Vilfredo Pareto
Encyclopedia
Vilfredo Federico Damaso Pareto (vilˈfreːdo paˈreːto; 15 July 1848 – 19 August 1923), born Wilfried Fritz 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. "His legacy as an economist was profound. Partly because of him, the field evolved from a branch of moral philosophy as practiced by Adam Smith
into a data intensive field of scientific research and mathematical equations. His books look more like modern economics than most other texts of that day: tables of statistics from across the world and ages, rows of integral signs and equations, intricate charts and graphs." He introduced the concept of Pareto efficiency
and helped develop the field of microeconomics
. He also was 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 built on observations of his such as that 80% of the land in Italy was owned by 20% of the population. He also contributed to the fields of sociology
and mathematics
.
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 marchese who had left Italy much like 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. In 1870, he earned a degree in engineering from what is now the Polytechnic University of Turin. 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.
, first for the state-owned Italian Railway Company and later in private industry. He did not begin serious work in economics until his mid-forties. He started his career a fiery liberal
, besting 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 Russia
n, Alessandrina Bakunin. She later left him for a young servant.
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.
, Switzerland, 19 August 1923, "among a menagerie of cats that he and his french lover kept" in their villa; "the local divorce laws prevented him from divorcing his wife and remarrying until just a few months before his death."
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 put forward 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 nonrational actions to spurious logicality. 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.
writes:
Pareto's discovery that power law
s applied to income distribution embroiled him in political change and the nascent Fascist movement, whether he really sided with the Fascists or not. Fascists such as Mussolini
found inspiration for their own economic ideas in his discoveries. He had discovered something that was harsh and Darwinian, in Pareto's view. And this fueled both the anger and the energy of the Fascist movement because it fueled their economic and social views. He wrote that, as Mandelbrot summarizes:
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.
To quote Pareto's biographer:
Karl Popper
dubbed him the "theoretician of totalitarianism," but 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.
It is true that Pareto regarded Mussolini's triumph as a confirmation of certain of his ideas, largely because Mussolini demonstrated the importance of force and shared his contempt for bourgeois parlementarism. He accepted a "royal" nomination to the Italian senate from Mussolini. But he died less than a year into the new regime's existence.
Some fascist writers were much enamored of Pareto, writing such paeans as:
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 were resurrected during the great "Paretian Revival" of the 1930s and have 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 realized that cardinal utility could be dispensed with—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.
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:
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.
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
engineer
Engineer
An engineer is a professional practitioner of engineering, concerned with applying scientific knowledge, mathematics and ingenuity to develop solutions for technical problems. Engineers design materials, structures, machines and systems while considering the limitations imposed by practicality,...
, sociologist, economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
, 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. "His legacy as an economist was profound. Partly because of him, the field evolved from a branch of moral philosophy as practiced by Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
into a data intensive field of scientific research and mathematical equations. His books look more like modern economics than most other texts of that day: tables of statistics from across the world and ages, rows of integral signs and equations, intricate charts and graphs." He introduced the concept of Pareto efficiency
Pareto efficiency
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...
and helped develop the field of microeconomics
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
. He also was the first to discover that income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
follows a Pareto distribution, which is a power law
Power law
A power law is a special kind of mathematical relationship between two quantities. When the frequency of an event varies as a power of some attribute of that event , the frequency is said to follow a power law. For instance, the number of cities having a certain population size is found to vary...
probability distribution. The Pareto principle
Pareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
was named after him and built on observations of his such as that 80% of the land in Italy was owned by 20% of the population. He also contributed to the fields of sociology
Sociology
Sociology is the study of society. It is a social science—a term with which it is sometimes synonymous—which uses various methods of empirical investigation and critical analysis to develop a body of knowledge about human social activity...
and mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...
.
Biography
Pareto was born of an exiled noble GenoeseGenoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....
family in 1848 in Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...
, the centre of the popular revolutions of that year. His father, Raffaele Pareto (1812–1882), was an Italian civil engineer and Ligurian marchese who had left Italy much like Mazzini and other Italian nationalists. His mother, Marie Metenier, was a French woman. Enthusiastic about the 1848 German revolution
Revolutions of 1848 in the German states
The Revolutions of 1848 in the German states, also called the March Revolution – part of the Revolutions of 1848 that broke out in many countries of Europe – were a series of loosely coordinated protests and rebellions in the states of the German Confederation, including the Austrian Empire...
, 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. In 1870, he earned a degree in engineering from what is now the Polytechnic University of Turin. His dissertation was entitled "The Fundamental Principles of Equilibrium in Solid Bodies". His later interest in equilibrium analysis in economics
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
and sociology
Social equilibrium
In sociology, a system is said to be social equilibrium when there is a dynamic working balance among its interdependent parts . Each subsystem will adjust to any change in the other subsystems and will continue to do so until an equilibrium is retained...
can be traced back to this paper.
Civil engineer to liberal to economist
For some years after graduation, he worked as a civil engineerCivil engineer
A civil engineer is a person who practices civil engineering; the application of planning, designing, constructing, maintaining, and operating infrastructures while protecting the public and environmental health, as well as improving existing infrastructures that have been neglected.Originally, a...
, first for the state-owned Italian Railway Company and later in private industry. He did not begin serious work in economics until his mid-forties. He started his career a fiery liberal
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
, besting the most ardent British liberals with his attacks on any form of government intervention in the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
. In 1886 he became a lecturer on economics and management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
at the University of Florence
University of Florence
The University of Florence is a higher study institute in Florence, central Italy. One of the largest and oldest universities in the country, it consists of 12 faculties...
. His stay in Florence
Florence
Florence is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with approximately 370,000 inhabitants, expanding to over 1.5 million in the metropolitan area....
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 Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
n, Alessandrina Bakunin. She later left him for a young servant.
Economics and sociology
In 1893, he was appointed a lecturer in economics at the University of LausanneUniversity of Lausanne
The University of Lausanne in Lausanne, Switzerland was founded in 1537 as a school of theology, before being made a university in 1890. Today about 12,000 students and 2200 researchers study and work at the university...
in Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
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
Joseph M. Juran
Joseph Moses Juran was a 20th century management consultant who is principally remembered as an evangelist for quality and quality management, writing several influential books on those subjects. He was the brother of Academy Award winner Nathan H...
into the Pareto principle
Pareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
(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
Giovanni Giolitti
Giovanni Giolitti was an Italian statesman. He was the 19th, 25th, 29th, 32nd and 37th Prime Minister of Italy between 1892 and 1921. A left-wing liberal, Giolitti's periods in office were notable for the passage of a wide range of progressive social reforms which improved the living standards of...
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
Fascism
Fascism is a radical authoritarian nationalist political ideology. Fascists seek to rejuvenate their nation based on commitment to the national community as an organic entity, in which individuals are bound together in national identity by suprapersonal connections of ancestry, culture, and blood...
in his last years is a matter of controversy.
Personal life
In the 1920s Pareto remarried. He died in GenevaGeneva
Geneva In the national languages of Switzerland the city is known as Genf , Ginevra and Genevra is the second-most-populous city in Switzerland and is the most populous city of Romandie, the French-speaking part of Switzerland...
, Switzerland, 19 August 1923, "among a menagerie of cats that he and his french lover kept" in their villa; "the local divorce laws prevented him from divorcing his wife and remarrying until just a few months before his death."
Sociology
Pareto's later years were spent in collecting the material for his best-known work, Trattato di sociologia generale (1916) ("The Mind and Society" (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
Arthur Livingston
Arthur Livingston , was an American professor of Romance languages and literatures, translator, and publisher, who played a significant role in introducing a number of European writers to readers in the United States in the period between World War I and World War II.-Biography:Arthur Livingston...
under the title The Mind and Society
The Mind and Society
The Mind and Society is the English title of the seminal sociological work Trattato di Sociologia Generale by the Italian sociologist and economist Vilfredo Pareto ....
(1935), Pareto put forward the first social cycle theory
Social cycle theory
Social cycle theories are among the earliest social theories in sociology. Unlike the theory of social evolutionism, which views the evolution of society and human history as progressing in some new, unique direction, sociological cycle theory argues that events and stages of society and history...
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 nonrational actions to spurious logicality. 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
Talcott Parsons
Talcott Parsons was an American sociologist who served on the faculty of Harvard University from 1927 to 1973....
, who developed a systems approach to society and economics that argues the status quo is usually functional.
Fascism and power distribution
Benoît MandelbrotBenoît Mandelbrot
Benoît B. Mandelbrot was a French American mathematician. Born in Poland, he moved to France with his family when he was a child...
writes:
"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 BritainUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, PrussiaPrussiaPrussia was a German kingdom and historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries, the House of Hohenzollern ruled Prussia, successfully expanding its size by way of an unusually well-organized and effective army. Prussia shaped the history...
, SaxonySaxonyThe Free State of Saxony is a landlocked state of Germany, contingent with Brandenburg, Saxony Anhalt, Thuringia, Bavaria, the Czech Republic and Poland. It is the tenth-largest German state in area, with of Germany's sixteen states....
, IrelandIrelandIreland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...
, ItalyItalyItaly , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, PeruPeruPeru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean....
. 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's discovery that power law
Power law
A power law is a special kind of mathematical relationship between two quantities. When the frequency of an event varies as a power of some attribute of that event , the frequency is said to follow a power law. For instance, the number of cities having a certain population size is found to vary...
s applied to income distribution embroiled him in political change and the nascent Fascist movement, whether he really sided with the Fascists or not. Fascists such as Mussolini
Benito Mussolini
Benito Amilcare Andrea Mussolini was an Italian politician who led the National Fascist Party and is credited with being one of the key figures in the creation of Fascism....
found inspiration for their own economic ideas in his discoveries. He had discovered something that was harsh and Darwinian, in Pareto's view. And this fueled both the anger and the energy of the Fascist movement because it fueled their economic and social views. He wrote that, as Mandelbrot summarizes:
"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."
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
Benito Mussolini
Benito Amilcare Andrea Mussolini was an Italian politician who led the National Fascist Party and is credited with being one of the key figures in the creation of Fascism....
's rule as a transition to this minimal state so as to liberate the "pure" economic forces.
To quote Pareto's 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
Karl Popper
Sir Karl Raimund Popper, CH FRS FBA was an Austro-British philosopher and a professor at the London School of Economics...
dubbed him the "theoretician of totalitarianism," but 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.
It is true that Pareto regarded Mussolini's triumph as a confirmation of certain of his ideas, largely because Mussolini demonstrated the importance of force and shared his contempt for bourgeois parlementarism. He accepted a "royal" nomination to the Italian senate from Mussolini. But he died less than a year into the new regime's existence.
Some fascist writers were much enamored of Pareto, writing such paeans as:
"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."On being sent an anti-Semitic book, Pareto's reply indicated no repulsion for it. But many modern historians reject the notion that Pareto's thought was essentially fascistic or that he is properly regarded as a supporter of fascism.
Economic concepts
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 Leon WalrasLéon Walras
Marie-Esprit-Léon Walras was a French mathematical economist associated with the creation of the general equilibrium theory.-Life and career:...
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 were resurrected during the great "Paretian Revival" of the 1930s and have 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 realized that cardinal utility could be dispensed with—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.
Concepts
Some economic concepts in current use are based on his work:- The Pareto indexPareto indexIn economics the Pareto index, named after the Italian economist and sociologist Vilfredo Pareto, is a measure of the breadth of income or wealth distribution. It is one of the parameters specifying a Pareto distribution and embodies the Pareto principle...
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 histogramHistogramIn statistics, a histogram is a graphical representation showing a visual impression of the distribution of data. It is an estimate of the probability distribution of a continuous variable and was first introduced by Karl Pearson...
, 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 lawPareto's lawPareto's law is either of the following* the Pareto principle* the Pareto distribution...
concerns the distribution of income. - The Pareto distribution is a probability distributionProbability distributionIn probability theory, a probability mass, probability density, or probability distribution is a function that describes the probability of a random variable taking certain values....
used, among other things, as a mathematical realization of Pareto's law. - OphelimityOphelimityOphelimity is an economic concept introduced by Vilfredo Pareto as a measure of purely economic satisfaction, so he could use the already well-established term utility as a measure of a more broadly-based satisfaction encompassing other dimensions as well, such as the ethical, moral, religious, and...
is a measure of purely economic satisfaction.
Major Works
- Vilfredo Pareto. Cours d'économie politique professé a l'université de Lausanne. Vol. I' 1896; Vol. II, 1897.
- Vilfredo Pareto. Les systèmes socialistes. 1902.
- Vilfredo Pareto. Manual of Political Economy. Augustus M. Kelley, 1971 (translation of French edition from 1927).
- Vilfredo Pareto. Trattato Di Sociologia Generale (4 vols.). G. Barbéra, 1916.
Further reading
- Aron, Raymond. (1967) Main Currents in Sociological Thought: Durkheim, Pareto, Weber - Vol. 2 online edition; excerpt and text search
- Bruno, G. (1987). “Pareto, Vilfredo" The New Palgrave: A Dictionary of Economics, v. 5, pp. 799–804.
- Cirillo, R. The Economics of Vilfredo Pareto (1978)
- Eisermann, G.(2001). "Pareto, Vilfredo (1848–1923," International Encyclopedia of the Social & Behavioral SciencesInternational Encyclopedia of the Social & Behavioral SciencesThe International Encyclopedia of the Social & Behavioral Sciences , edited by Neil J. Smelser andPaul B. Baltes, is a 26-volume work. It has some 4,000 signed articles, commissioned by around 50 subject editors, and includes biographical entries, 122,400 entries, and an extensivehierarchical...
, pp. 11048–11051. Abstract. - Femia, Joseph V. Pareto and Political Theory (2006) excerpt and text search
- Homans, George C., and Charles P. Curtis Jr. An Introduction to Pareto: His Sociology (1934) online edition
- Kirman, A. P. (1987). “Pareto as an economist" The New Palgrave: A Dictionary of Economics, v. 5, pp. 804–08.
- Tarascio, Vincent J. (1968) Pareto's Methodological Approach to Economics: A Study in the History of Some Scientific Aspects of Economic Thought 1968 online edition
External links
- Further information from New School University
- Review materials for studying Vilfredo Pareto
- Vilfredo Pareto Biography at the Concise Encyclopedia of Economics. Library of Economics and Liberty, Econlib