Intellectuals & Academics » Economists » MERTON H. MILLER
|Full name||: Merton H. Miller|
|Alias||: Merton H. Miller|
|Animals||: The Pig|
|Father||: Joel Miller|
|Mother||: Sylvia Miller|
|Wife||: Eleanor Miller (d. 1969), Katherine Miller|
Nobel Prize recipient Merton Howard Miller contributed immensely in economic science. In terms of work, his biggest achievement was the Modigliani-Miller theorem, which he developed with fellow professor Franco Modigliani. In this pioneering work, he proposed the irrelevance of debt-equity structure. One of the ‘defining beacons’ of modern finance, Miller was a staunch supporter of free markets. After graduating from Harvard University, Miller went on to work as an assistant lecturer in London School of Economics and Political Science. In the following years, he published his groundbreaking work called ‘Merton Miller on Derivatives’, where he shared his overview on derivatives. Before becoming a professor in Chicago’s leading business school, this famous economist acquired his Ph.D. in economics at the John Hopkins University. With more than 50 years of diverse and innovative research in the area of finance and financial economics, Miller has been a role model to students, practitioners of economics, finance and business, and policymakers for market regulation. To learn more about the works and life of Merton H. Miller, explore the biography below.
After receiving his bachelor’s degree in 1943, Miller worked as an economist in the Treasury Department and the Federal Reserve, during World War II. Nine years later, in 1952, Merton acquired his Ph.D. in Economics from the John Hopkins University. He chose this particular institution because Fritz Machlup, the then leading economist, was part of the teaching faculty. Owing to his excellence in the field of active research in finance, his first academic appointment was in the London School of Economics as a visiting assistant lecturer.
In 1958, Miller collaborated with his colleague, Frank Modigliani, from the Carnegie Institute of Technology, now called Carnegie Mellon University. Together, they compiled a paper on ‘The Cost of Capital, Corporate Finance and the Theory of Investment’, which objected to the traditional view of corporate finance, i.e. a corporation can reduce its cost of capital by finding the right debt-to-equity ratio. Instead, the Modigliani-Miller theorem (M&M theorem) re-instated that there is no right ratio and managers must decrease tax liability and increase corporate net wealth. This would, in turn, facilitate debt ratio chips fall. Modigliani achieved an award for his life-cycle model of saving in 1985, while Miller continued to simplify this principle insight. He said that the firm can be compared to a tub of whole milk. The farmer can either sell it as it is or separate the cream from the liquid and sell it at a higher price (analogy made to firm selling debt securities paying a contractual return). If this is the case, then the milk would be skimmed milk (pertains to levered equity) with a low fat content and sell for less than the whole milk. In short, the theorem says that if there were no cost of separation, then the cream and the skimmed milk would be the same price as the whole milk itself.
Following this marvellous proposition, in 1961, Miller became a professor at the Graduate School of Business, University of Chicago. It was during this time that Miller began writing and co-authoring books and had eight of them published under his name. From 1966-1967, Merton worked as a Professor of Economics in the University of Louvain, Belgium.
This well-renowned economist became a Fellow of the Econometric Society in 1975. One year later, Miller was appointed the President of the American Finance Association. Miller was the Public Director on the Chicago Board of Trade between 1983 and 1985. His research interests shifted towards the economic and regulatory problems of the financial services industry such as the securities and options exchanges. He joined the Chicago Mercantile Exchange as the Chairman of the academic panel for a post-mortem report on the Crash of October 19-20 in 1987. In 1990, Miller became the Public Governor of the Chicago Mercantile Exchange. During the course of his career, Miller proclaimed to be an activist supporter of free-market solutions to economic problems, just like laureates such as Milton Friedman (1976), Theodore Schultz (1979) and George Stigler (1982).
In 1990, due to his commendable contribution in the theory of financial economics, Merton H. Miller together Harry Markowitz and William Sharpe was honored with the Nobel Memorial Prize.
He was a part of the University of Chicago until his retirement in 1993, although he continued teaching even after that. It was believed that Miller’s theories and had a strong influence in changing the Wall Street and investment habits in America.
‘Built-In Flexibility’ co-authored with R. A. Musgrave in 1948.
‘An Income Effect of Changing Interest Rates’ co-authored with M. I. White in 1951.
‘A Model of Optimal Programming of Railway Freight Train Movements’ co-authored with A. Charnes in 1956.
‘Mathematical Programming and the Evaluation of Freight Shipment Systems’ co-authored with A. Charnes in 1957.
‘The Cost of Capital, Corporation Finance and the Theory of Investment’ co-authored with F. Modigliani in 1958.
‘An Application of Linear Programming to Financial Budgeting and the Costing of Funds’ co-authored with A. Charnes and W. W. Cooper in 1959.
‘The Carnegie Tech Management Game’ co-authored with K. Cohen et al. in 1960.
‘Dividend Policy, Growth and the Valuation of Shares’ co-authored with F. Modigliani in 1961.
‘Corporate Income Taxes and the Cost of Capital: A correction’ co-authored with F. Modigliani in 1963.
‘The Corporation Income Tax and Corporate Financial Policies in 1963.
‘Horizon Rules for a Class of Stochastic Planning Problems’ co-authored with A. Charnes and J. Dreze in 1966.
‘Some Estimates of the Cost of Capital in the Electric Utility Industry’ co-authored with F. Modigliani in 1966.
‘A Model of the Demand for Money by Firms’ co-authored with D. Orr in 1966.
‘A Model of the Demand for Money by Firms: Extensions of Analytical Results’ co-authored with D. Orr in 1968.
‘The Theory of Finance’ co-authored with E. F. Fama in 1972.
‘Macroeconomics: A Neoclassical Introduction’ co-authored with C. Upton in 1974.
‘Leasing, Buying and the Cost of Capital Services’ co-authored with C. Upton in 1976.
‘Debt and Taxes’ in 1977.
‘An Approach to the Regulation of Bank Holding Companies’ co-authored with F. Black and R. A. Posner in 1978.
‘The Stochastic Properties of Velocity and the Quantity Theory of Money’ co-authored with J. P. Gould, C. R. Nelson and C. Upton in 1978.
‘Prices for State-Contingent Claims: Some Estimates and Applications’ co-authored with R. Banz in 1978.
‘Dividends and Taxes’ co-authored with M. Scholes in 1978.
‘Dividends and Taxes: Some Empirical Evidence’ co-authored with M. Scholes in 1982.
‘A Test of the Hotelling Valuation Principle’ co-authored with C. Upton in 1985.
‘Dividend Policy under Asymmetric Information’ co-authored with K. Rock in 1985.
‘Behavioral Rationality in Finance: The Case of Dividends’ in 1986.
‘Economic Costs and Benefits of the Proposed One-Minute Time Bracketing Regulation’ co-authored with S.J. Grossman in 1986.
‘Financial Innovation: The Last Twenty Years and the Next’ in 1986.
‘Liquidity and Market Structure’ co-authored with S.J. Grossman in 1988.
‘The Modigliani-Miller Propositions after Thirty Years’ in 1988.
‘Margin Regulation and Stock Market Volatility’ co-authored with D. Hsieh in 1990.
‘The Crash of 1987: Bubble or Fundamental?’ in 1990.
‘Autobiography’ in 1990.
‘Financial Innovations and Market Volatility’ in 1991.
‘Leverage in 1991.
‘Tax Obstacles to Voluntary Corporate Restructuring’ in 1991.
‘Financial Innovation: Achievements and Prospects’ in 1992.
‘Index Futures and Market Volatility: What Does the Evidence Show?’ in 1992.
‘Index Arbitrage: Villain or Scapegoat’ in 1992.
‘Are the Discounts on Closed-End Funds a Sentiment Index?’ in 1993.
‘Is American Corporate Governance Fatally Flawed?’ in 1994.
‘Functional Regulation’ in 1994.
‘Metallgesellschaft and the Economics of Synthetic Storage’ co-authored with C. L. Culp in 1995.
‘Do the M&M Propositions Apply to Banks?’ in 1995.
‘Merton Miller on Derivatives’ in 1997.
‘Clustering and Competition in Asset Markets’ co-authored with S. J. Grossman, K. R. Cone, D. R. Fischel and D. J. Ross in 1997.
‘The M&M Propositions after 40 Years’ in 1998.
‘Value at Risk: Uses and Abuses’ co-authored with C.L. Culp and A. Neves in 1998.
‘The Derivatives Revolution After Thirty Years’ in 1999.
‘The History of Finance’ in 1999.
Born in Boston, Massachusetts on May 16, 1923, Merton Miller was born to Joel and Sylvia Miller. His father was an attorney and a graduate from Harvard University. Merton followed his father’s footsteps and enrolled in Harvard in 1940. Here, he studied economics and not law. Miller’s classmate was Robert M. Solow, a noted laureate of economic sciences.
Merton Miller was married to Eleanor and they had three daughters, namely Pamela Chwedyk (1952), Margot Horn (1955) and Louise Lorber (1958). After his first wife’s death in 1969, Miller married a woman named Katherine. His daughters, grandsons, his wife and he lived in a townhouse in Hyde Park. He also owned a working farm in Woodstock, Illinois. In his spare time, Miller indulged in bush cutting and gardening.