Modigliani was born on 18 June 1918 in
Rome to the Jewish family of a
pediatrician father and a voluntary
social worker mother.[2]
He entered university at the age of seventeen, enrolling in the faculty of Law at the
Sapienza University of Rome.[3] 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.[2][4]
He wrote several essays for the fascist magazine Lo Stato[5] where he showed an inclination for the fascist ideological currents critical of liberalism.[6]
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.[7]
But, that early enthusiasm evaporated soon 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.[4]
Modigliani, beginning in the 1950s, was an originator[9] of the
life-cycle hypothesis, which attempts to explain the level of
saving in the economy.[10] The hypothesis 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[11] to originate in the [12] paper written by Modigliani and Emile Grunberg in 1954.[13][14]
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."[21]
Late in his life, Modigliani became a trustee of the
Economists for Peace and Security organization, formerly "Economists Allied for Arms Reduction"[24] 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."[8]
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,[26] as well as his general stance on
fiscal deficits.[27] 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][28]
Nonetheless, they acknowledged his dissenting voice on the issue of unemployment, in which Modigliani concurred early on[29] with
heterodox economists that Europe-wide unemployment in the late 20th century was caused by the lack of
demand induced by
austerity policies.[30][note 7]
Personal life
In 1939, while they were in Paris, Modigliani married Serena Calabi. They had two children, Andre and Sergio Modigliani.
Modigliani, Franco; Abel, Andrew B.; Johnson, Simon (1980). The Collected Papers of Franco Modigliani. Cambridge, Massachusetts:
MIT Press.
ISBN978-0-262-13150-6.
Modigliani, Franco; Fabozzi, Frank J. (1996). Capital Markets: Institutions and Instruments. Upper Saddle River, New Jersey: Prentice Hall.
ISBN978-0-13-300187-7.
Modigliani, Franco; Fabozzi, Frank J.; Ferri, Michael G. (1998). Foundations of Financial Markets and Institutions. Upper Saddle River, New Jersey:
Prentice Hall.
ISBN978-0-13-686056-3.
Modigliani, Franco (1944). "Liquidity Preference and the Theory of Interest and Money". Econometrica. 12 (1): 45–88.
doi:
10.2307/1905567.
JSTOR1905567.
^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,
ISBN978-1784716653
^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)
^
abFranco Modigliani, autobiographical notes, Nobel Prize organization website, 1985
^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
^Modigliani, Franco (1966). "The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital". Social Research. 33 (2): 160–217.
JSTOR40969831.
^Wade-Hands, Douglas (1986) Modigliani And Grunberg : A Precursor To Rational Expectations?,
University of Puget Sound
^Visco, Ignazio (1984) "Price expectations in rising inflation", Contributions to economic analysis, Volume 152, North-Holland, 1984,
ISBN0444868364,
ISBN9780444868367
^Grunberg, E. & Franco Modigliani (1954) "The Predictability of Social Events," Journal of Political Economy, 62, pp. 465–478, December 1954
^Breit, William; Spencer, Roger W. (1990). Lives of the Laureates: Ten Nobel Economists. Massachusetts: MIT Press.
ISBN978-0262023085.
^
abMiller, 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
^Ando, Albert & Franco Modigliani (1965) "The relative stability of monetary velocity and the investment multiplier", The American Economic Review, 55.4, pp. 693–728
^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
^Press Release, Nobel Prize Organisation, 15 October 1985
^Fabozzi, Frank J.; Frank J. Jones; Franco Modigliani (2010). Foundations of Financial Markets and Institutions. Pearson Education, Inc. pp. Dedication.
ISBN978-0-13-613531-9.
^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
^Blejer, Mario I.Adrienne Cheasty (1993) "How to measure the fiscal deficit : analytical and methodological issues", Washington, DC :
International Monetary Fund
^Modigliani, Franco (2000) "Europe"s Economic Problems", Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiburg, 6 April 2000