker. Modigliani’s childhood was marked by the trauma of his father’s unexpected death in 1932. “I suddenly realized how deeply I loved and admired him and at 13 my whole world seemed to collapse,” Modigliani recalled. Modigliani was able to react when he enrolled at one of the most prestigious high schools in Rome, the Liceo Visconti. Because of his excellent marks, his teachers advised Modigliani to skip the last year of secondary school and take the tests to enter university two years ahead of his fellow students. Modigliani passed all the required tests and became a student of the University of Rome at seventeen years old. In spite of family pressure for him to study medicine as his father had done, Modigliani chose law. From his second year he started to be increasingly interested in economics, and this interest resulted in his entry to the national competition “I Littoriali della Cultura” in that category. His essay won the first prize. Yet Modigliani soon realized that under the Fascist regime research in economics was extremely limited. Therefore he established personal contacts with the few Italian economists he respected and asked them for suggestions on how to improve his knowledge of economics. Riccardo Bachi was particularly influential and advised Modigliani to read the Italian and British classics.

Modigliani’s interest in economics was paralleled by his growing opposition to the Fascist regime. He soon came into contact with anti-Fascist groups and individuals. His future wife, Serena Calabi, had a clearly anti-Fascist family background, which contributed to the formation of Modigliani’s political beliefs. The promulgation of the racial laws in 1938 legally sanctioned discrimination against Jews in Italy. Jews could not serve in the armed forces or in government positions, marriages between Jews and Christians were banned, and Jewish students found it increasingly difficult to continue their studies. The Calabis had already immigrated to France, and at their invitation Modigliani joined them in Paris, where he married Serena on 22 May 1939. The couple had two children. Modigliani briefly attended the Sorbonne but found the teaching disappointing and thus carried on his studies on his own. He finished his undergraduate thesis, which he was able to discuss in Rome in June 1939, earning a JD and the title of Doctor Juris. Yet there was no time for celebrations. Fearing that Europe was on the brink of war, Modigliani and his wife applied for and received a visa for the United States, arriving in August.

When World War II broke out a few days after his arrival in New York, Modigliani realized that his stay in the United States could be a long one and resolved to carry on there his interest in economics. He successfully applied for a free-tuition fellowship from the Graduate Faculty of Political and Social Science of the New School for Social Research, an institution created for European researchers and scholars who had been forced to emigrate because of Fascist persecution. Modigliani worked during the day selling European books and studied at night. While his early years in America were difficult and Modigliani had to work hard to support his family, he remembers the time with excitement: “I was discovering my passion for economics, thanks also to excellent teachers, including... Jacob Marschak.... He helped me develop solid foundations in economics and econometrics, some mathematical foundations, introduced me to the great issues of the day and gave me... constant encouragement.” From Marschak, Modigliani learned to combine theory and empirical analysis, a feature that would characterize much of his future research. Marschak also introduced Modigliani to a circle of important economists with whom he was able to discuss ideas at informal seminars in New York City during 1940–1941. Those who attended included the future Nobel Prize–winner Tjalling Koopmans as well as Abraham Wald and Oscar Lange.

In 1941 Modigliani obtained his first teaching position, at the New Jersey College for Women. The following year Modigliani was hired as an instructor of economics and statistics at Bard College, where he recalled having the opportunity “to appreciate the unique qualities of life in an American college campus, especially the intimate association with first rate students.” In 1944 Modigliani earned his PhD from the New School for Social Research and published his first article in English, based on the research for his doctoral dissertation, which is considered one of his major works: “Liquidity Preference and the Theory of Interest and Money.” The article and the dissertation are part of Modigliani’s project to reconcile the theories of the British economist John Maynard Keynes with mainstream economic theory. The same year Modigliani went back to the New School for Social Research as a lecturer and research associate at the Institute of World Affairs. In this period Modigliani started to work on an analysis of savings, which would later become known as the Duesenberry-Modigliani hypothesis (coauthored with James Duesenberry). The name of the hypothesis suggests one of the major features of Modigliani’s work: his partnership with other economists. In an interview the Nobel laureate declared, “I am a believer in cooperation. Basically, I have so many things [in mind] I can’t do them all, so I give some of them to others.” In 1946 Modigliani became an American citizen.

Important institutions were eager to have Modigliani on staff. In 1948 the University of Chicago awarded Modigliani a prestigious Political Economy Fellowship, and the Cowles Commission for Research in Economics invited him to join them as research consultant. In the early 1950s Modigliani was the director of a University of Illinois research project, Expectations and Business Fluctuations. Although his stay at Illinois was brief, Modigliani teamed up with his student Richard Brumberg to elaborate the core of the life-cycle hypothesis of saving. The hypothesis concluded that people put aside savings during their earlier working lives to spend in old age, not to pass on to their children. From the mid-1950s to 1960 Modigliani worked at the Carnegie Institute of Technology (now Carnegie-Mellon University), where he perfected the life-cycle hypothesis and contributed other important publications to economic science. Also in the 1950s Modigliani devised with his fellow Nobel winner Merton H. Miller the Modigliani-Miller theorems, which determined that the market value of a stock depends primarily on expectations of what the company will earn in the future rather than on the financial structure of the company.

Modigliani first went to the Massachusetts Institute of Technology (MIT) in 1960 as a visiting professor, and apart from one year at Northwestern University he stayed at MIT for the rest of his career. At MIT, Modigliani continued his studies in macroeconomics and his test of the life-cycle hypothesis. He also developed new interests such as international finance and the international payment system, the effects of inflation, credit rationing, interest rates, and the valuation of speculative assets. In the late 1960s Modigliani was asked by the Federal Reserve Bank to design a large-scale model of the U.S. economy, the MPS. (The model’s name comes from MIT, the University of Pennsylvania, and the S ocial Science Research Council, where its developers worked.) In 1970 MIT named Modigliani an Institute Professor, an appointment reserved for scholars of distinction. In 1985 Modigliani won the Nobel Prize in Economic Sciences and MIT’s James R. Killian Faculty Achievement Award. Three years later he became professor emeritus. During the 1980s his Collected Papers (6 vols., 1980–2005) were first published. Modigliani served as a consultant for the Federal Reserve System, the U.S. Department of the Treasury, the Bank of Spain, and the Bank of Italy. He was a senior adviser for the Brookings Panel on Economic Activity from 1971 to 2003.

Modigliani was a member of the National Academy of Sciences and the American Academy of Arts and Sciences. He also served as president of the Econometric Society, the American Economic Association, and the American Finance Association. The Modigliani Professorship of Financial Economics, an endowed chair at MIT, was established in 1995. Modigliani maintained close links with his native Italy throughout his life, and in his later years he became a fierce critic of the economic policies of the center-right governments led by the media millionaire Silvio Berlusconi. Modigliani also criticized Berlusconi for his statement that Mussolini had not murdered anyone, thus ignoring the persecution of Jews and political opponents in Fascist Italy.

Modigliani was often praised for his variety of interests—so much so that the fellow Nobel laureate and MIT professor emeritus Paul A. Samuelson went as far as claiming that Modigliani “could have gotten a Nobel Prize for several different subjects.” Modigliani’s enthusiasm made him an inspirational figure for generations of students and fellow scholars. Respected among his American colleagues, Modigliani was a celebrity in Italy. He died in his sleep at home in Cambridge.

Information on Modigliani’s life and work is in Franco Modigliani, Adventures of an Economist (2001), and Lall Ramrattan and Michael Szenberg, “Franco Modigliani, 1918–2003: In Memoriam,” American Economist 48, no. 1 (Mar. 2004): 3–8. The Massachusetts Institute of Technology hosts a memorial website (http://mitsloan.mit.edu/fm-memorial). Obituaries are in the Boston Globe and New York Times (both 26 Sept. 2003).

Luca Prono