A MAGNETIC PROFESSOR'S RICH, CONNECTED LIFE IN ECONOMICS

Author: Date: Wednesday, October 16, 1985
Page: 13
Section: NATIONAL/FOREIGN

"It means either 'great creator' or 'great destroyer,' but it's not clear which," he said.

The point was that while Modigliani's career exhibited both remarkable versatility and unusual duration - four decades since his first important paper - his most striking gift was an ability to remain in nearly constant connection with views of those around him. Whether creating new ways of seeing or combatting them, Modigliani has led a rich, dense life in economics.

For example, when the Nobel Prize committee yesterday cited MIT's Modigliani for two major contributions - his life-cycle savings hypothesis and his work on corporate finance - he wanted to talk about a third, his work in the role of expectations in economic life.

He has been a leading voice in the controversy that has dominated technical economics for more than 20 years, the clash between the Keynesians, who emphasize failures of markets, and the New Classicals, who tend to see only their successes.

Indeed, the University of Rochester's Robert Barro yesterday fondly recalled that it was in Modigliani's classroom that Barro first began to form the views that have become the main - indeed the only - intellectual underpinning of the Reagan admininstration's view that big deficits are not really very important.

Barro said, "He talked in the first class I had with him in 1969 a bit about the life-cycle model and what would happen if you add into it bequests and other concerns across generations. His view, as I recall, was that it was OK, but it wouldn't make a lot of difference to your conclusions."

"If you accept that the typical person was concerned with their children, though, you sort of gave up the whole ballgame," Barro continued. "If taxes fall on your children rather than yourself, it's the same thing to you,
because you care about your children. It's as if people lived forever, and you no longer get the obvious real effects of deficits on savings or interest rates."

This was the same Barro whose views Modigliani denounced as ''preposterous" in a high-spirited press conference called to mark his receipt of the 1985 Alfred Nobel Memorial Prize for economics, and the debate will continue as before. But it will never again be quite the same for Modigliani, an unreconstructed Keynesian of liberal views who has nevertheless managed to keep up with the changing times in an era of surging technical sophistication.

Nor has he been in any sense an ivory-tower economist. Peter Diamond, chairman of MIT's economics department, yesterday pointed out that it was Modigliani who took five years to build the large-scale model of the US economy that the Federal Reserve System still uses to gauge the expected effects of policy.

Yesterday, colleagues sifted through the details of a successful life in science: He has no book of his own, for instance, but a three-volume edition of his collected papers has been published. Modigliani once told author Arjo Klamer that he is accustomed to putting three hours in his study after supper; he lives in Belmont; he is habitually late to class.

An avid skier and tennis player, Modigliani once hit on the idea for a paper while volleying with Paul Samuelson. Yesterday, he said he might spend part of his Nobel award, which is expected to come to about $225,000, on upgrading his little laser-class sailboat.

Modigliani came to America in 1939, by way of Paris, where he married his wife Serena. His parents were a doctor and a child-development specialist, and he is no relation to the painter of the same name. In Italy, he studied law. In America, he took out citizenship. It was only at the New School for Social Research in New York that he took up economics, in a seminar frequented by Jacob Oskar Lange, Tjalling Koopmans, Abba Lerner and Abraham Wald.

His first major paper, published in 1944, is still a standard citation in monetary theory; he published his major breakthrough on the life cycle in 1954; his pioneering work on the efficiency of financial markets came out in 1961. He taught at Carnegie Tech in Pittsburgh through most of the 1950s, and switched briefly to Northwestern University, before coming to MIT in 1962. Yesterday Samuelson credited Modigliani and his colleagues with having made ''tens of millions" for the school's endowment through canny investment advice.

Throughout his career, Modigliani remained in close touch with the Italian political scene, where he enjoys a popular celebrity far beyond his American fame. He writes for a leading news magazine, advises politicians and the central bank, and has brought a series of remarkable Italian students to MIT, causing the magnetic pole of Italian economics to switch from Cambridge, England, where Piero Sraffa held sway, to Cambridge, Mass.

Indeed, yesterday it was his personal style, not his theoretical achievements, to which economists returned again and again. For example, John Bossons of the University of Toronto, an early collaborator, said, "He is a very enthusiastic advocate and has inspired a lot of people."

At the celebration on Martha's Vineyard last month, Modigliani surveyed with satisfaction the work of young collaborators, now pushing the frontiers of the life-cycle method towards its limits, and said, "All my students have outdone me in rigor, but this is perhaps not too hard." But he added, "I think there are a few things in economics that I can do that the average guy cannot do, not even in his gut."

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