Merton Miller

Background

Merton Miller was born on May 16, 1923, in Boston, Massachusetts, United States. He was a son of Sylvia Miller, a housewife, and Joel Miller, an attorney.

Education

Miller attended Harvard University, where he received a Bachelor of Arts degree in 1944. Later, in 1952, he graduated from Johns Hopkins University with a Doctor of Philosophy degree.

Career

In 1944-1949, Merton held the post of an economist in the division of tax research of the United States Department of the Treasury. After receiving his doctorate from Johns Hopkins University in 1952, he was appointed a visiting assistant lecturer at the London School of Economics, where he served till 1953. Then, the same year, in 1953, Miller went to teach at the Carnegie Institute of Technology (present-day Carnegie Mellon University), where, in 1958, he, together with Franco Modigliani, worked on the paper "The Cost of Capital, Corporate Finance and the Theory of Investment". Also, it was with Modigliani, that Merton developed the Modigliani-Miller theorem of corporate finance. The theorem explains the relationship between a company's capital asset structure and dividend policy and its market value and cost of capital. It also demonstrates, that how a manufacturing company funds its activities is less important, than the profitability of those activities.

It was in 1961, that Miller left the Carnegie Institute of Technology and the same year accepted a position as a professor of Finance at the University of Chicago Booth School of Business, remaining in the position until 1999.

Besides, from 1983 to 1985, Miller held the post of a public director on the Chicago Board of Trade. From 1990 until his death in 2000, he held the same post on the Chicago Mercantile Exchange.

It's worth mentioning, that, during his career, Miller penned and co-authored several books, including "The Theory of Finance" (1972), "Macroeconomics: A Neoclassical Introduction" (1974), "Merton Miller on Derivatives" (1991) and "Financial Innovations and Market Volatility" (1991), among others.

Achievements

• Merton Miller was a notable economist, whose contribution, and that of his colleague Franco Modigliani, who received the Nobel Prize for Economics in 1985, known as the Modigliani-Miller theorem, was pioneering work in the field of finance theory.
  
  In addition, Merton was credited with helping corporations make better decisions about financial leverage, lowering corporate taxes and financing investments more efficiently. Besides, Merton's advocacy of free markets and his guidelines for evaluating the value of corporations won him wide respect in the academic community.
  
  Being widely regarded as one of the founders of modern corporate finance, Merton was awarded the Nobel Memorial Prize in Economic Sciences in 1990 for his pioneering work in the theory of financial economics. Also, he was the recipient of the Amundi Smith Breeden Prize in 1990.

Works

More photos

• book

  • Financial Innovations and Market Volatility

    (In this book, Nobel Laureate Merton Miller presents a sus...)

    1991
  • Merton Miller on Derivatives

    (A rare opportunity to go one-on-one with an industry gian...)

    1991
  • The Theory of Finance 1972
  • Macroeconomics: A Neoclassical Introduction 1974
  • Essays in Applied Price Theory 1980

• report

  • A Model of the Demand for Money by Firms 1966

Views

As for the Miller-Modigliani theory, it held what has become the most basic tenet of corporate financing: the value of a company is determined by its investment decisions and not by its financing choices. However, before the theory was developed, it was generally assumed, that companies could raise capital cheaply by borrowing or raise it safely by issuing more stock.

It's also worth mentioning, that Merton's theory was based on the notion, that, while more corporate debt might make profits vary from year to year, the extra risk should not affect a stock's price because conservative investors could always "deleverage" their assets by holding more of a low-risk asset, like a bank deposit.

Also, Miller was a strong defender of the view, that futures contracts, just like other products, are valuable to those, who buy them. Therefore, he argued, government regulation of these contracts is likely to do more harm, than good.

Besides, throughout his life, Miller believed fervently in the power of free markets, unhindered by government - an unusual stance for economists in his generation.

Quotations: "To beat the market you'll have to invest serious bucks to dig up information no one else has yet."

"What counts is what you do with your money, not where it came from."

"Diversification is your buddy."

"If there are 10,000 people, looking at the stocks and trying to pick winners, one in 10,000 is going to score, by chance alone, a great coup, and that's all that's going on. It's a game, it's a chance operation, and people think they are doing something purposeful... but they're really not."

"You only need to make one big score in finance to be a hero forever."

"Most people might just as well buy a share of the whole market, which pools all the information, than delude themselves into thinking they know something the market doesn't."

"I favour passive investing for most investors, because markets are amazingly successful devices for incorporating information into stock prices."

Membership

Merton was a member of the American Academy of Arts and Sciences and the American Economic Association.

• fellow

  Econometric Society , United States

  1975

• president

  American Finance Association , United States

  1976

Personality

Physical Characteristics: Merton suffered from lymphoma.

Quotes from others about the person

• "Mr. Miller was the founder of modern finance and the person, who fathered the discipline from an institutional field of study to one, that is truly a legitimate and well-accepted part of economics and business." - Robert Hamada, the former Edward Eagle Brown Distinguished Service Professor of Finance and former Dean of the University of Chicago Booth School of Business

Interests

• brush-cutting and gardening

Connections

Initially, Merton was married to Eleanor Miller, who passed away in 1969 and whose death was a heavy personal blow for Miller. Their marriage produced several children, including Pamela, Margot and Louise. Later, Miller married his second wife, Katherine Miller.

Father:

Joel Miller

Mother:

Sylvia Miller

child:

Pamela Chwedyk

child:

Margot Horn

child:

Louise Lorber

late wife:

Eleanor Miller

Wife:

Katherine Miller

Doctoral advisor:

Fritz Machlup

Fritz Machlup was an economist, who also served as president of the International Economic Association from 1971 to 1974. He was one of the first economists to examine knowledge as an economic resource and is credited with popularizing the concept of the information society.

Doctoral student:

Eugene Fama

Doctoral student:

William Poole

William Poole is known as the eleventh chief executive of the Federal Reserve Bank of St. Louis. Throughout his career, Poole has served as a visiting scholar and an adviser at numerous institutions, as well as a visiting economist, among other positions.

colleague:

Franco Modigliani

Franco Modigliani was an economist and the recipient of the 1985 Nobel Memorial Prize in Economics. He was a professor at the University of Illinois at Urbana-Champaign, Carnegie Mellon University and MIT Sloan School of Management. However, Merton was best known for his contribution to the Modigliani-Miller theorem.

References

• Selected Works of Merton H. Miller: A Celebration of Markets: Volume 1: Finance The book "Selected Works of Merton H. Miller: A Celebration of Markets: Economics" (two volumes) gathers together in two volumes a selection of Miller's most influential contributions over more than fifty years of active research. A common theme running throughout both volumes is Miller's conviction about the utility of market-based approaches to topics as diverse as dividend policy, bank regulation, the structure of securities markets and competition between research universities and teaching colleges.
  2002