The Nobel prizewinner Franco Modigliani, who has died aged 85, was a brilliant example of an all too rare breed: an economist who could examine the real world and then develop powerful theories to explain it.
His experience as a wartime Jewish exile from Italy also left him politically active for the remainder of his life. Only last month, he was among the signatories, with Nobel prizewinning economists Paul Samuelson and Robert Solow, of a letter in the New York Times protesting at a Jewish civil rights award honouring Silvio Berlusconi.
He opposed the Bush administration's recent tax cuts, while his staunch professional disagreements with the monetarist economists, led by Milton Friedman, kept alive the Keynesian tradition that Modigliani helped develop in the postwar era.
Modigliani himself won the Nobel prize in 1985 for his analysis of how individuals spend and save over the course of their lifetimes and for his seminal work that revolutionised modern theories of stock market valuation. But, as Samuelson observed, he could have taken the award for any one of several contributions to the subject over 50 years.
Born in Rome, Modigliani lost his father Enrico, a paediatrician, at the age of 13, when, he later recalled: "My whole world seemed to collapse." When he left the Liceo Visconti school for Rome University at 17, his family hoped he, too, would go into medicine, but his self-confessed "low tolerance for sufferings and blood" saw him switch to law and then economics, after winning a national essay competition.
The competition was run by the student organisation I Littoriali della Cultura and brought the young Modigliani into contact with the anti-fascist opposition movement, as did his relationship with his future wife Serena Calabi, whose father was a prominent opponent of Mussolini.
The fascist government's racial laws in 1938 saw him move to Paris, where he married Serena, but, finding teaching at the Sorbonne "uninspiring and a waste of time", he conducted his own research and returned to Rome to receive his doctorate.
Fears of the oncoming war spurred the couple to move to New York, where, like many other members of the wartime Jewish diaspora, Modigliani went to study at the New School for Social Research, set up to provide a home for European academic refugees.
His first published research and a string of academic posts followed and at the University of Illinois he met a graduate student, Richard Brumberg, with whom he worked on the foundations of the theory that would make his name. In 1953 and 1954, the pair published papers outlining what was to be called the life-cycle hypothesis of saving. John Maynard Keynes had suggested that savings by households increased as their income rose, in a simple relationship, but empirical research showed this was not the case.
Modigliani and Brumberg's work proposed that consumption and saving were distributed across an individual's lifetime - the theory being that individuals start as net spenders in their youth, then build up a stock of wealth during their peak earning years to be saved for use in retirement. An individual's consumption, therefore, evens out over time. The life-cycle hypothesis has had a huge impact on economic theory and continues to influence social policy on income and pensions today.
A few years later, while at the Carnegie Institute of Technology, Modigliani worked with Merton Miller - himself a Nobel laureate in 1990 - on company stock market valuations. The Modigliani-Miller theorems in 1958 argued that stock market valuations depend more on a company's expected future profits than on its financing or dividend payments. By 1962, Modigliani was teaching at the Massachusetts Institute of Technology, becoming part of the team that transformed MIT into an economics powerhouse in the 1970s and 1980s. He became emeritus professor in 1988. His wife and two sons survive him.
Franco Modigliani: born June 18th, 1918; died September 25th, 2003.