Who Was Merton Miller?

Merton Miller was an American economist, professor, and author. Known for the development of the Modigliani-Miller theorem, he was awarded the Nobel Prize in economics in 1990 for his contributions to the field of corporate finance.

Miller is the author of several books including, Merton Miller on Derivatives and Financial Innovations and Market Volatility. Merton Miller died on June 3, 2000.

Early Life and Education

Merton Miller was born in Boston, Massachusetts on May 16, 1923. He graduated with a bachelor's degree from Harvard University in 1944 and earned a Ph.D. in 1952 from Johns Hopkins University. During World War II, Miller worked as an economist for the federal government in the Division of Tax Research of the U.S. Treasury Department and subsequently in the Division of Research and Statistics of the Board of Governors of the Federal Reserve System (FRS).

Miller began a long career in academia as a guest lecturer at the London School of Economics before securing a post at Carnegie Mellon's Graduate School of Industrial Administration. In 1961, Miller joined the faculty at the University of Chicago where he stayed for the remainder of his career.

Modigliani-Miller Theorem

Throughout his career, Miller's research focused on corporate finance and the economic and regulatory problems of the financial services industry.

While a professor at Carnegie Mellon's graduate school, Miller met economist and MIT graduate, Franco Modigliani. The team collaborated and published the first of their joint "M&M" papers on corporate finance in 1958. "The Cost of Capital, Corporate Finance and the Theory of Investment" would be the basis of the Modigliani-Miller theorem. The theorem later appeared in the papers and writings of both men and was elaborated upon by others as well. At the time, Carnegie-Mellon was regarded for its curriculum in behavioral economics, and Miller and Modigliani embraced the problem-solving approach encouraged at the University.

The Modigliani-Miller Theorem, published in 1958, explains that the mix of equity and debt used to finance a company is irrelevant to the firm's value. Merton Miller famously equated his theory to a joke told by baseball catcher Yogi Berra. Berra once told his trainer that he was particularly hungry, and he instructed him to cut his pizza into 12 pieces instead of six. The quip illustrates the celebrated theorem about a firm's capital structure that Miller devised with Modigliani. A firm’s value is independent of how it is financed, much like the size of a pizza is independent of how you slice it.

Notable Accomplishments

Merton Miller was awarded the Nobel Prize in economics in 1990 for his pioneering work in the theory of financial economics and his contribution to the Modigliani-Miller Theorem.

Throughout his career and into retirement, Miller continued to be involved in the study and articulation of problems within corporate finance. He served as a public director on the Chicago Board of Trade and the Chicago Mercantile Exchange. In 1995, he was retained as a consultant by the NASDAQ to research issues of price-fixing on the exchange.

The Bottom Line

Merton Miller is remembered for his fundamental contributions to the theory of corporate finance. The development of the Modigliani-Miller theorem influenced the further study of the valuation of corporations. Miller's publications and texts are still widely used in academia today.