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Franco Modigliani

Institute Professor Emeritus Franco Modigliani passed away in sleep on Friday. He was 85.

In 1985, he and his student Richard Brumberg received the Nobel Memorial Prize in Economic Science for his life-cycle hypothesis, which he developed at the Carnegie Institute of Technology, now Carnegie Mellon University. Modigliani and Brumberg disagreed with previous theories that people saved money only if they were rich, or in other words, if they had money available to save. Modigliani argued the opposite, and theorized that people save early on in their lives and become wealthier as a result. Then, in old age, they spend the wealth that they have accumulated.

With Merton H. Miller, he also showed that heavy debt by itself does not affect a corporation’s value, and disproved a previous hypothesis that too much debt would ruin a company because the company would not be able to repay it.

“He was the greatest living macroeconomist,” Professor Emeritus Paul A. Samuelson told The Boston Globe. “He could have gotten a Nobel Prize for several different subjects.”

“Franco was a giant among economists and played a decisive role in the intellectual development of corporate finance,” Dean Richard Schmalensee ’65 of the Sloan School of Management said in a statement. “His legendary enthusiasm and intensity never flagged. He inspired generations of students and colleagues with his passion for using economics to benefit society.”

Modigliani was a member of the National Academy of Sciences and the American Academy of Arts and Sciences.

He joined MIT in 1960 as a visiting professor. He taught at MIT for 28 years until his retirement in 1988. He continued to teach a course each spring, according to the Times.

He is survived by his wife, two sons, four grandchildren, and three great-grandchildren, the News Office said in a statement. MIT is planning a memorial service.