Franco Modigliani

Driven from Italy by Mussolini's racial laws, he explained how families save over a lifetime and what really sets a company's value.

The Nobel citation: “for his pioneering analyses of saving and of financial markets”

Born: June 18, 1918, Rome, Italy
Died: September 25, 2003, Cambridge, MA, USA
Affiliation at the time: Massachusetts Institute of Technology (MIT), USA

Economics prize

1985

Awarded alone.

Age that year

67years

Born in 1918.

Sources cited

Fact-checked September 24, 2026.

As a teenage law student he won a national economics contest and received the award from Mussolini's own hand. Soon after, Mussolini's racial laws drove him out of Italy.
He reached New York in August 1939, days before World War II began, and studied economics at night while selling books by day to support his family.
On the day he won the Nobel Prize, he celebrated by playing tennis doubles with his friend and fellow laureate Paul Samuelson.
Days before he died at 85, he, Samuelson and Robert Solow published a letter rebuking the ADL for honoring Silvio Berlusconi, who had played down Mussolini's crimes.
From 1970 to 1995, Federal Reserve staff forecast the US economy with a model whose building he co-led, and his life-cycle theory of saving was built into its long-run structure.

The breakthrough

The life-cycle theory of saving and the Modigliani-Miller theorems

Modigliani won for two ideas. The first, built in 1954 with his student Richard Brumberg, is the life-cycle hypothesis. It says people try to keep their standard of living fairly steady over their whole lives. So they borrow or save little when young, save hard in their working prime, and spend down their savings in retirement. Think of a camel crossing a desert: it stores water while it can so it can keep going later. Earlier theory, following Keynes, treated this year's income as the main driver of saving. Modigliani's model instead predicted that a nation's saving rate depends mostly on how fast its economy grows, along with factors such as the age of its population, not on how rich it already is. Tests on data from many countries, reviewed in his Nobel lecture, broadly supported this. The second idea, published with Merton Miller in 1958, is about companies. In an idealized market with no taxes and no bankruptcy costs, a firm's total value does not depend on whether it raises money by borrowing or by selling shares. It depends on what its assets are expected to earn. A 1961 companion paper showed the same holds for dividend payouts. These results let managers separate the question of which projects to invest in from the question of how to pay for them, and they turned corporate finance from a description of business practices into a testable theory.^{[3],[4],[9],[10]}

“an institution freshly created to give haven to the European scholars who were victims of the three fascist dictatorships”

Franco Modigliani, Describing the New School for Social Research in New York, which gave him a free-tuition fellowship after he arrived as a refugee in 1939, in the autobiography he wrote for the Nobel Foundation.^[2]

What it meant for humanity

Modigliani's ideas changed lives mostly indirectly, through the decisions of governments, central banks and companies. The life-cycle model gave policymakers a way to think about how people prepare for old age. The Nobel committee noted that it proved an ideal tool for analyzing pension systems and became the basis of most modern models of consumption and saving. It also shaped arguments over public debt. Modigliani used it to argue that deficits run at full employment shift costs onto future generations by crowding out private investment, while deficit spending can help an economy in a slump. From 1966 he co-led, with Albert Ando and the Fed's Frank de Leeuw, the building of the MPS model of the US economy. Federal Reserve staff used it for forecasting and policy analysis from 1970 until 1995, with the life-cycle theory of consumption built into its long-run structure. He also worked with the Bank of Italy on its national model and built one for the Bank of Spain. The Modigliani-Miller theorems became the starting point of modern corporate finance and the reference point for later research on how taxes and bankruptcy costs change a firm's financing choices. Over four decades at MIT he trained economists who went on to universities, central banks and Wall Street, including the later Nobel laureate Robert Merton. In later life he campaigned publicly on Social Security, European unemployment and budget deficits.

The Nobel committee called the life-cycle model a new paradigm in the study of consumption and saving, the basis of most dynamic models in the field and an ideal tool for analyzing pension systems.^[4]
The MPS model he co-led was used by Federal Reserve Board staff for forecasting and policy analysis from 1970 to 1995, with the life-cycle model of consumption built into its long-run structure.^[12]
The Nobel committee described the Modigliani-Miller theorems as a decisive breakthrough that brought rigorous analysis to corporate finance, until then mostly a description of methods and institutions.^[4]
Paul Samuelson noted that Wall Street was full of experts Modigliani had taught; his students included the 1997 economics laureate Robert Merton.^[5],[6]
In 1998 he joined economists including Robert Solow, Jean-Paul Fitoussi and Paolo Sylos Labini in a manifesto against unemployment in the European Union, which he considered Europe's gravest economic problem.^[9]

Impact in numbers

Modigliani left a set of ideas that shaped how governments, central banks and companies reason about saving, pensions, public debt and finance. The life-cycle model became the standard framework for studying household saving and pension systems, was built into the Federal Reserve's main model of the US economy for a quarter century, and grounded his warnings that persistent deficits burden future generations. The Modigliani-Miller theorems became the foundation of modern corporate finance. None of this can honestly be converted into dollars or lives. The influence of these ideas is interwoven with the work of Friedman, Ando, Miller, Tobin and many others, policy outcomes depend on how officials used the advice, and we found no credible published estimate of their economic value. Consistent with the profile of his co-author Merton Miller, we record no quantified claim.

EconomyFundamental scienceEducation

No number is given here on purpose. Some contributions cannot be counted honestly, and we would rather describe them than invent a figure.

The double edge

His scientific work caused no documented harm, but his early life carries a real controversy. As a Rome law student in 1937 and early 1938, Modigliani published articles in Fascist journals that defended state price control, corporatist economics and autarky (national economic self-sufficiency) in the regime's own terms. Economists Daniel Klein and Ryan Daza argue that he long kept these writings quiet and dated his antifascism earlier than the record supports, although his 2001 memoir did describe receiving a student prize from Mussolini. The racial laws of autumn 1938 ended any place for him in Fascist Italy. Later, in 1975, his newspaper attack on an Italian wage-indexation deal drew sharp criticism from unions and politicians, and in 1976 he argued that Italy's real wages had to fall. We record no quantified harm.

Moderate
Pro-Fascist economic writings in 1937-38
Before the racial laws, the young Modigliani published at least five articles in Fascist-era outlets such as the magazine Lo Stato, praising state price control, corporatist price setting and autarky. Klein and Daza argue that he later concealed these works and backdated his antifascism; Italy's national biographical dictionary instead stresses his contacts with young antifascists in the same years.^[8],[9],[14]
Minor
Called for lower real wages in 1970s Italy
In a 1975 Corriere della Sera article Modigliani attacked a wage-indexation deal between Italian employers and unions, drawing a chorus of criticism from politicians and trade unions. In a 1976 interview he argued that Italy's real wages had to come down, blaming high labor costs for holding back efforts to cut unemployment.^[9]

Against the odds

Jews had lived in Italy for more than 2,000 years and were well integrated; until 1938 they could even join the Fascist Party. That changed in autumn 1938, when Mussolini's government passed antisemitic laws that pushed Jews out of government jobs and public schools, banned marriage with non-Jews and removed them from the armed forces and the media. Thousands of Italian Jews emigrated between 1938 and 1942. After Germany occupied northern and central Italy in 1943, the Germans deported 4,733 Jews from transit camps in northern Italy to Auschwitz-Birkenau; only 314 survived. Modigliani was 20 when the laws passed. He left for Paris with the family of his fiancee, Serena Calabi, married her there in May 1939, returned briefly to Rome for his law degree, and reached New York on 29 August 1939, days before the Second World War began. There he supported his family by selling books by day and studied economics at night at the New School, which had been set up to shelter scholars fleeing fascist Europe. Even in America his path was not smooth: at the University of Illinois he was caught up in a bitter McCarthy-era faculty conflict, and he left in 1952.

1938
Persecution
Italy's racial laws of 1938 barred Jews from public schools, public office and university teaching. In his memoir Modigliani wrote that they degraded the life of any Italian Jew who stayed.^[8],[11]
1939
Exile
He moved to Paris with his future in-laws in 1938, then sailed with his wife and her family to New York, arriving in August 1939. The exile became permanent; he became a US citizen in 1946.^[2],[9]
1939
Other
As a new refugee he sold European books by day, in a small business set up with his father-in-law's help, to support his family, which soon included a baby son. He studied economics from 6 to 10 each night.^[2],[7],[9]
1952
Other
At the University of Illinois he was caught up in the 'Bowen war', a McCarthy-era campaign against Howard Bowen, the College of Commerce dean who had hired him and other outsiders. The recruits were pushed out one by one, and Modigliani left in 1952.^[2],[9]

What Jews faced around 1985

Refuseniks, purges and terror

In 1968 Poland's Communist government launched an "anti-Zionist" campaign that purged Jews from public jobs, including school and university teaching, and pushed at least 13,000 people of Jewish origin to emigrate. In the Soviet Union, Jews who applied to leave, often scientists and other professionals, were frequently refused for years on the grounds that they knew state secrets, and many lost their jobs and homes. The 1970 Leningrad trial and the 1972 "diploma tax", which charged emigrants for their education, drew worldwide protest, and the US Jackson-Vanik amendment tied trade to free emigration.

1985Achille Lauro hijacking. Four Palestinian Liberation Front militants hijacked the Italian cruise ship Achille Lauro off Egypt and murdered Leon Klinghoffer, a 69-year-old Jewish American passenger who used a wheelchair, throwing him overboard.
1984Operation Moses. Israel secretly airlifted about 8,000 Ethiopian Jews (Beta Israel) who had fled to Sudan during civil war and famine, between November 1984 and January 1985.
1982Jo Goldenberg restaurant attack. Abu Nidal Organization gunmen carried out a bombing and shooting attack on Jo Goldenberg, a Jewish restaurant in Paris's Marais district, killing six people and injuring 22.

The full timeline

Jewish background

Both parents JewishIdentified as Jewish, secular

Modigliani was born in Rome to Enrico Modigliani, a leading pediatrician, and Olga Flaschel, a volunteer social worker. Italy's national biographical dictionary describes him as growing up in a typical family of Rome's Jewish middle class, and MIT's obituary identified him as Jewish. Fascist Italy's 1938 racial laws, which barred Jews from public schools, public office and university teaching, drove him into exile. Sources do not describe religious observance. Late in life he spoke out publicly on Jewish history: in 2003 he joined Paul Samuelson and Robert Solow in a letter recalling Mussolini's persecution of Jews.^{[2],[5],[8],[9],[13]}

Key dates

June 18, 1918
Born in Rome, Italy, to pediatrician Enrico Modigliani and Olga Flaschel.^[1],[2],[7]
1932
His father dies after an operation, when Franco is 13.^[2]
1935
Enters the law faculty of the University of Rome at 17, two years ahead of the norm.^[2],[9]
1936
By his own account, wins the economics section of the national Littoriali student contest and receives the award from Mussolini. (Treccani dates the win to 1937.)^[8],[9]
1938
Italy's racial laws are promulgated; he leaves for Paris with the family of his fiancee, Serena Calabi.^[2],[9]
May 1939
Marries Serena Calabi in Paris.^[2]
August 29, 1939
After receiving his law doctorate in Rome, arrives in New York as a refugee, a few days before World War II begins.^[2],[9]
1944
Publishes 'Liquidity Preference and the Theory of Interest and Money', essentially his New School doctoral thesis.^[2],[10]
1954
With Richard Brumberg, lays out the life-cycle hypothesis of saving.^[2],[4]
1958
With Merton Miller, publishes the first Modigliani-Miller theorem on how firms are valued.^[4],[10]
1962
Joins the MIT faculty, where he stays for the rest of his career; named Institute Professor in 1970.^[5],[6]
1970
The MPS model of the US economy, whose building he co-led from 1966, enters use at the Federal Reserve Board.^[12]
October 15, 1985
Awarded the economics prize for his pioneering analyses of saving and of financial markets. He celebrates with a game of tennis doubles alongside Paul Samuelson.^[1],[4],[6]
September 25, 2003
Dies in his sleep at home in Cambridge, Massachusetts, aged 85.^[1],[5]

Sources

1.Franco Modigliani - Facts · NobelPrize.org (Nobel Prize Outreach)
2.Franco Modigliani - Biographical · NobelPrize.org (from Les Prix Nobel 1985), 1985
3.Life Cycle, Individual Thrift and the Wealth of Nations (Nobel Lecture, 9 December 1985) · NobelPrize.org, 1985
4.Press release: This year's economics prize awarded for pioneering studies of saving and of financial markets · NobelPrize.org (Royal Swedish Academy of Sciences), 1985
5.Nobel laureate Franco Modigliani dies at 85 · MIT News Office, 2003
6.Franco Modigliani: 1918-2003. MIT Nobelist took work seriously, but not himself · MIT News Office, 2003
7.Franco Modigliani, 85, MIT teacher, Nobel laureate in economics · The Boston Globe, 2003
8.Franco Modigliani [Ideological Profiles of the Economics Laureates] (Daniel B. Klein and Ryan Daza, with Viviana Di Giovinazzo), Econ Journal Watch 10(3): 472-493 · Econ Journal Watch, 2013
9.MODIGLIANI, Franco (Renato Camurri), Dizionario Biografico degli Italiani, vol. 75 · Istituto della Enciclopedia Italiana (Treccani), 2011
10.Franco Modigliani (1918-2003), The Concise Encyclopedia of Economics · Econlib (Liberty Fund), 2008
11.Italy (Holocaust Encyclopedia) · United States Holocaust Memorial Museum
12.The Evolution of Macro Models at the Federal Reserve Board (Brayton, Levin, Tryon and Williams) · Board of Governors of the Federal Reserve System, 1997
13.Franco Modigliani (1918 - 2003) · Jewish Virtual Library (American-Israeli Cooperative Enterprise)
14.Franco Modigliani · Wikipedia

Fact-checked on September 24, 2026 by a separate AI fact-checking pass that re-opened the sources, with 6 corrections made. How we check

Suggest a correction