Early critics rejected Modigliani-Miller for lacking any empirical grounding

Evidence

Modigliani and Miller’s basic conceptual device, homogeneous “risk classes” (see appendix A), had no empirical referent, argued Durand: “To the practically minded, it is unthinkable to postulate the existence of two or more separate and independent corporations with income streams that can fluctuate at random and yet be perfectly correlated from now until doomsday.” Modigliani and Miller had started “with a perfect market in a perfect world,” wrote Durand. — Donald MacKenzie, An Engine, Not a Camera, 195

Categorization

• XREF: connects to: Modigliani himself distrusted the theorem he co-authored, doubting its assumptions of perfect markets — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 187; Many financial economists treat Modigliani-Miller as benchmarks rather than empirical claims — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 390; Modigliani-Miller propositions resist empirical testing because risk classes cannot be fixed — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 389

Broader Connections

• Many financial economists treat Modigliani-Miller as benchmarks rather than empirical claims #qualifies (0.92) — Donald MacKenzie, An Engine, Not a Camera, 390
• Modigliani-Miller propositions resist empirical testing because risk classes cannot be fixed #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 389