Merton Miller Early Life and Education Theorem Accomplishments
Merton Miller: Early Life and Education, Theorem, Accomplishments
Merton Miller was an American economist, professor, and author. He developed the Modigliani-Miller theorem and received the Nobel Prize in economics in 1990 for his contributions to corporate finance.
Miller authored books such as "Merton Miller on Derivatives" and "Financial Innovations and Market Volatility." He passed away on June 3, 2000.
Key Takeaways:
– Miller co-developed the Modigliani-Miller theorem with economist Franco Modigliani.
– He received the Nobel Prize in economics in 1990.
– Miller taught economics at the Carnegie Mellon Graduate School of Industrial Administration and the University of Chicago.
Early Life and Education
Merton Miller was born in Boston, Massachusetts on May 16, 1923. He obtained a bachelor’s degree from Harvard University in 1944 and a Ph.D. from Johns Hopkins University in 1952. During World War II, Miller served as an economist for the federal government in the Division of Tax Research of the U.S. Treasury Department and later in the Division of Research and Statistics of the Board of Governors of the Federal Reserve System (FRS).
Miller began his academic career as a guest lecturer at the London School of Economics before joining the faculty at Carnegie Mellon’s Graduate School of Industrial Administration. In 1961, he became a professor at the University of Chicago, where he remained until his retirement.
Modigliani-Miller Theorem
Throughout his career, Miller focused his research on corporate finance and the economic and regulatory issues of the financial services industry.
While at Carnegie Mellon, Miller collaborated with economist Franco Modigliani, and together, they published the first of their joint "M&M" papers on corporate finance in 1958. The basis of their work, "The Cost of Capital, Corporate Finance and the Theory of Investment," formed the Modigliani-Miller theorem. The theorem was further developed by others and gained significant recognition. Carnegie-Mellon University was known for its curriculum in behavioral economics, and Miller and Modigliani embraced the problem-solving approach encouraged there.
The Modigliani-Miller Theorem, published in 1958, states that the financing mix of a company (equity and debt) is irrelevant to the firm’s value. Miller explained his theory using an analogy from Yogi Berra, a baseball catcher, who once humorously asked for his pizza to be cut into 12 pieces instead of six. This highlights the theorem’s idea that a firm’s value is independent of its financing structure, just as the size of a pizza remains the same regardless of how it is sliced.
Notable Accomplishments
In 1990, Merton Miller received the Nobel Prize in economics for his pioneering work in financial economics and his contribution to the Modigliani-Miller Theorem.
Even in retirement, Miller remained active in researching and addressing problems related to corporate finance. He served as a public director on the Chicago Board of Trade and the Chicago Mercantile Exchange. In 1995, the NASDAQ hired him as a consultant for a research project on price-fixing.
Who Influenced Merton Miller?
Miller was influenced by economists Milton Friedman, Theodore Schultz, and George Stigler. He considered himself an advocate for free-market solutions to economic problems.
How Has Merton Miller Influenced Corporate Dividend Policy?
Miller and Modigliani’s 1961 paper, "Dividend Policy, Growth, and the Valuation of Shares," argues that investors do not consider a company’s dividend history when evaluating its value, demonstrating the irrelevance of dividend policy.
How Has Merton Miller’s Books Influenced College Students?
Miller’s textbook, "Macroeconomics: A Neoclassical Introduction," co-authored with Charles Upton, is widely used in business curricula and universities.
The Bottom Line
Merton Miller’s contributions to the theory of corporate finance are highly regarded. The Modigliani-Miller theorem has had a significant impact on the study of corporate valuation. Miller’s publications and texts continue to be widely used in academia today.
