Modigliani, Franco

(1918–2003)

   Born in Rome, Modigliani was forced to leave Italy after the introduction of the 1938 racial laws. He went to the United States and became a successful teacher of economics at the University of Illinois and then professor of economics and finance at the Massachusetts Institute of Technology. Modigliani was awarded the 1985 Nobel Prize for economics for two works he had produced in the 1950s. The first of these was concerned with the human propensity to save. Before Modigliani’s work, it had been taken for granted that human beings saved during their working life to be able to consume during their retirement. Modigliani showed that this was not so, and that a broad range of factors influenced savings decisions. His second great innovation, the “Mo-Mi theory” (so-called because the theory was developed together with the American economist Merton Miller), overturned the commonplace notion that it was better for a firm to finance its growth by taking out loans rather than issuing shares. Modigliani and Miller showed that company value is not dependent on financial structure so much as on current perceptions of the company’s future profits.

   Although he took out American citizenship in 1946, Modigliano remained interested in his native country and was a frequent commentator on Italy’s recurring economic crises until his death. He was a particularly outspoken critic of the large government deficits being accumulated by the Italian state. In 2003, he opposed the decision of the Anti-Defamation League to honor Silvio Berlusconi, who, Modigliani contended, had sought to exculpate Benito Mussolinifor his treatment of Italy’s Jews. Modigliani died in Cambridge, Massachusetts, in September 2003.