Franco Modigliani Biography

Franco Modigliani was born on 18 June 1918 in Rome, Lazio, Italy, to a Jewish family. His father, Enrico Modigliani, was a pediatrician and his mother, Olga Flaschel, was a voluntary social worker.

He grew up in a congenial atmosphere with ample love from his parents. He enjoyed his schooling and was a good student. A major tragedy struck the family when Enrico died due to complications following an operation. Young Franco, just 13 at that time, was left devastated.

He struggled in school for a few years before moving to Liceo Visconti, the best high school in Rome. This change proved to be beneficial for him, and he once again thrived in his studies. As an outstanding student, he decided to skip the last year of high school and proceeded to directly appear for the university entrance exam.

Initially, he was under family pressure to pursue a career in medicine like his father. However, he was not comfortable with the idea of dealing with blood and chose to study law instead. He was accepted into the Sapienza University of Rome when he was just 17.

As a university student, he participated in a nationwide contest in economics sponsored by the official student organization of the state. His submission won the first prize, and he received an award from Benito Mussolini.

He was fascinated by fascism for a while and wrote multiple articles for the fascist magazine The State. However, he later adopted an anti-fascist ideology.

With the rise of fascism in Italy and the passage of the Italian Racial Laws, he began to feel increasingly unsafe in the country. He fled to the United States in `1939. There, he enrolled at the Graduate Faculty of the New School for Social Research to study economics. He worked for his Ph.D. under the guidance of Jacob Marschak and Abba Lerner and obtained his doctorate in 1944.

Franco Modigliani found a teaching job at New Jersey College for Women in 1941. The following year, he was appointed an instructor in economics and statistics at Bard College.

He returned to the New School in 1944, this time as a lecturer and research associate at the Institute of World Affairs. His collaborator was Hans Neisser, with who he worked on a project. The results of this project were eventually published in National Income and International Trade.

In the mid-1940s, Modigliani also made his first contribution to the study of saving, which later on came to be known as the Duesenberry-Modigliani hypothesis.

In 1948, he was awarded the prestigious Political Economy Fellowship of the University of Chicago. He also got the opportunity to join the Cowles Commission for Research in Economics, the leading institution in its field in that era, as a research consultant. 

He served as director of a research project on “Expectations and Business Fluctuations” at the University of Illinois in the late 1940s. During this stint, he befriended a brilliant young graduate student named Richard Brumberg, with whom he laid the foundations for what was to become the “Life Cycle Hypothesis of Saving”.

The men elaborated the hypothesis in two papers, one dealing with individual behavior and the other with aggregate saving, in 1953 and 1954. 

*Franco Modigliani joined Carnegie Institute of Technology, now Carnegie-Mellon University. His stint there was a very productive one. He worked alongside Merton Miller to formulate the Modigliani–Miller theorem for corporate finance in 1958.

In 1960, he became a visiting professor at the Massachusetts Institute of Technology. A couple of years later, he joined the faculty as an Institute Professor. 

In 1975, he introduced the concept of the "NIRU", the non-inflationary rate of unemployment, in a paper he co-authored with his former student Lucas Papademos.

In 1997, he and his granddaughter, Leah Modigliani, developed what is now called the "Modigliani Risk-Adjusted Performance.”

Franco Modigliani is best remembered as the originator of the “Life Cycle Hypothesis of Saving”, which he formulated with his student, Richard Brumberg. According to the theory, people’s consumption patterns are based both on resources available to them over their lifetime and on their current life stage. The theory can be used to make important predictions for the economy. 

Franco Modigliani started dating a young woman named Serena Calabi while still in Italy. After the passage of the racial laws, the couple traveled to France, where they got married. Then the couple, along with Serena’s parents, emigrated to the United States.

Modigliani and Serena had two children, Andre and Sergio.

He remained active till the end of his life and died on 25 September 2003, at the age of 85.