’ s new economic policy, which was under discussion in the states at the time. franco advised me to take samuelson ’ s course in advanced monetary theory, which was also taught by albert ando. these were the years of fierce debate between keynesians and monetarists regarding the role of monetary policy in economic growth and in controlling inflation. let me recount an anecdote. one day, someone came into the lecture hall with a large pile of xerox copies, which he placed on the table : it was the typescript of friedman and schwartz ’ s monetary history. professor samuelson remarked, ‘ milton, milton! we set up the fed to adjust the quantity of money to the needs of the economy ’. in its simplicity this comment touched on one of the main points of the debate on the importance of the quantity of money. i also attended – how could i fail to – solow ’ s lectures on economic growth, based on denison ’ s sources of economic growth in the u. s. ; i had confirmation of their topical relevance when discussing total factor productivity in the united states and europe with colleagues from the federal reserve. professor modigliani offered me the opportunity to attend a course in monetary theory ad personam. it consisted in a sort of two - man seminar, in which he assigned me reading to complete, which we would then analyze together. inter alia, i was given the instruction that “ … although i do not agree with a word of milton friedman ’ s conclusions regarding monetary policy, he is an author you must study, starting with his reformulation of the quantity theory of money ”. our discussions could last hours ; if it was late in the afternoon, professor modigliani would sometimes take me to his home in belmont to continue thrashing out various points over dinner ; we would talk on into the evening, until serena remonstrated and told him to drive his student home. modigliani was working on a new version of his 1944 essay “ liquidity preference ” to correct a mistake he thought he had made in that article by expressing income and wage variables in nominal instead of real terms. i had also studied patinkin in depth, and modigliani explained an aspect that i had not understood : the application of walras ’ law to macroeconomics. he “ skewered ” me again on this point some years later with a criticism of the early version of the model of the monetary sector

of what determines the level of effective demand and the volume of aggregate employment ; the flaw being largely due to the failure of the classical doctrine to develop a satisfactory theory of the rate of interest. ” in the keynesian tradition, the problem of the instability of capitalist systems, especially those in which financial intermediation is highly developed, was the subject of a penetrating essay by our friend fausto vicarelli, who died so prematurely. how many episodes of instability we have seen in the last ten or fifteen years, characterized by a rapid expansion of global finance. episodes of instability that caused severe hardship and social malaise in the countries affected by the crises ; efforts by all the components of society were necessary to overcome them. starting out from the general theory and his rereading of hicks, modigliani, in his article of 1944 and in his subsequent paper, “ the monetary mechanism ”, published in 1963, analyzed the implications for employment of the downward rigidity of wages. with the money supply constant in nominal terms, a diminution of aggregate demand entails a movement away from the full - employment equilibrium and hence the necessity for an activist monetary policy. different aspects of the monetary and economic policy transmission mechanism, which modigliani analyzed and which he discussed in our economic research department with reference to italian economic reality, are incorporated in the structure of the bank ’ s econometric model. modigliani let us have the benefit of his advice regularly during the 1960s and on numerous occasions in the following decades. we discussed the problems of growth, of employment and of investment, in general and in the italian economy. the specification and estimation of the individual equations of the econometric model were also carefully considered. in this setting the lines of a wage policy that was later applied with good results took form with ezio tarantelli through studies of the labour market. the hallmark of the bank ’ s econometric model was that it combined an extensive part referring to the real economy −employment, wages, investment, prices, effective demand −with a detailed analysis of financial flows. this second part stemmed from the theoretical contributions of gurley and shaw, from tobin ’ s manuscript and from copeland ’ s studies on the flow of funds, a subject empirically developed for the italian economy by ercolani and cotula. modigliani was greatly interested in this structure of the model and threw himself into the discussions on the italian financial system, which also engendered