Vilfredo Pareto (1848-1923)
If you're Noah, and your ark is about to sink, look for the elephants first, because you can throw over a bunch of cats, dogs, squirrels, and everything else that is just a small animal and your ark will keep sinking. But if you can find one elephant to get overboard, you're in much better shape.
Vilfredo Federico Damaso Pareto was an Italian engineer, sociologist, economist, political scientist, and philosopher. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals' choices. He was also responsible for popularising the use of the term "elite" in social analysis.
He introduced the concept of Pareto efficiency and helped develop the field of microeconomics. He was also the first to discover that income follows a Pareto distribution, which is a power law probability distribution. The Pareto principle was named after him, and it was built on observations of his such as that 80% of the wealth in Italy belonged to about 20% of the population. He also contributed to the fields of sociology and mathematics, according to the mathematician Benoit Mandelbrot and Richard L. Hudson:
Pareto was born of an exiled noble Genoese family in 1848 in Paris, the centre of the popular revolutions of that year. His father, Raffaele Pareto 1812–1882, was an Italian civil engineer and Ligurian marquis who had left Italy much like Giuseppe Mazzini and other Italian nationalists. His mother, Marie Metenier, was a French woman. Enthusiastic about the 1848 German revolution, his parents named him Fritz Wilfried, which became Vilfredo Federico upon his family's move back to Italy in 1858. In his childhood, Pareto lived in a middle-class environment, receiving a high standard of education, attending the newly created Istituto Tecnico Leardi where Fernando Pio Rosellini was his mathematics professor. In 1869, he earned a doctor's degree in engineering from what is now the Polytechnic University of Turin then the Technical School for Engineers. His dissertation was entitled "The Fundamental Principles of Equilibrium in Solid Bodies". His later interest in equilibrium analysis in economics and sociology can be traced back to this paper.
From civil engineer to classical liberal economist
For some years after graduation, he worked as a civil engineer, first for the state-owned Italian Railway Company and later in private industry. He was manager of the Iron Works of San Giovanni Valdarno and later general manager of Italian Iron Works.
He did not begin serious work in economics until his mid-forties. He started his career a fiery advocate of classical liberalism, besetting the most ardent British liberals with his attacks on any form of government intervention in the free market. In 1886, he became a lecturer on economics and management at the University of Florence. His stay in Florence was marked by political activity, much of it fueled by his own frustrations with government regulators. In 1889, after the death of his parents, Pareto changed his lifestyle, quitting his job and marrying a Russian, Alessandrina Bakunina.
Economics and sociology
In 1893, he succeeded Léon Walras to the chair of Political Economy at the University of Lausanne in Switzerland where he remained for the rest of his life. In 1906, he made the famous observation that twenty percent of the population owned eighty percent of the property in Italy, later generalised by Joseph M. Juran into the Pareto principle also termed the 80–20 rule. In one of his books published in 1909 he showed the Pareto distribution of how wealth is distributed, he believed "through any human society, in any age, or country". He maintained cordial personal relationships with individual socialists, but always thought their economic ideas were severely flawed. He later became suspicious of their humanitarian motives and denounced socialist leaders as an 'aristocracy of brigands' who threatened to despoil the country and criticized the government of Giovanni Giolitti for not taking a tougher stance against worker strikes. Growing unrest among labor in Italy led him to the anti-socialist and anti-democratic camp. His attitude toward fascism in his last years is a matter of controversy.
Pareto's relationship with scientific sociology in the age of the foundation is grafted in a paradigmatic way in the moment in which he, starting from the political economy, criticizes positivism as a totalizing and metaphysical system devoid of a rigorous logical-experimental method. In this sense we can read the fate of the Paretian production within a history of the social sciences that continues to show its peculiarity and interest for its contributions in the 21st century. The story of Pareto is also part of the multidisciplinary research of a scientific model that privileges sociology as a critique of cumulative models of knowledge as well as a discipline tending to the affirmation of relational models of science.
In 1889, Pareto married Alessandrina Bakunina, a Russian. She left him in 1902 for a young servant. Twenty years later in 1923, he married Jeanne Regis, a French woman, just before his death in Geneva, Switzerland on 19 August 1923.
Pareto's later years were spent in collecting the material for his best-known work, Trattato di sociologia generale 1916 The Mind and Society, published in 1935. His final work was Compendio di sociologia generale 1920.
In his Trattato di Sociologia Generale 1916, rev. French trans. 1917, published in English by Harcourt, Brace in a four-volume edition edited by Arthur Livingston under the title The Mind and Society 1935, Pareto developed the notion of the circulation of elites, the first social cycle theory in sociology. He is famous for saying "history is a graveyard of aristocracies".
Pareto seems to have turned to sociology for an understanding of why his abstract mathematical economic theories did not work out in practice, in the belief that unforeseen or uncontrollable social factors intervened. His sociology holds that much social action is nonlogical and that much personal action is designed to give spurious logicality to non-rational actions. We are driven, he taught, by certain "residues" and by "derivations" from these residues. The more important of these have to do with conservatism and risk-taking, and human history is the story of the alternate dominance of these sentiments in the ruling elite, which comes into power strong in conservatism but gradually changes over to the philosophy of the "foxes" or speculators. A catastrophe results, with a return to conservatism; the "lion" mentality follows. This cycle might be broken by the use of force, says Pareto, but the elite becomes weak and humanitarian and shrinks from violence.
Pareto's sociology was introduced to the United States by George Homans and Lawrence J. Henderson at Harvard, and had considerable influence, especially on Harvard sociologist Talcott Parsons, who developed a systems approach to society and economics that argues the status quo is usually functional.
Pareto was a lifelong opponent of Marxism.
Fascism and power distribution
Benoit Mandelbrot wrote:
One of Pareto's equations achieved special prominence, and controversy. He was fascinated by problems of power and wealth. How do people get it? How is it distributed around society? How do those who have it use it? The gulf between rich and poor has always been part of the human condition, but Pareto resolved to measure it. He gathered reams of data on wealth and income through different centuries, through different countries: the tax records of Basel, Switzerland, from 1454 and from Augsburg, Germany, in 1471, 1498 and 1512; contemporary rental income from Paris; personal income from Britain, Prussia, Saxony, Ireland, Italy, Peru. What he found – or thought he found – was striking. When he plotted the data on graph paper, with income on one axis, and number of people with that income on the other, he saw the same picture nearly everywhere in every era. Society was not a "social pyramid" with the proportion of rich to poor sloping gently from one class to the next. Instead it was more of a "social arrow" – very fat on the bottom where the mass of men live, and very thin at the top where sit the wealthy elite. Nor was this effect by chance; the data did not remotely fit a bell curve, as one would expect if wealth were distributed randomly. "It is a social law", he wrote: something "in the nature of man".
Pareto had argued that democracy was an illusion and that a ruling class always emerged and enriched itself. For him, the key question was how actively the rulers ruled. For this reason, he called for a drastic reduction of the state and welcomed Benito Mussolini's rule as a transition to this minimal state so as to liberate the "pure" economic forces.
Mandelbrot summarized Pareto's notions as follows:
At the bottom of the Wealth curve, he wrote, Men and Women starve and children die young. In the broad middle of the curve all is turmoil and motion: people rising and falling, climbing by talent or luck and falling by alcoholism, tuberculosis and other kinds of unfitness. At the very top sit the elite of the elite, who control wealth and power for a time – until they are unseated through revolution or upheaval by a new aristocratic class. There is no progress in human history. Democracy is a fraud. Human nature is primitive, emotional, unyielding. The smarter, abler, stronger, and shrewder take the lion's share. The weak starve, lest society become degenerate: One can, Pareto wrote, 'compare the social body to the human body, which will promptly perish if prevented from eliminating toxins.' Inflammatory stuff – and it burned Pareto's reputation.
The future leader of Italian fascism Benito Mussolini, in 1904, when he was a young student, attended some of Pareto's lectures at the University of Lausanne. It has been argued that Mussolini's move away from socialism towards a form of "elitism" may be attributed to Pareto's ideas.
To quote Franz Borkenau, a biographer:
In the first years of his rule Mussolini literally executed the policy prescribed by Pareto, destroying political liberalism, but at the same time largely replacing state management of private enterprise, diminishing taxes on property, favoring industrial development, imposing a religious education in dogmas.
Karl Popper dubbed Pareto the "theoretician of totalitarianism", but, according to Cirillo, there is no evidence in Popper's published work that he read Pareto in any detail before repeating what was then a common but dubious judgment in anti-fascist circles.
Some fascist writers, such as Luigi Amoroso, wrote approvingly of Pareto's ideas:
Just as the weaknesses of the flesh delayed, but could not prevent, the triumph of Saint Augustine, so a rationalistic vocation retarded but did not impede the flowering of the mysticism of Pareto. For that reason, Fascism, having become victorious, extolled him in life, and glorifies his memory, like that of a confessor of its faith.
Author Renato Cirillo argued, on the contrary, that:
Some have seen in [Pareto's] sociological works the foundations of fascism. This is not correct. Even fascist writers did not find much merit in these works, and definitely condemned his economic theories.
Pareto's elite theory also influenced a number of liberal theorists, such as the anti-fascist Piero Gobetti, who wrote:
The concept of an elite that imposes itself by exploiting a channel of interests and general psychological conditions against the old leaders who have exhausted their function is genuinely liberal.
Other liberals influenced by Pareto include Norberto Bobbio and Raymond Aron.
Pareto Theory Of Maximum Economics
Pareto turned his interest to economic matters and he became an advocate of free trade, finding himself in difficulty with the Italian government. His writings reflected the ideas of Léon Walras that economics is essentially a mathematical science. Pareto was a leader of the "Lausanne School" and represents the second generation of the Neoclassical Revolution. His "tastes-and-obstacles" approach to general equilibrium theory was resurrected during the great "Paretian Revival" of the 1930s and has influenced theoretical economics since.
In his Manual of Political Economy 1906 the focus is on equilibrium in terms of solutions to individual problems of "objectives and constraints". He used the indifference curve of Edgeworth 1881 extensively, for the theory of the consumer and, another great novelty, in his theory of the producer. He gave the first presentation of the trade-off box now known as the "Edgeworth-Bowley" box.
Pareto was the first to realize that cardinal utility could be dispensed with and economic equilibrium thought of in terms of ordinal utility – that is, it was not necessary to know how much a person valued this or that, only that he preferred X of this to Y of that. Utility was a preference-ordering. With this, Pareto not only inaugurated modern microeconomics, but he also demolished the alliance of economics and utilitarian philosophy which calls for the greatest good for the greatest number; Pareto said "good" cannot be measured. He replaced it with the notion of Pareto-optimality, the idea that a system is enjoying maximum economic satisfaction when no one can be made better off without making someone else worse off. Pareto optimality is widely used in welfare economics and game theory. A standard theorem is that a perfectly competitive market creates distributions of wealth that are Pareto optimal.
Some economic concepts in current use are based on his work:
- The Pareto index is a measure of the inequality of income distribution.
He argued that in all countries and times, the distribution of income and wealth is highly skewed, with a few holding most of the wealth. He argued that all observed societies follow a regular logarithmic pattern:
- log N = log A + m log x
where N is the number of people with wealth higher than x, and A and m are constants. Over the years, Pareto's Law has proved remarkably close to observed data.
- The Pareto chart is a special type of histogram, used to view causes of a problem in order of severity from largest to smallest. It is a statistical tool that graphically demonstrates the Pareto principle or the 80–20 rule.
- Pareto's law concerns the distribution of income.
- The Pareto distribution is a probability distribution used, among other things, as a mathematical realization of Pareto's law.
- Ophelimity is a measure of purely economic satisfaction.
- in French Cours d'Économie Politique Professé a l'Université de Lausanne. Vol. I, 1896; Vol. II, 1897.
- in French Les Systèmes Socialistes. 1902.
- Manuale di economia politica con una introduzione alla scienza sociale. 1906. "Manual of Political Economy"
- Trattato di sociologia generale 4 vols.. G. Barbéra, Florence, 1916.
- Compendio di sociologia generale in Italian. Florence: Barbèra. 1920.
- Fatti e teorie, 1920.
- Trasformazione della democrazia, 1921.
Works in English translation
- The Mind and Society, Vol. IV, New York: Harcourt, Brace and Company, 1935. The Mind and Society, Vol. III, iVol. IV, London: Jonathan Cape, 1936.
- The Mind and Society, Vol. III, iVol. IV, London: Jonathan Cape, 1936.
- The Ruling Class in Italy Before 1900, S. F. Vanni 1950.
- In Talcott Parsons, Theories of Society; Foundations of Modern Sociological Theory, 2 Vol., The Free Press of Glencoe, Inc., 1961. "The Circulation of Elites," pp. 551–57. "The Use of Force in Society," pp. 589–97. "Combinations and Group Persistence," pp. 780–86. "On Logical and Non-Logical Action," pp. 1061–62. "On the Equilibrium of the Social Systems," pp. 1288–91. "Cycles of Interdependence," pp. 1381–85.
- "The Circulation of Elites," pp. 551–57.
- "The Use of Force in Society," pp. 589–97.
- "Combinations and Group Persistence," pp. 780–86.
- "On Logical and Non-Logical Action," pp. 1061–62.
- "On the Equilibrium of the Social Systems," pp. 1288–91.
- "Cycles of Interdependence," pp. 1381–85.
- Sociological Writings, Praeger, 1966.
- Manual of Political Economy, Augustus M. Kelley, 1971 translation of French edition from 1927.
- The Transformation of Democracy, Transaction Books, 1984.
- The Rise and Fall of Elites: An Application of Theoretical Sociology, Transaction Publishers, 1991.
- "The Parliamentary Régime in Italy," Political Science Quarterly, Vol. VIII, Ginn & Company, 1893.
- "The New Theories of Economics," Journal of Political Economy, Vol. 5, No. 4, Sep. 1897.
- "An Italian View," The Living Age, November 1922.