What contribution did Frank Franco Modigliani make to economics?

19 18 June18, Frank Franco Modigliani was born in a Jewish family in Rome, Italy. He entered the University of Rome two years earlier when he was 17 years old. In the second year, he participated in the National College Student Thesis Competition on Price Control in Economics organized by the student group Park Jung Su Ruili. This paper won the first prize.

In addition to winning the prize, Franco Modigliani also got something more valuable, that is, he determined the direction of studying economics. The assessor who evaluated the Franco modigliani Prize suggested that he would become an excellent economist if he devoted himself to this field. 1in June, 936, he obtained the doctor of law degree from the University of Rome.

Soon, in view of the prospect of a bloody war in Europe, Franco Modigliani and his wife applied for an immigrant visa from the United States and arrived in new york in August a few days before the outbreak of World War II. 1939.

The war made them think that their stay in America would be long. Therefore, he immediately began to think about how to best pursue a career in economics. He was lucky enough to get a scholarship from new york Institute for New Social Studies. In this way, from the autumn of 1939 for three consecutive years, he sold European books every day and studied from 6 pm to 10. He works hard, on the one hand, to maintain the needs of family life, because they will have their first child soon; On the other hand, focus on the economics he loves.

Marczak also invited franco modigliani to attend the informal seminar held in new york from the end of 1940 to the beginning of 19465438. Participants included A Wald, T Kupmans and O Langer, and this experience provided experience for his future development.

194 1 year, Marczak left the new college for the University of Chicago, and Franco Modigliani's trial training was terminated. From 65438 to 0942, when franco modigliani was a graduate student, Marchak helped him get his first teaching position in New Jersey Women's College. This work provided Franco Modigliani with the funds he needed to concentrate on his research.

1944, the Institute for New Society awarded Franco Modigliani a doctorate in social science. In the same year, franco modigliani's first paper, liquidity preference theory of Interest and Money, was published in the influential Journal of Econometrics, which was basically the essence of his doctoral thesis. This paper unifies Keynes's "revolution" with the mainstream of classical economics, and is generally regarded as a complete break with the past. From 65438 to 0944, this paper was widely accepted by academic circles and soon became a classic document of Keynesian economics.

From 65438 to 0942, Franco Modigliani worked as a lecturer in economics and statistics at Balde College, which was then the residential college of Columbia University. This gives franco modigliani a chance to experience the unique quality of life on American university campuses, especially to establish close relationships with top students. From 65438 to 0944, Franco Modigliani returned to the new college as a senior lecturer and worked as an associate researcher at the Institute of World Affairs in new york, where he was in charge of a research project with Hans Nair. The results of this study were finally published in National Income and International Trade. During this period, franco modigliani also wrote his first paper on savings research, which was later famous for the Dusenberg-Franco modigliani hypothesis.

1946, Franco Modigliani's application for American citizenship was approved and he became an American citizen. 1In the autumn of 948, Franco Modigliani won the prestigious political economy scholarship of the University of Chicago, and was hired as a research consultant by the leading economic research committee at that time, so he left new york. Shortly after arriving in Chicago, he accepted a desirable position at the University of Illinois: director of the research project "Expectations and Business Fluctuations". However, during the whole school year from 1949 to 1950, he stayed in Chicago and benefited a lot from his participation in the work of the Cowles Committee. A year later, he was promoted to be a professor at the University of Illinois, where he worked until 1952 was transferred to Carnegie Institute of Technology. However, Franco franco modigliani continued to contact the Cowles Committee until 1954. At that time, he established his position as an economist through several groundbreaking papers and a book entitled National Income and International Trade (1953). This book attempts to describe Keynesian econometric theory in an open economy and answers 60 behavioral questions. The parameters of the model are also calculated by using time series data. This is one of the early works of econometrics.

From 1955, franco modigliani became a member of the Department of Economics and Industrial Management of Carnegie Institute of Technology. Like many colleagues in the institute, he is increasingly focusing on the field of enterprise economics. He worked at Carnegie until 1960. This period has been fruitful. During 1957- 1958, Franco Modigliani was a visiting professor of economics at Harvard University. At the same time, he wrote a masterpiece about corporate finance theory. At this time, he and merton miller jointly published Capital Value and Corporate Finance and Investment Theory, which were published in American Economic Review (1958). The theory put forward in this paper is one of the pillars of this novel theory.

1960, Franco Modigliani became a visiting professor at MIT. Since then, he has stayed there until now, except for taking a year off to go to Northwest University. With the support of this unique college and its incomparable colleagues, franco modigliani continued to develop his early interest in macroeconomics, including criticism of monetarist position, induction of financial mechanism and empirical test of life cycle hypothesis. He also led his interest to new fields, such as international finance and international payment system, the consequences and governance of inflation, the stability policy of an open economy with a wide range of indicators, and various fields of finance, such as credit rationing, term structure of interest rates and evaluation of speculative assets.

In the late 1960s, franco modigliani presided over the design of a large-scale American economic model, namely the MPS model (M refers to MIT, P refers to the University of Pennsylvania, and S refers to the Social Science Research Association) funded by the Federal Reserve Bank and still used by it. He has both Italian enthusiasm and American easygoing, and is a likable speaker and excellent lecturer. Although his works are mainly about American economy, he has always been concerned about his motherland and has written many papers about Italian economy in Italian.

Franco modigliani won the 1985 Nobel Prize in Economics for his "creative research on household savings and enterprise financing activities".

Franco modigliani's main contribution to economics is that in 1950s, he put forward the life cycle hypothesis in consumption function theory together with American economists RichardBrumberg and Ando. This hypothesis is based on the theory of consumer behavior, and puts forward that human consumption is to maximize the utility of life. In other words, people are rational. In order to have a stable living standard and maximize the total utility of their lives, they can't decide their consumption expenditure according to the absolute level of their current income, but according to the income and property they can get in life. Therefore, people will allocate all the income and property they expect at present and in the future to all periods of life according to a certain proportion. In different periods of everyone's life, there are different relationships between consumption expenditure and income level. During working hours, income is greater than consumption; After retirement, income is less than consumption. From the whole society, the relationship between income and consumption is stable. This hypothesis is an important development of Keynes's absolute income hypothesis. It has been proved by statistics and widely accepted. Another contribution of Franco Modigliani is that he and American economist M miller jointly put forward the company's capital cost theorem, namely "Franco Modigliani-Miller Theorem". This theorem puts forward a new viewpoint to analyze the relationship between capital structure and capital cost under uncertain conditions, and develops the investment decision theory on this basis. The basic content of this theorem is that under the conditions of uncertainty and risk, the cost of capital is the ratio of the expected return of capital to the market value of capital. Company capital is divided into equity capital and borrowed capital. From this, it is concluded that enterprises will invest only when the return on investment is greater than or equal to the cost of capital. It is not the interest rate level that determines investment, but the cost of capital. Whether to increase equity capital or borrow capital does not affect the cost of capital, so it does not affect investment decisions. This theory has guiding significance to the national investment regulation and enterprise investment decision-making from a macro perspective, and has become the basis of modern corporate finance theory.

According to the "psychological law" put forward by Keynes in 1936, when people's income increases, their savings will also increase. Therefore, Keynes believed that during the period of economic growth, the share of total savings in national income increased steadily.

This famous law found a basis in the empirical observation data of savings of different income groups, and was generally accepted by his contemporaries. However, in 1942, simon Kuznets pointed out that the Keynesian theory contradicted the statistical data: in the United States, although personal income increased greatly, the share of savings in national income did not prosper for a long time. This contradiction was regarded as a paradox and soon became the research object of many economists. One of the research results, published in 1954, is a brand-new family savings theory proposed by franco modigliani and his student Richard brumberg: the life cycle hypothesis.

This theory develops Keynes's absolute income consumption theory and provides a guide for estimating the functions of different types of retirement annuity systems. The Swedish Academy of Royal Sciences pointed out that this theory "has become an effective tool to analyze the functions of various retirement pension systems" and praised it as "a great contribution to economics".

The life cycle hypothesis comes from a simple fact. People generally use the wealth that can be used for consumption on average in their lives. They have accumulated enough money in a few years when they can make money, so that they can continue to maintain the same consumption level after retirement. This hypothesis derives many conclusions quite different from Keynes through strict mathematical form. For example, a person's savings depend not only on his income, but also on his wealth, his expected future income and his age. This hypothesis also provides a possible and reasonable explanation for the Keynes-Kuznets paradox.

The life cycle hypothesis was originally aimed at the theory of individual savings behavior, and later franco modigliani extended it to the total household savings. To sum up, this theory should include the following aspects: First, savings is not determined by the family income level as mentioned above, but by the rate of increase of income level. Second, savings are influenced by population growth rate and population age structure. Third, because savings are influenced by total wealth, they are also influenced by interest rates as capitalization factors. Fourthly, the multiplier effect of the increase of independent expenditure is close to the inverse value of marginal tax rate.

Another contribution of Franco Modigliani is to clarify the theorem of company and capital cost under uncertain conditions, that is, Franco Modigliani-Miller theorem. Its central content is: assuming that the financial market is in a perfect operation and equilibrium state, then the market value of a company-defined as the sum of the market values of its share capital and liabilities-has nothing to do with the scale and structure of its debt, and in this case, the average cost of capital has nothing to do with its debt. In addition, given the investment policy, the value of the company has nothing to do with its dividend policy.