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Franco Modigliani, 85, MIT teacher, Nobel laureate in economics

Franco Modigliani found simplicity in complex economic systems, from the stock market to personal savings, and taught them to generations of students at the Massachusetts Institute of Technology.

Dr. Modigliani, who was awarded the 1985 Nobel Prize in economics, died overnight yesterday at his Cambridge home. He was 85.

"He was the greatest living macroeconomist," Paul Samuelson, a fellow Nobel laureate and professor emeritus at MIT's Alfred P. Sloan School of Management, said in a statement. "He revised Keynesian economics from its Model-T, Neanderthal, Great Depression-model to its modern-day form."

"He could have gotten a Nobel Prize for several different subjects," Samuelson added later.

Wall Street is filled with people who studied under Dr. Modigliani during his 40-year career at the Sloan School. Nobel laureate Robert Merton, the 1997 winner, was once a student.

"Franco was a giant among economists and played a decisive role in the intellectual development of corporate finance," Dean Richard Schmalensee of the Sloan School said in a statement yesterday. "His legendary enthusiasm and intensity never flagged. He inspired generations of students and colleagues with his passion for using economics to benefit society."

Dr. Modigliani and one of his students, Richard Brumberg, were awarded the Nobel Prize for their analysis of personal savings, known as the life-cycle theory. The two asserted that individuals save money during the early part of their working lives to build up savings to be consumed in their own old age -- not to pass wealth along to their children, as Milton Friedman and other economists suggested. The theory helped explain different rates of saving in societies with relatively older or younger populations, and proved useful in predicting the behavior of various types of pension plans. Dr. Modigliani also conducted research on financial markets with fellow Nobel laureate economist Merton H. Miller. The Modigliani-Miller theorems, proposed in 1958, hold that the market value of a stock depends primarily on expectations of what the company will earn in the future. By the 1970s, the techniques Dr. Modigliani developed for calculating the value of expected future earnings became a basic tool in corporate decision-making and finance.

Partnerships with other economists were a Modigliani trademark -- almost all his work was done jointly. Late in his life, he completed a project on measuring risks and returns of mutual funds with his granddaughter Leah Modigliani, a vice president at Morgan Stanley in New York.

"I am a believer in cooperation. Basically, I have so many things I can't do them all, so I give some of them to others," Dr. Modigliani said in a 2002 interview. "At the moment, I have about half a dozen papers that are unfinished that I'm trying to put together."

Born in Rome to Enrico Modigliani, a pediatrician, and Olga (Flaschel), a social worker, Dr. Modigliani studied at the University of Rome and the Sorbonne, earning a doctor of jurisprudence degree from the former.

As a young Jewish Italian, Dr. Modigliani fled Mussolini's persecution in 1939 with his wife, Serena (Calabi), whom he met through his involvement with student anti-Fascist activists in the early 1930s. In the United States, he sold books while studying at the New School for Social Research in New York, where he earned a doctorate in economics.

In the late 1940s, Dr. Modigliani landed on the economics map with a paper on John Maynard Keynes. In the 1950s, he was part of a circle of economists and mathematicians at the Carnegie Institute of Technology (now Carnegie-Mellon University) that included John Nash, Herbert Simon, and William Cooper. Both Nash, the subject of the movie "A Beautiful Mind," and Simon would later be Nobel laureates.

Dr. Modigliani taught at several universities before joining the faculty at MIT in 1962.

He was also a consultant for many years to the Federal Reserve System, the US Department of the Treasury, the Bank of Spain, and the Bank of Italy.

In his later years, he took public stands on economic policy issues, especially Social Security policy. "He has the perfect Social Security program, if only the fools out there would listen to him," Samuelson said in a 2002 Globe interview.

Dr. Modigliani recounted his life story and his views on economics in a 2001 autobiography, "The Adventures of an Economist." A year later, he told the Globe that economics should be seen as a science.

"People confuse economists and economic policy," he said. "Economists agree about economics -- and that's a science -- and they disagree about economic policy because that's a value judgment . . . I've had profound disagreements on policy with the famous Milton Friedman. But, on economics, we agree."

In his spare time, Dr. Modigliani loved sailing and traveling all over the world on business, especially to Europe and China.

"He was a vivacious person with a great sense of humor," his daughter-in-law Suzanne, of Brookline, said yesterday.

Last year, Samuelson recalled a conversation he had with Dr. Modigliani: "Who is the most famous Italian economist?" Samuelson had asked. "And he said, `I don't know, it doesn't matter.' And I said, `What? Not Franco Modigliani?' And he said, `No, he's the most famous economist in the world."

Dr. Modigliani had his down-to-earth side, too. The day he was awarded the Nobel, worth $225,000, he and Samuelson played doubles on the tennis court.

In addition to his wife, a Cambridge resident, and granddaughter, Dr. Modigliani leaves two sons, Andre of Ann Arbor, Mich., and Sergio of Brookline; three other grandchildren; and three great-grandchildren.

The funeral and burial are private. MIT is planning a memorial service.

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