Vilfredo Pareto (1848-1923)

Vilfredo Pareto is best known today for concepts that are common currency in the social sciences. His name became a sort of prefix. “Pareto optimality” (a state in which resources cannot be reallocated to make one individual better off without making at least one other individual worse off) and “Pareto distribution” (the 80-20 rule) immediately come to mind. Yet both notions are rather parsimonious accounts of the scope of Pareto’s work.

Pareto’s contributions lie at the foundations of three social sciences: neoclassical economics, sociology, and political science. Their relevance is all the more staggering if one considers that Pareto immersed himself in scholarship full-​time only after he reached 40.

Vilfredo Pareto was born in Paris on July 15, 1848, the son of Raffaele and Marie Métiener. Raffaele came from an aristocratic family in Genoa. However, despite his lineage, he was forced to leave the country for political reasons in 1833, as he took part, as a “sapper cadet nearing promotion to officer rank” (Mornati 2018, 16), in a conspiracy of the Giovine Italia, Giuseppe Mazzini’s movement, against the Piemontese government. Military conspirators were supposed to be executed, but the king was lenient, and Raffaele and his family could make their return to Piedmont in 1854. Raffaele was a first-​rank engineer. His main influence on his son was not political: he inspired the latter’s passion for mathematical and engineering studies and practical applications.

When it comes to Vilfredo’s political leanings, he remembered that, around sixteen, he “happened to read two quite opposed authors, namely [Jacques-​Bénigne] Bossuet and [Frédéric] Bastiat”. He “intensely abhorred the first”, a great theorist of French absolutism, and instead found that the great free trade economist “wholly pleased my inclinations”. Pareto reasoned in maturity, such inclinations were “quite opposed to those of the persons I lived with, so that I can say that they were not acquired – but were instead a consequence of my natural character” (1907). The source of the political leanings of any individual was later a riddle Pareto attempted to solve with his sociology, foreseeing themes and issues now at the heart of cognitive psychology. He would understand, with time, that men’s theories and beliefs are the cloak of their intimate feelings, which are the driving force behind human actions.

Young Vilfredo undertook technical studies, acquiring “an excellent command of formal mathematics” (Mornati 2018, 39) and graduated in engineering in 1870. He immediately landed a job in a railway company in Florence. In 1872 he moved to an ironworks company, chaired by Ubaldino Peruzzi, the doyen of liberal politics in Florence. Peruzzi, who had been briefly a minister and was to be Mayor of Florence between 1869 and 1878, took Pareto under his wing as a business manager and political activist. Pareto was quickly put in charge of the ironworks in San Giovanni Valdarno, beginning two decades in senior management. In the following years, Pareto had frequent skirmishes with shareholders and the board of directors. He also observed firsthand the making of industrial and welfare legislation.

Italy had inherited from the Kingdom of Sardinia, which had unified it at gunpoint, a free trade economic policy based on low tariffs. Working in the iron business, Pareto saw that the new protectionist regime, based on higher tariffs approved in 1887, was the working of vested interests and hampered genuine entrepreneurial innovation. His interest in public affairs grew with his involvement with Peruzzi and his disappointment with the Italian ruling class. “Laissez-​faire”, for Pareto, was the opposite of “laissez-​faire the thieves”: which he saw as a more common attitude among the architects of the Italian system of protectionism.

Pareto’s public debut was a speech on the virtues of proportional representation. He followed John Stuart Mill (whose writings exerted a profound influence on him) and Thomas Hare. Pareto considered that the proportional principle was a healthy antidote to the abuses of majority voting, allowing minorities to be protected in the political process. Right from the beginning of his career, he defended the expansion of the franchise and the boundaries of democracy, a process that he soon realized was not to change the nature of government.

Pareto always looked at England with interest and admiration. Like many other libertarian economists in continental Europe, he sincerely admired Richard Cobden. Pareto marveled at how the Anti-​Corn Law League managed to mobilize people in support of the cause of free trade. What Italy needed, he argued in his youthful articles, was a movement like Cobden’s, a vast attempt to educate people in economics so that they wouldn’t be seduced by the sirens of protectionism. An enthusiast of the economic science, he thought a better degree of economic literacy was key to a more critical understanding of governments’ frequent overpromising.

In the 1880s, Pareto was an active voice in the Florentine public debate and began to contribute to newspapers and journals. His main interest was economics, but the articles of these years show the peculiar bent of his liberalism. Reminiscent lessons gleaned from Herbert Spencer (another of his heroes), Pareto argued that when “no harm is suffered in legal terms, the state has no duty to intervene” (1877).

Though Pareto forged his views in reading the economists (such as Bastiat, mentioned above as well as Gustave de Molinari, with whom he developed a lifelong friendship), Pareto’s liberalism was not exclusively economic. Perhaps one of Pareto’s core values was his irrepressible advocacy of free speech.

Pareto’s posture had an unmistakably aristocratic flavor. In dealing with the mundane world, he shows a veritable disdain for petty interests. He likewise disavowed liberals who thought liberty was to be enjoyed only by their kind, excluding ideological enemies.

In particular, Italian liberals tended to be vehemently anti-​Catholic because the Church stood in the way of Italy’s unification. Hence Church properties were nationalized, its educational institutions dismantled, and the political presence of Catholics severely limited. Italian liberals supported these measures, in part because of their secularism, in part because of the fear the Church could outcompete the fragile Italian State for the allegiance of its subjects.

Pareto expressed distinctively different views. In 1878, he took a position against the introduction of a prohibition to celebrate church marriages before the corresponding civil ceremony. He favored the (gradual) introduction of the right of priests to stand in elections, not to mention the establishment of theology departments and Catholic universities. Let people speak whatever they wish.

His advocacy of freedom of speech did not arise out of sympathy for the Catholic religion. In 1911, he published a short pamphlet on the “virtuistic myth and immoral literature”, defending the possibility for allegedly “immoral” literature to circulate regardless of prudish pretensions.

In his sociology, Pareto was to look at enthusiasm of any kind, political and religious, with a severely critical eye: “Faith by its very nature is exclusive. If one believes oneself possessed of the absolute truth, one cannot admit that there are any other truths in the world. So the enthusiastic Christian and the pugnacious free-​thinker are, and have to be, equally intolerant” (1916, § 6).

Increasingly, Pareto was to become the dispassionate sociologist par excellence (though his writings were consistently interwoven with bursts of passion), after he moved to Switzerland. After many a skirmish with the ironworks Board of Directors, in 1891, he severed all ties with the business and concentrated on his writings. He had read Maffeo Pantaleoni’s Pure Economics and befriended its author. Ten years his younger, Pantaleoni was already a renowned economist. He was well known internationally and helped introduce Pareto to Leon Walras, who bequeathed Pareto his chair in Lausanne. At age forty-​five, in 1893, the former business manager turned professional academic.

By his almost frantic correspondence with Pantaleoni, we know that Pareto first took teaching as a mission to enlighten younger generations with the truths of economics. Likewise, he initially considered Walras’s equations to be an elegant formalization of theorems of classical economics. In a few years, however, his methodological approach evolved.

In his Cours d’économie politique (1896-97), Pareto proposed a vision of political economy that was profoundly indebted to authors such as Molinari, the Italian Francesco Ferrara (the doyen of Italy’s libertarian economists) and Herbert Spencer. The second “book” (of three) of this work was devoted to an analysis of the “economic organism” in which the author stressed, in a Spencerian fashion, the “mutual interdependence of social phenomena”. Yet Pareto was squarely in the camp of the economic innovators, namely the marginalists. He deemed the theory of subjective value the “science of ophelimity” (a term derived from the Greek, which suggests the ability of a good to satisfy wishes), stressing that such theory does not consider value as an intrinsic property of the economic good but rather the result of subjective evaluation.

In 1906, Pareto devoted his Manual of Political Economy instead to a systematic illustration of the general economic equilibrium theory, somehow reminiscent of a textbook in the “hard sciences”. In that text, he outlined the basic tenets of what was later called “welfare economics”. Together with the notion of the Pareto equilibrium (which designates a situation such that it cannot be modified to improve the position of some economic agent without making at least one other economic agent worse off), his best-​known contribution is perhaps the abandonment of the cardinal notion of utility in favor of an ordinal notion.

But if in Pareto’s economics the notion of stable equilibrium reigns, his reflections on politics were more and more focused on human beings’ apparent abandonment of rational motives. Many years spent preaching laissez-​faire impressed upon Pareto an understanding: while active in politics, human beings were not always pursuing their own interests. That tended to be true of the elites, but not ordinary people.

The cornerstone of Pareto’s political science is that “peoples are everywhere ruled by an aristocracy, in the strictly etymological understanding of this term, to mean the stronger, the most energetic, and the most capable, for better or worse” (1911). At the same time as – but independently from – Sicilian historian and political scientist Gaetano Mosca, Pareto saw that politics comes with a fundamental inequality: some have powers, and some have not.

He thought that any form of liberalism which neglected to address the problem of a few living at the expense of everyone else, was little more than an ideology at the service of the ruling classes. One of his criticisms of other liberals was that they had selectively read Frédéric Bastiat: on the one hand, liberals were imbued with Bastiat’s optimism and celebrated the triumphs of economic growth whatever the problems looming on the horizon. On the other hand, they hypocritically forgot to remember that Bastiat had been a great critic of “plunder”: the state is indeed, as Bastiat had observed, that great fiction by which everyone tries to live at the expense of everyone else. Since his early criticism of protectionism, Pareto elaborated on this notion, showing how personal interest lies behind magniloquent political appeals.

For this political realism, Pareto was hailed as “the Marx of the Bourgeoisie”. Pareto found Marx’s observations about historical class struggle congenial but despised his economics, which had been made obsolete by marginalism and vigorously debunked by Eugen von Böhm-​Bawerk. He wrote an introduction to the French translation of Das Kapital, vol 1 (1897) and a treatise, Les Systèmes Socialistes (1903), in which he focused on the religious nature of socialist doctrines. Whatever its revolutionary promises, socialism was an ideological mantle for new rulers aiming to supplant the old ones. Pareto looked at socialists sometimes with considerable sympathy, particularly in the Italian context. He thought their economics to be as bad as those of the protectionist rulers, but at least their motives were purer. “Bourgeois socialism”, which we may call today “crony capitalism”, was always his bête noire. Many of Pareto’s essays (particularly the pieces sent to Liberty magazine) foreshadow aspects of the famous Italian novel, The Leopard in which Guiseppe Tomasi di Lampedusa presents a perspective on the corruption and opportunism that characterized the dying of the old regime in Italy.

After a lifetime of struggling with politics, Pareto’s 1916 Treatise of Sociology (translated as The Mind and Society) was his ultimate attempt to come to grips with these concerns. The Treatise is predicated on the distinction between logical actions, those in which goals and means are easily attuned, and non-​logical actions. “Non-​logical action denotes actions for which there is no direct connection between action and outcome” (Wagner-​Candela 2016).

Therefore, the first tends to occur within the scope of markets (“in the economic system the non-​logical part is entirely relegated to tastes and disregarded, since tastes are taken as data of fact”, 1916 § 2079). In politics we see mainly illogical action: the declared goals and the means to pursue them are barely attuned. In Pareto’s view, “to believe that ideologies do always represent the goal of those who deploy them, and to believe that they never do, are in equal measure errors” (1918).

He thought the sociologist and the political scientist need indeed to confront illogical and irrational motives and explain them as well as they could.

“When the logician has discovered the error in reasoning, when he can put his finger on the fallacy in it, his work is done. But that is where the work of the sociologist begins, for he must find out why the false argument is accepted, why the sophistry persuades. … the fallacious, or for that matter the sound, theories that enjoy wide acceptance are of the greatest concern to him. It is the province of logic to tell why a reasoning is false. It is the business of sociology to explain its wide acceptance.” (1916 §1411)

Most actions in politics and other realms of human life, should be considered as based on instinctive motivations alone.

Pareto distinguished between “derivations”, the logical justifications we use to rationalize our own actions, and “residues”: beliefs that are the mere by-​products of instincts that can hide the real source of actions. Residues drive behaviors. He distinguished six classes of residues. Two are the most important: class I (instincts of combinations) and class II (persistence of aggregates). These two classes are respectively associated with the innovative and entrepreneurial, and the conservative behavior.

In politics, they can explain the behavior of, respectively, speculators – who are city slickers, ready to take advantage of anything, including reckless public finance initiatives – and “rentiers” – those more unimaginative types who care deeply about the stability of their possessions, favor routine, save steadily and eschew debt. Pareto, who saw public finance as basically a Ponzi scheme, considers the first group to be the winners of modern politics, and the “rentiers” to be largely the losers.

In his later years, Pareto had become so much of a point of reference in the Italian debate that fascists tried to claim him on their side. And indeed, Pareto’s political realism made him inclined to support, in the very specific circumstances of early 1920s Italy (when the possibility of a Bolshevik-​like uprising was very real) the young Benito Mussolini. In his last article, published posthumously in 1923 (when the fascists were far from showing their true face), Pareto left the new Mussolini government with an agenda of reforms. The point he made most forcefully was that freedom of the press was necessary and should be preserved.

Pareto’s entire career was an attempt to dissect the illusions of politics, see clearly through them, and mock them frequently. In the face of political power, Pareto was the ultimate skeptic.

CANDELA, R. & R.E. WAGNER (2016), “Vilfredo Pareto’s Theory of Action: An Alternative to Behavioral Economics”, Il Pensiero Economico Italiano, vol. 24, no. 2. URL: https://​papers​.ssrn​.com/​s​o​l​3​/​p​a​p​e​r​s​.​c​f​m​?​a​b​s​t​r​a​c​t​_​i​d​=​2​8​41529

MORNATI, F., 2018, Vilfredo Pareto: An Intellectual Biography Vol. I, From Science to Liberty (1848-1891), London, Palgrave Macmillan.

PARETO, V.

(1877) “Della logica delle nuove scuole economiche”, now in OEuvres Complètes, Vol. 22, pp.75-100.

(1896-97) Cours d’économie politique proféssé à l’Université de Lausanne, now in OEuvres Complètes, Vol. 1.

(1897) Introduction to K.Marx, Le Capital, extraits faits par M.Paul Lafargue, now in OEuvres Complètes, Vol. 9, pp.33-70.

(1901) “Un’applicazione di teorie sociologiche”, now in OEuvres Complètes, Vol. 22, pp.178-238.

(1901-02) Les systèmes socialistes. Cours proféssé à l’Université de Lausanne, now in OEuvres Complètes, Vol. 5.

(1918) “Il supposto principio di nazionalità”, now in OEuvres Complètes, Vol. 22, pp.744-754.

(1906) Manual of Political Economy: A Critical and Variorum Edition, ed. by A. Montesano, A. Zanni, L. Bruni, J. S. Chipman, & M. McLure, Oxford: Oxford University Press, 2014.

(1907) Lettera A. Antonucci, December 7, now in Id, Scritti politici II. Reazione, libertà, fascismo (1896-1923), d. By G. Busino, Utet, Torino 1974.

(1916) The Mind And Society [Trattato di sociologia generale], ed. by A. Livingstone, New York, Harcourt, Brace & Co, 1935.