With the death of the University of Chicago’s Merton H. Miller, the world has lost a giant of corporate finance. Professor Miller, 77, died June 3 of lymphoma.
A 1990 Nobel laureate in economics, outspoken commentator on everything from securities markets to beer-making, and raconteur extraordinaire, Miller blazed a burning trail through the buttoned-down world in which he worked.
“He was a visionary, a man of intense curiosity, with a willingness to embrace ambiguity and use his brilliant intuition to overturn a multitude of long-held beliefs,” says Myron Scholes, a former student of Miller’s and a Nobel laureate himself. “He has left us a research legacy that is unsurpassed in financial economics.”
NOT A HAPPY POSITION
The only son of a Harvard-educated lawyer, Miller graduated magna cum laude in three years from his father’s alma mater, earned a Ph.D. from Johns Hopkins, and began teaching at the London School of Economics. At Carnegie Mellon, he and Franco Modigliani began the research that would later earn them fame, a Nobel prize, and a nickname: M&M. Their 1958 paper, “The Cost of Capital, Corporation Finance and the Theory of Investment,” argued that a company’s value was independent of its capital structure. What really determined value was the inherent risk and return of the assets themselves, not how they were financed.
As Miller cracked in a 1999 paper, this was “hardly a happy position for professors of finance to explain to their students, being trained, presumably, in the art of selecting optimal capital structures.”
Miller and Modigliani’s thinking, most agree, helped create the field of modern finance–not so much because everything they said was true, but because they defined the context of the entire debate for decades to come.
“M” IS FOR MISCHIEVOUS
Three years after publishing their landmark paper, Miller moved to Chicago, where over 32 years he trained such leading lights as Michael Jensen, Harvard’s pioneer in the agency-costs field; Eugene Fama, with whom he wrote the classic text Finance Theory; and current U of C’s Graduate School of Business dean Robert Hamada.
Despite his influence in academia, Miller eschewed ivory-tower status. He served as a director of both the Chicago Board of Trade and the Chicago Mercantile Exchange. And, he frequently weighed in on important economic issues, everything from the crash of the Thai baht to the 1987 crash of the U.S. stock market.
“The loss of Merton has been a shock to me; I spent much of the best part of my life working with him,” says Modigliani. “He had a very sharp mind, and collaboration with him was very enjoyable and profitable. What made it enjoyable was that the work we were doing was rather mischievous.”
Remembering Merton Miller
“Mert,” as his friends knew him, taught or mentored a whole generation of finance professionals in academia, the corporate world, and government. He was also the most honest, courageous, and outspoken scholar of finance I have ever met. He could be tough with those he thought pretentious, often using his razor-sharp wit to ridicule the people and policies he disapproved of. And there was no shortage of either.
But there was also a warm and fuzzy side to Mert–kind, gentle, and patient with those who genuinely sought his advice. We met in 1975, when I interviewed for a University of Chicago teaching position. I succumbed to his charm and wit immediately. In the 1980s, when Congress considered a transactions tax to discourage “short-term” stock market trading, we collaborated on op-ed pieces against it.
Mert’s sense of humor was legendary. Take his “parable of the pizza pie,” gleefully borrowed from Yogi Berra’s famous suggestion that his pizza be cut into four pieces, because he wasn’t hungry enough to eat six. Upon receiving the Nobel prize, Mert was asked by a reporter to explain the irrelevance of capital structure in a “frictionless” financial environment. “Picture a firm’s total market value as a pizza pie,” the new laureate responded. “No matter how many slices you carve it up into, the size of the pie remains the same.”—Zvi Bodie
Zvi Bodie, professor of finance and economics at Boston University’s School of Management, is co-author with Robert C. Merton of Finance.