Vilfredo Pareto

Vilfredo Pareto
Lausanne School
Vilfredo Pareto.jpg
Nationality Italian
Field Microeconomics
Socioeconomics
Influenced Luigi Amoroso
Contributions Pareto index
Pareto chart
Pareto's law
Pareto efficiency
Pareto distribution
Pareto principle

Vilfredo Federico Damaso Pareto (Italian pronunciation: [vilˈfreːdo paˈreːto]; 15 July 1848 – 19 August 1923), born Wilfried Fritz Pareto, was an Italian industrialist, sociologist, economist, 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 social 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."[1] 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.

Contents

Biography

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 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.[2] In his childhood, Pareto lived in a middle-class environment, receiving a high standard of education. In 1867, he earned a degree in mathematical sciences and in 1870 a doctorate 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.

Civil engineer to liberal to 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 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 Russian, 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 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".[3] Later in life he began writing numerous polemical articles against the government, which caused him much trouble. His observations about the Pareto distribution had changed him from an ardent free enterprise apologist to something of a socialist.[4] His attitude toward fascism in his last years is a matter of controversy.[5]

Personal life

In the 1920s Pareto remarried. He died in Geneva, 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."[4]

Sociology

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."

A great deal of Talcott Parsons' theory of society is based on Pareto's works. Parsons aimed at a sociology canon made of Émile Durkheim, Max Weber, and Pareto.

Fascism and power distribution

Benoît Mandelbrot 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 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".[4]

Pareto's discovery that power laws 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:

"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."[4]

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.[6]

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".[7]

Karl Popper called him the "Theoretician of Totalitarianism".[4]

Pareto was sympathetic to Mussolini, largely because Mussolini claimed to be championing ideas congruent to the ones he had just expressed and Mussolini had admired his ideas. He accepted a "royal" nomination to the Italian senate from his admirer, Mussolini. We will never know if he truly was a supporter of Fascism because he died less than a year into the new regime's existence. However, on being sent an anti-Semitic book, Pareto's reply indicated no repulsion for it.[8]

The fascist writers were much enamoured of Pareto, writing paeans such as the following of his:

"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."[9]

But the truth is he had simply quantified an observation of the human condition. In most societies a few people are extraordinarily rich, a small number very rich, most people in the middle or poor.

Economics concepts

A few economics concepts are based on his work:

See also

References

  1. ↑ Mandelbrot, Benoit; Richard L Hudson (2004). The (mis)behavior of markets : a fractal view of risk, ruin, and reward. New York: Basic Books. p. 153. 
  2. ↑ van Suntum, Ulrich (2005). The Invisible Hand. Springer. pp. 30. ISBN 3540204970. 
  3. ↑ Mandelbrot, Benoit; Richard L Hudson (2004). The (mis)behavior of markets : a fractal view of risk, ruin, and reward. New York: Basic Books. 
  4. ↑ 4.0 4.1 4.2 4.3 4.4 Mandelbrot, Benoit; Richard L Hudson (2004). The (mis)behavior of markets : a fractal view of risk, ruin, and reward. New York: Basic Books. pp. 152–155. 
  5. ↑ Renato Cirillo, "Was Vilfredo Pareto Really a 'Precursor' of Fascism?," American Journal of Economics and Sociology 42.2 (2006), 235-46. "Abstract. Vilfredo Pareto has been labelled a fascist and 'a precursor of fascism' largely because he welcomed the advent of fascism in Italy and was honored by the new regime. Some have seen in his 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. As a political thinker he remained a radical libertarian till the end, and continued to express serious reservations about fascism, and to voice opposition to its basic policies. This is evident from his correspondence with his close friends. There are strong reasons to believe that, had he lived long enough, Pareto would have revolted against fascism." — See also Stuart L. Campbell, "The Four Paretos of Raymond Aron," Journal of the History of Ideas, 47 (1986), 287-98.
  6. ↑ Eatwell, Roger; Anthony Wright (1999). Contemporary Political Ideologies. London: Continuum. pp. 38–39. 
  7. ↑ Borkenau, Franz (1936). Pareto. New York: John Wiley & Sons. p. 18. 
  8. ↑ Wood, John Cunningham; Michael McLure (1999). Vilfredo Pareto : critical assessments of leading economists. London: Routledge. p. 331. 
  9. ↑ Amoroso, Luigi (1938). "Vilfredo Pareto". Econometrica 6 (1): 21. 

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