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  • Franco Modigliani as "American" Keynesian:How the University in Exile Economists Influenced Economics
  • Harald Hagemann (bio)

I had the great luck of being awarded a free tuition fellowship by the Graduate Faculty of Political and Social Science of the New School for Social Research … as I was discovering my passion for economics, thanks also to excellent teachers, including Adolph Lowe and above all Jacob Marschak, to whom I owe a debt of gratitude beyond words.

(Modigliani 1985, 1–2)


"Franco Modigliani was a Keynesian, his own kind of Keynesian," wrote Robert M. Solow (2005, 16), a longtime friend and Massachusetts Institute of Technology colleague of Modigliani. Solow noted that "it is a little amusing" that the founders of American Keynesianism "include an Englishman [John Hicks], a refugee from Poland [Oskar Lange] and a refugee from Italy [Franco Modigliani], along with a handful of Americans, like Samuelson, Tobin and Solow." Solow continued, "Franco and I shared the opinion that Keynes was the most important economist of the twentieth century, and The General Theory [of Employment, Interest, and Money under the Assumptions of Flexible Prices [End Page 955] and of Fixed Prices] the single most important work" (Solow 2005, 11). Paul A. Samuelson, also an MIT colleague of Modigliani, notes that the "triumphant rise of American economics after 1940 was enormously accelerated by importation of scholars from Hitlerian Europe" (1988, 319; see also Hagemann 2011).

This essay is an effort to gauge the influence of New School economists—all refugees themselves—on the thinking of another refugee economist, Franco Modigliani, winner of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1985 for his work in macroeconomic theory. Modigliani arrived in the United States with his wife Serena on August 28, 1939, four days before the outbreak of World War II. By that time he had already received his degree of Juris Doctor from the University of Rome and had won a nationwide competition for an essay on price controls; the prize had been handed to him by Mussolini in person in 1936 (see Modigliani 2001, 9ff). He had acquired his knowledge on the subject by translating articles from German publications, in which it had become a main topic after the Nazis introduced wage and price controls. Modigliani, whose aversion to fascism began with the war in Ethiopia, spent most of the academic year 1938–39 at the Sorbonne in Paris after the Mussolini government, in September 1938, launched racial laws according to which Jewish professors, such as Marco Fanno in Padova, were dismissed from their universities.

The general question of the influence of refugees on each other's thinking has already been raised. Samuelson pointed to the role of the New School in forming Modigliani's thought: "Indeed at the New School in New York by great luck he tied in with Jacob Marschak and Hans Neisser, themselves gifts from Hitler to American science" (Samuelson 2005, 5). Still, we often think of the New School tendencies as unorthodox and politically on the left. And they generally were. But in this instance, Modigliani came under the influence of the New School refugee economist with the most impressive career in American economics. The result of this influence is a largely neoclassical synthesis of Keynes. Although Modigliani explicitly introduced [End Page 956] the labor market in his analysis, in 1944 his focus was not on the wage-employment relationship but on the monetary aspects of unemployment. He clearly favored an expansion in the quantity of money as the alternative route to increasing employment, eliminating a drop in the price level as the "only objectionable consequence of wage cuts" (Samuelson 2005, 75).

Concerning economic policy, Modigliani was widely in agreement with Keynes and with the contributions made by his teachers at the New School to the German debate on the wage-employment relationship during the Great Depression. Like Keynes, Modigliani also considered wage rigidity to be mainly the result of historical and institutional factors. But Modigliani insisted that the Keynesian conclusions on the persistence of long-term unemployment were fundamentally the consequence of downward rigidity of nominal wages, decisive for the collapse of the classical dichotomy. He stuck to...


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