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Fritz Wilfried Pareto was born on July 15, 1848 in Paris, France, the son of an Italian political emigre, Raﬀaele Pareto (1812–82). Raﬀaele’s father, Raﬀaele Benedetto Pareto (1768–1831), had been made a marchese di Parigi—or, as some have claimed, even a pair de France—by Napoleon, in recognition of his collaboration in erecting the Cisalpine Republic. The Pareto family was rooted in the trade bourgeoisie of Genoa, Italy, where it had been registered in the Libro d’oro.
In addition to her son, whose given name was Italianized and shortened to Vilfredo, Pareto’s mother, Marie Metenier (1816–89), also had two daughters. Due to a political amnesty granted by the House of Savoy, probably as early as 1858, the Pareto family was eventually able to move back to Italy. Pareto’s father started to work as a French instructor for Genoa’s Scuola di Marina. Vilfredo attended the same school, the beginning of his Italian education. When, later, Pareto’s father was oﬀered a better position in Turin, Vilfredo followed him to the capital of the kingdom of Savoy. Here, in 1867, Vilfredo received his Licenza in scienze matematiche e ﬁsiche.
He then enrolled at the Scuola di Applicazione per Ingeneri, where, in 1870, he received his doctorate. Much later, Pareto still considered his dissertation— on ‘Principi fondamentali della teoria di elasticita dei corpi solidi’—important enough to include it in his Collected Essays on Economic Theory. He began his professional career in Florence, working for the Centrale della vs. A. delle Strade Ferrate Romane. From there, he went on to a management position with the Societa dell’Industria di Ferro, traveling widely in Germany, Austria, France, England, and Switzerland.
His career left him with a sound knowledge of practical business matters. In 1882, the year his father died, Pareto chose professional retirement and settled in Florence. At around this time, he made an unsuccessful attempt at running for political oﬃce on a platform promoting his ideal of a liberal market economy. Pareto became resolved to dedicate his remaining life to his scientiﬁc pursuits. He joined Italy’s oldest learned society, the highly respected R. Accademia Economico-Agraria. He also became a member of a second society, Adamo Smith, where he gave several lectures on scholarly topics and economic policy, which he also published. Moving in the upperclass circles of Florence—which then exerted a leading cultural inﬂuence throughout Italy—Pareto made a number of inﬂuential friends: the Lord Mayor Peruzzi and his wife; the politician vs. Sonnino; P. Villari, who wrote a famous biography of Machiavelli; Colli, the author of Pinocchio; the anthropologist Mantegazza; such renowned philologists as D. Comparetti, A. Franchetti, and A. Linaker, as well as several others. It was at this time that he married Alessandra (Dina) Bakounine (1860–1940), a Russian (no relation to the anarchist of the same name).
When Pareto met Italy’s leading economist, Maﬀeo Pantaleoni, they soon became friends. Pantaleoni supported Pareto, as a successor had to be appointed for the Lausanne University chair held by Leon Walras, who had had to vacate his position due to his worsening mental illness. As an academic teacher, Pareto had considerable success. However, he soon asked to be relieved of his teaching duties. An unexpected inheritance set him free to concentrate on his preference for research and scholarship. Pareto’s Feste Giubilari was published in 1917 to great critical acclaim. While this represented a personal triumph for him, Pareto continued to view himself as a victim of Italy’s politicians and the Camorra universitaria italiana. When the Fascists took over Italy’s government, various honors were oﬀered to him; he either declined them explicitly or did not respond to them at all.
Only once did Pareto return to Italy and then only because he was forced to visit the Rome family record registration oﬃce in person. To get a divorce and be able to remarry, he needed his birth certiﬁcate. Dina, his ﬁrst wife, had left him. In the summer of 1923, he married Jeanne (Jane) Regis (1879–1948), his second wife. He had met her through a newspaper advertisement in Paris. When Pareto died two months later, on August 23, 1923, he no longer possessed an Italian passport. To be able to marry Jane, he had been forced to turn in his passport at the Republic of Fiume. Conforming to his last wishes, he was buried in Celigny, his last place of residence, in a modest grave listing only the years of his birth and death and his nom de guerre.
From his beginnings as a researcher, Pareto placed immense importance on the question of method. He had named his approach the logical-empirical method. In his Manuale d’economia politica (1994), ﬁrst published in 1906, he devoted no less than 55 paragraphs to it. In his Trattato di sociologia generale (1983), that number rose to 144 paragraphs. ‘My only intention,’ Pareto wrote, ‘is to describe facts and to draw logical conclusions from them’ (Pareto 1983, 55). Facts were to be weighted according to relevance, not quantity. Facts based on experience were considered valid only ‘as far as experience does not contradict observation’ (Pareto 1983, 6).
Pareto considered this method applicable not only to the ﬁeld of economics but to the social sciences as well and—implicitly or explicitly—to every ﬁeld of scholarship (Pareto 1994, Vol. 1, 14). However, every inductive approach will always contain an implicit assumption. In the sciences, this would be the supposedly homogeneous character underlying all of nature. Thus, Pareto’s ‘survey’ is strongly similar to J. A. Schumpeter’s concept of ‘vision.’ According to Pareto, it is quite feasible to diﬀerentiate between economic and social phenomena initially. To regard them separately does not violate the dictates of empiricism. But ‘both parts then have to be integrated with each other. Only a full view of the whole thing possesses any empirical reality’ (Pareto 1994).
At the heart of Pareto’s Cours d’economie politique lies his theory of economic equilibrium. He refers to two sets of mathematical equations to describe two ‘economic systems.’ One system applies to barter and exchange, the other to production. If combined, both sets of equations attain validity only in a state of equilibrium (Pareto 1994, App. 131–3). ‘The most interesting case,’ according to Pareto, is described as a situation where the number of equations is less than the unknowns contained in the equations: ‘The system is then ﬂexible and can balance itself’ (Pareto 1994, App. 131–3). ‘Mathematics,’ Pareto insisted, ‘should be used only if it allows for an expression of certain relations between facts which otherwise could not have been expressed or which could not have been formulated using standard language’ (Pareto, 559, n. 4, cf. Pareto 1983, 1732).
To describe diﬀerent states of economic equilibrium, Pareto coined two terms: ophelemite and utilite. When Irving Fisher wrote a review of Pareto’s work, Pareto tried in vain to discourage Fisher from confusing his terms with the terminology of Walras and Edgeworth. Fisher, Pareto argued, did not understand enough French and even misunderstood some of Pareto’s mathematics (Pareto 1960, Vol. 3, p. 408).
In 1902–3, Pareto published the two volumes of Les systemes socialistes, an incisive analysis of historical and present-day socialist theories, including a discussion of Werner Sombart (he had treated Karl Blucher in a similar way in his earlier Cours). He paid due reverence to Karl Marx as a sociologist. Economically, however, he did not give Marx much credit. Theoretically, a socialist economy might be able to solve its problems as well as any nonsocialist economy. Earlier, Pareto had already integrated socialist society and collective capital with his overall theory of economics (Pareto, Vol. 2, 714–24). Indeed, his followers, E. Barone and O. Lange, later based their own socialist theories of economics on this insight. Pareto argued against socialism not on economical but on social and anthropological grounds. He concluded that all socialist systems were eventually based on untenable social and anthropological contradictions.
In his Manuale d’economia politica (1994), Pareto presented a reworked version of his theory of economics with special emphasis on the various states of economic equilibrium. Typically, he diﬀerentiated between them in his famous dictum:
We can say that the members of a community, in a certain situation, enjoy the optimum of ophelemite if it has become impossible to distance oneself from this situation even to a small degree without beneﬁt or damage to all members of this community; even the smallest step then necessary leads to proﬁt for some members of the community or loss for others (Pareto 1994, 33).
This concept has been named the Pareto optimum. Later, it served as the foundation for welfare economics. It led to several attempts at an improved theory of income distribution.
Pareto always insisted that to understand his Manuale, one needed to know his Cours. In a typical misreading, J. R. Hicks complained that in the Manuale—by now a classic on the theory of consumption—the problems of capital and interest were hardly noted (Hicks 1950), ignoring their extensive treatment in the Cours.
It was Pareto’s intention to show ‘by examples rather than declarations to prove the relation between economic phenomena and other phenomena of society’ (Pareto 1994, Foreword). Thus, it becomes clear how deplorable was the omission, in the French edition of the Manuale (Pareto 1981) of Pareto’s Foreword or Proemio. Still, improvements had been made to other parts of the French edition, including Pareto’s mathematics. He was of the opinion that ‘pure’ theory was applicable only to the ﬂow of goods and trade within a ‘purely’ competitive economy. Yet, the reality of monopolies, cartels, and trusts asked for a diﬀerent description of modern markets and their mechanisms. Eventually, he discarded his entire theory of economic equilibrium as a ‘dead end,’ in spite of his groundbreaking anticipation of what later essentially came to be called the theory of monopolistic competition (cf. the French edition of the Manuale, Vol. 3, 40–8, 160–64, Vol. 5, 8–9, 71; App. 141). With reference to the eﬀects of economical cycles, Pareto already diﬀerentiated between their objective and subjective sides. In this, he could claim no less a predecessor than Montesquieu.
Pareto’s ﬁnal great work, the Trattato, was preceded by the brief Mythe vertuiste et la litterature immorale (Pareto 1911), an unforgiving settling of scores with any kind of literary censorship. Taken to its logical conclusion, Pareto argued, censorship would have to call for all of world-class literature to be censored—starting with the Bible.
In the two volumes of his Trattato di sociologia generale (1983), Pareto undertook the immense task of integrating his economic and social analyses. It had long been clear to Pareto that for any model of economic action fully to grasp reality it had to encompass a theory of society. Next to those actions described as logical, recognizably illogical actions had to be equally accounted for. Such actions called illogical by Pareto are regularly cloaked by pseudological explanations. On this insight, Pareto erected an entire sociology of knowledge (cf. Eisermann 1987 p. 170ﬀ.). Logical actions, to Pareto, were not synonymous with rational actions, however. For any act to be described as rational, it would have been necessary actually to look into the mind of the social actor. Pareto did not think such introspection was feasible. Rather, he conceptualized such actions as residual social facts. Thus, Pareto arrived at an inventory of six residues, in which instinct of combinations and persistence of aggregates were the most important ones.
He distinguished between two groups of economic actors: ‘rentiers’ and ‘speculators.’ Rentiers in general are secretive, cautious, timid souls, mistrustful of all adventure, not only of dangerous ventures but also of any venture to have even the remotest semblance of not being altogether safe (Pareto 1983, 2313). Pareto’s rentiers are ruled by aggregates of persistence and his speculators by their instinct of combination. Speculators
are usually expansive personalities, ready to take up with anything new, eager for economic activity. They rejoice in dangerous economic ventures and are in the watch for them, but they work underground and know how to win and hold the substance of power, leaving the outward forms to others (Pareto 1983, 2313).
Accordingly, Pareto expanded his analysis of the economic equilibrium into an analysis of the social equilibrium (Pareto 1983, 2067–87). The crucial movement inside the system of society is construed as circolazione delle classe scelte, class circulation. Society is then ruled by fractions, or minorities, which are subject to a continuous turnover, or exchange (2025–46 and throughout).
Pareto always insisted that his ‘pure’ theory simply was an integral part of his overall economics, and that his economics necessarily formed part of his sociology. He claimed to have introduced the principle of relativity to the social sciences. He took equal pride in his anticipatory powers of foresight. Like his contemporary J. M. Keynes, he foresaw the catastrophic repercussions of the Treaty of Versailles—for purely economic reasons. As early as 1917, he asked, ‘whether the Pax americana will turn out to be as productive as the onetime Pax romana?’ (Pareto 1960, Vol. 3, p. 240).
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