B.A. (Hons), M.A (Econ). Ph.D., Hon. D.Sc Europe).

distinguished Indian Economist


  • Overview
  • Foreword
  • Preface
  • Index
  • Impressions

Prof. Franco Modigliani, the Nobel Laureate in economics, is known for his varied contributions. He was a Member of the Editorial Advisory Board of International Journal for Applied Economics and Econometrics. He has also contributed so articles to this Journal. It was felt that, in consideration of his qualities as a Professor and his contributions and cooperation with the Journal, we thought we should bring out a Special Issue of IJAEE in his memory which came out 2006.This book is based on that. The paper by Dr.Andrea Micocci is very interesting as he depicts Modigliani's contributions relating to Italian economy which was Modigliani's birth country. The immediate response from Professors in January me Marc D.Hayford and Kam Hon Chu in sending their contributions is appreciated. Prof. Paul A Samuelson, the Nobel Laureate has considered Prof.Modigliani as 'a dear friend and a famous colleague'. He has said in his foreword that 'as a final word, I must praise the Modigliani lifecycle model of saving as the best of overlapping generations paradigms'  

By Paul A. Samualson
Mussolini, influenced by Hitler's evils, favored America by sending to us great scholars and scientists. That brought young Modiglaini from Rome to New York. This also blessed Franco, for never in Europe could he have acquired the opportunities that he came to enjoy at Carnegie Tech and later at MIT.

Vulgar debaters used to argue about who was the greatest twentieth century economist. Inevitably the name of Keynes came up. For a brief period there was the ridiculous comparison between Hayek and Keynes. That was just before Hayek went into what cosmologists call a black hole as far as mainstream world economics was concerned. During the supply-schocked stagflation of the 1970's, when triumphant Keynesianism was losing esteem and self-esteem, monetarist Milton Friedman was praised in the Sunday newspapers as Keynes's superior. Alas, 1960 Friedman's version of 1911 Fisherine MV = PQ in the end advanced no new understanding of either stagflation or macroeconomic prediction.

Somerset Maugham astutely noted that to know one country, you must know two countries, To appreciate Modiglaini's grasp of macro and finance, an objective contrast with that of a Firedman or an Arthur Burns is illuminating.

Citibank, the world's largest bank, and the Federal Reserve Bank of St. Louis back then rejected macro modeling of the Modigliani MIT-FRB type. Except for a few months in the 1970's, the statistical results of "M only" were so abysmal that Chairman Walter Wriston overnight abolished Citibank's economic department. In the twenty-first century. Drs. Greenspan and Bernanke at the U.S. Central bank use interest rates rather than nominal M as their main control variable. Friedman and Schwartz (1963) had naively hoped to explain the Great Depression primarily by variations in M rather than in V. Not so Franco.

Since 1950 the Markowitz-Tobin-Sharpe mean variance paradigm has spread like wild fire in theoretical and Wall Street use. Only at the University of Chicago that had deported its Cowles econometricians and at the Burns National Bureau were there protests when Modigliani, Markowitz, Sharpe, Tobin, Merton and Scholes, were given Nobel Prizes in Economics for finance. Twenty-first century finance formulations were said to be not economic at all (and to boot their mathematics was not even interesting mathematics). Tom Kuhn's Structure of Scientific Revolutions explicates well this example of Max Planck's dictum that science does progress funeral by funeral.

Fermi, the great Italian physicist who escaped to our shores when Franco did, was tops as both an experimentalist and a theorist. Modiglaini paralleled Fermi: he was a both prolific theorist and at the same time a statistical tester and model builder.

Is finance theory merely elegant, or is it practical? For fifty years at TIAA-CREF the internal records permit an unbiased comparison of the usefulness of what I call "Marshallian economists" and "Cowles-type economists." I am proud to have been a contemporary of Franco Modiglaini. Yes, we guys stood upon the shoulders of giants like Knight, Viner and Wicksell. But up in their Valhalla, those stars are blessing our remarkable progress. I need to add mention that Modigliani's crowd did try, in a lowkeyed way, to practice "economics with a heart."

I could go on and on about the depth, breadth, and multiplicity of Franco's many, many collaborations — Ando, Brumberg, Grunberg, Miller, Cohen, and even a granddaughter parter in the Modigliani - Modigliani test for risk-corrected portfolio performance. Memorial notes by Solow (2005, 2006) and Samuelson (2005) will sample how much modern economics does owe to Franco Modigliani.

As a final word, I must praise the Modigliani lifecycle model of saving as the best of many overlapping generations paradigms

Friedman, M. and A. Schwartz. 1963. A Monetary History of the United States, 1876-1960. A study by the National Bureau of Economic Research, New York, Princeton, Princeton University Press.

Friedman, M. 1968. "Quantity Theory", in D.L. Sills, ed., International Encyclopedia of the Social Sciences, Vol. 10, New York, the Macmillan Company and the Free Press.

Samuelson, P. 2005. "Franco: A Mind Never at Rest, "Banca Nazionale del Lavoro Quarterly Review. Franco Modigliani between economic theory and
social commitment. Proceedings of the international conference organized by
the Accademia Nazionale dei Lincei, Rome, 17-18 February 2005. Vol. 58 (June-September): 5-9

Solow, R. 2005. "Modigliani and Keynes, "Banca Nazionale del Lavoro Quarterly Review, Franco Modigliani between economic theory and social commitment. Proceedings of the International conference organized by the Accademia Nazionale dei Lincei, Rome, 17-18 February 2005. Vol. 58 (June - September):

Solow, R. 2006 forthcoming. "Modigliani and Monetarism," Franco Modigliani and the Keynesian Legacy. Conference proceedings from the New School, New York, April, 2005.

Prof. Franco Modigliani, an Italian born, U.S.A. citizen won the Nobel Prize in Economics in 1985 for his "Pioneering analyses of saving and financial markets". Just like Prof. Jan Tinbergen was a physicist - turned Economist who won the Nobel Prize in 1969, Modigliani was a trained Lawyer-turned Economist who got Emeritus status at the Massachusetts Institute of Technology in 1988. He developed a life-cycle theory about the fluctuations in personal savings over an individual's life time. He helped in devising forecasting models in many areas.

Prof. Franco Modigliani was a Member in the Editorial Advisory Board of the "International Journal for Applied Economics and Econometrics". He had accepted that position spontaneously and co-operated till the end of his life. There are many things to say about the eminence of Prof. Modigliani which are discussed in my introductory paper and in the illuminating, 'Foreword' by Prof. Paul A. Samuelson. I have presented, inter alia, his life and works as an economist and an exhaustive list of his contributions is also appended at the end of this memorial work. The greatest event, after Modigliani got the Nobel Prize was his joining the respected and eminent Professors, Paul A. Samuelson and Robert M. Solow on September 18, 2000 when all the three scholars delivered the First Ford / MIT Nobel Laureate Lecture in Kresge Auditorium and all the three of them posed for a photograph which was the rarest occasion in the history of MIT. They spoke on : "U.S.economy: the last fifty years and the next fifty years". It is a fortune to "International Journal of Applied Economics and Econometrics" and me that all the three Laureates are Members in the Editorial Board. We are grateful for their guidance and blessings

Prof. Modigliani contributed a paper : "The European unemployment crisis: A Monetarist Keynesian Approach and its Implications" to the Special Issue of the "International Journal of Applied Economics and Econometrics" brought out in three parts in reverential memory of Prof. Jan Tinbergen. This paper, according to Modigliani, was based on his Tinbergen Memorial Lecture delivered in Netherlands. Two other Laureates, Prof. Paul A. Samuelson and Prof. L.R.Klein, along with many others who are either Tinbergern's colleagues or students in high positions have contributed to the special work which has come in book form also. It is our fortune to bring out this Special work with the affectionate cooperation and best wishes of these Laureates including late Modigliani.

It is my passion for economics and the regard I had to Franco Modigliani which prompted me to bring out this work in his Memory. I wish to acknowledge with grateful thanks the co-operation of Professors Marc D. Hayford, Loyala University, Chicago, Dr. Andrea Micocci, Second University of Naples, Rome and Prof. Kam Hon Chu, Memorial University of Newfoundland, Canada. Their contributions are gratefully acknowledged. I wish to place on record my highest regards to all the members of the Board, eminent professors who are from all over the World and in particular, to respected Laureates - Professors Paul A. Samuelson, Rober M.Solow and L.R.Klein.

It is the greatest fortune of IJAEE that Prof. Paul A. Samuelson wrote the 'Foreword' from which we came to know many facts which are not known to the academic world and this would add to economic history. I am extremely greatful to respected professor for sending this 'Foreword' which has made me very happy.

I now humbly submit this work in memory of Prof. Franco Modigliani to the economics fraternity.

Bangalore,India.                                                   K.Puttaswamaiah          
                                                                        June 2006 Editor-in-Chief

Foreword by Paul A. Samuelson                                              vii
Preface                                                                                     xi
Contributors                                                                            xiii
I. K.Puttaswamaiah,
Franco Modigliani - His Life and Contributions                           1
II. Marc D. Hayford, The Legacy of Franco
Modigliani's Life - Cycle Model                                                  29
III. Andrea Micocci, Modigliani, Economics, Italy                       51
TV. Kam Hon Chu, The Economics of Free Banking :
A Survey                                                                                  61
Puttaswamaiah, Annex I, List of Life
Time Contributions of Franco Modigliani                                  93

This book in memory of Franco Modigliani the Nobel Laureate and former Member ofEditorial Advisory Board of IJAEE, is the result and synthesis of many papers published in the International Journal of Applied Economics and Econometrics. Reader would get benefits from the introductory chapter by the editor and the list of contributions prepared by the editor with great difficulty. The book is completed by interesting papers, one concerning relation of
F.Modigaliani to Italian economy and— Berlusconi, another on the economics of free banking and last presentation of a still unknown predecessor of input-output analysis, M.Potron.

An excellent book concerning analysis and legacies of this Nobel laureate due to the initiative of Dr.K.Puttaswamiah which will be of great interest for academicians, scholars and students of economics.
                          - Gilbert Abraham Frois University of Paris, Nanterre, France.

This book continues the tradition by Dr.K.Puttaswamaiah of honouring the Nobel Laureates, in this case Professor Franco Modigliani. The book represents a good collection of articles focusing on the life and contributions and the impact on economic science of Professor Franco Modigliani.
                         - Bala Batavia DePaul University, USA.
This issue on Modigliani demonstrates his autonomous originality and his breadth in economic research-indeed he was described as a 'complete, horizontally and vertically ntegrated, economic research system'. In the chapter by Marc Hayford on the life-cycle model, Modigliani's work is regarded as an example of economic science at its best. This model has spawned an incredibly rich empirical legacy which has vastly increased our understanding of saving and consumption. The chapter by Andrea Micocci shifts our attention away from theory to policymaking in Italy to which Modigliani was actively involved-especially in issues relating to the Euro, the European Union and the role of the Central Bank. It provides a provocative account of Italian politics and the constraints on the economic scientist in the policy realm. The editor of IJAEE must be congratulated for bring out this book on Modigliani-a giant contemporary economist.
                      - John Lodewijks University of New South Wales, Australia.
I am greatly impressed by the collection of papers in the package 1 know that it must have been a Herculean task to complete this work in which you have eminently succeeded.                                                                                               - Prof. Warren Hogan UTS, Sydney, Australia