Franco Modigliani was a famous Italian economist who won the Nobel Prize. He was very interested in economics and came up with many theories in his field. Even though he was born in Italy, he lived most of his life in the United States, where he taught and wrote about his favorite subject, economics. He was a strong opponent of fascism and took part in many resistance movements with the help of Littoriali, an Italian student group. Influenced by the great economist John Maynard Keynes, he came up with many important economic theories. The most important was the life-cycle hypothesis, which he worked on with economists Irving Fisher, Roy Harrod, and Albert Ando and for which he won the Nobel Memorial Prize in 1985. In this idea, he did a lot of thinking about savings and the financial markets. He also gave talks and lectures that influenced many people who wanted to study economics. Read on to learn more about this great economist’s personal life, career, and accomplishments.
Childhood and Early Life of Franco
Franco Modigliani was born on June 18, 1918, in Rome, Italy, to Italian parents, Enrico Modigliani and Olga Flaschel. His father was a well-known pediatrician, and his mother was a social worker who helped people for free.
He did well in school until 1932 when a botched surgery killed his father. This was the worst thing that ever happened to him. Franco was very close to his father, so this loss that could not be fixed caused him a lot of mental pain. He was only 13 when this terrible thing happened, and his small world of happiness fell apart for good.
Among other things, it hurt his grades, which made him do badly in school for the next three years. Because of his poor grades, his mother put him in Liceo Visconti, which is one of the best schools in Rome. The tough curriculum brought out the best in him, and he did so well in school that he skipped the last year and went straight to the University of Rome at age 17, two years before his peers.
Even though his family wanted him to follow in his father’s footsteps and become a doctor, he chose to study law instead, which was a popular career choice in Rome at the time. In his second year, he entered a national competition put on by an economics student group called “I Littoriali Della Cultura” and won first place.
Even though he didn’t think his first essay was important, it was because it helped him realize that he was interested in economics. Unfortunately, the teaching in this area was boring and influenced by fascism, so he had to ask other economists he knew for help. Riccardo Bachi told him that he should try to get people interested in English and Italian classics, so he did.
Getting married and moving
Franco Modigliani met a lot of people who were against fascism through Littoriali. With their help, he spoke out against fascism. His future father-in-law, Serena’s dad, was also a strong anti-fascist, which was a good thing. He went to Paris because Serena’s parents asked him to, and he got married to her there in 1939.
He went to the Sorbonne, but it wasn’t interesting or inspiring enough for him. When he realized it was a waste of time, he started studying on his own and wrote his thesis at the Bibliothèque St. Genevieve. He went back to Rome in 1939, where he talked about his thesis and got a doctorate.
He moved to the U.S. (New York) in 1939, just a few days before World War II, because he thought there might be war in Europe.
Franco Modigliani knew he would be in the U.S. for a long time, so he looked for the best way to study economics. He was lucky enough to get a free tuition fellowship from the Graduate Faculty of Political and Social Science of the New School for Social Research.
This was an organization in the U.S. that helped European scholars who had been hurt by fascist dictatorships. For the next three years, he worked hard to support his family during the day and studied late into the night. During this time, Andre, his first child, was born.
He worked with some of the best economics teachers, like Adolph Lowe and Jacob Marschak, and it was a very exciting time for him. Franco Modigliani had a lot of respect for Jacob Marschak because of this. Jacob helped him build solid foundations in economics, econometrics, and some math, and he was a constant source of motivation for Franco.
Working with Marschak gave Franco Modigliani the chance to take part in an informal seminar in New York in 1940 or 1941. Other well-known artists like Abraham Wald, Tjalling Koopmans, and Oscar Lange were also there. This experience was important to him becoming a well-known economist.
A Years After
In 1942, he went to Columbia University to teach economics and statistics. He stayed there until 1944. Then, with the help of Jacob Marschak, he got his D. Soc. Sci. from the New School for Social Research in 1944. In 1946, he became an American citizen, and two years later, in 1948, he enrolled at the University of Illinois.
In the same year, he won a prestigious fellowship in political economy from the University of Chicago and was asked to join the Cowles Commission as a research consultant. He was lucky enough to be put in charge of a research project at the University of Illinois, Chicago, called “Expectations and Business Fluctuations.”
This gave him the chance to meet important people like Marschak, Koopmans, Arrow, and Simon. During this time, he came across two interesting theories: Von Neumann and Morgenstern’s theory of choice under uncertainty and Haavelmo’s theory on statistical interference from non-experimental observations.
Franco Modigliani did two important things for economics in the 1950s and early 1960s. The first is the Modigliani-Miller theorem in corporate finance with Merton Miller, which showed that “under certain assumptions, the value of a firm is not affected by whether it is financed by equity (selling shares) or debt (borrowing money).”
The second is the life-cycle hypothesis, which explains how much people save in an economy. This was a big step forward in the field of economics, and because of it, he won the Nobel Prize, which is one of the most prestigious awards.
He said that people’s level of consumption stays the same because they save money when they are working and spend all of it when they retire. He became an Institute Professor at MIT in his later years and stayed there until his death in Cambridge, Massachusetts, in 2003.
Modigliani really liked John Maynard Keynes and his ideas about economics. On the door of his office was a cartoon that said, “With your permission, gentlemen, I’d like to say something nice about John Maynard Keynes.”
Works with Merton Miller on “Corporate Income Taxes and the Cost of Capital,” which was published in American Economic Review.
“The Cost of Capital, Corporation Finance, and the Theory of Investment,” which Merton Miller and I wrote, was published in American Economic Review.
“Fluctuations in the Savings-to-Income Ratio: A Problem in Economic Forecasting” was published in “Studies in Income and Wealth.”
“The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests,” written by Albert Ando and published in the American Economic Review in 1963.
“The Predictability of Social Events,” in Journal of Political Economy, with Emile Grumburg.
“Utility Analysis and the Consumption Function,” written by Richard Brumberg and published in Post-Keynesian Economics, which was put together by Kenneth Kurihara.
Doing well and getting awards
The Nobel Prize in Economics was given in 1985.
James R. Killian Faculty Achievement Award from MIT in 1985
Estimated Net worth
Franco Modigliani is thought to have a net worth of $10 million and makes most of his money as a university professor and economist. We don’t have enough evidences on Franco Modigliani cars, Franco Modigliani lifestyle.