Franco Modigliani – Morality must have its roots in conscience, not dogma

Franco Modigliani, the Italian-American economist is one of the most distinguished contemporary economists. His application of economics to calculate the lifecycle of household savings and trace the dynamics of financial markets made a striking difference in the perception of economics by the general mass.

Franco Modigliani, the Italian-American economist is one of the most distinguished contemporary economists. His application of economics to calculate the lifecycle of household savings and trace the dynamics of financial markets made a striking difference in the perception of economics by the general mass.

Franco Modigliani was born in Rome on 18th June 1918 in a Jewish family. He embarked on his educational journey in the discipline of law but fled facist Italy in 1939 and settled in United States of America. There, he studied at the New School of Social Research and received his doctorate degree in economics in 1944, under the supervision of Jacob Marschak.

Modigliani has contributed a lot towards applied economics. He made two path-breaking contributions while he was at Carnegie Mellon University as part of the teaching faculty.

• The life-cycle hypothesis, which concerns with the analysis of personal savings. The theory explores the various types and rates of savings that people from different strata of the society maintain. Individuals belonging to different age groups save in different capacities, saving for future or delayed consumption. The theory also aided in predicting the future effects of pension schemes.
  
• The second important finding was the Modigliani-Miller Theorem, which he co-founded with distinguished economist Merton H. Miller. They worked jointly on this model and observed that the market worth of a company depends on the investors’ confidence and their future expectations of the company. The debt-to-equity ratio of the company is comparatively of less importance. This theorem became an important tool in corporate finance in anticipating the value of the company and played an important role in decision making processes.

Modigliani joined the University of Illinois at Urbana-Champaign as a teaching faculty in 1948. After his stint at the university he went on to teach at the MIT Sloan School of Management and MIT Department of Economics in 1961 and became Professor Emeritus in 1988. Modigliani was also a trustee of Economists for Peace and Security.

Achievements of Franco Modigliani

Franco Modigliani was honored with the Nobel Prize in 1985 for his research work on household savings and the dynamics of financial markets. During his teaching days in MIT, he had Robert Merton (winner of Nobel Prize in economics in 1997) as a student.

Major Publications by Franco Modigliani 

The Collected Papers of Franco Modigliani

Rethinking Pension Reform

Readings in Microeconomics