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.
Background
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.
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 were resurrected during the great "Paretian Revival" of the 1930s and have influenced theoretical economics since.
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.
Education
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 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.
Career
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.
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". 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.
Politics
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.
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.
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 parliamentarism. He accepted a "royal" nomination to the Italian senate from Mussolini. But he died less than a year into the new regime's existence.
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.
Views
The Lausanne School of economics, sometimes referred to as the Mathematical School, refers to the neoclassical economics school of thought. The central feature of the Lausanne School was its development of general equilibrium theory.
Quotations:
"history is a graveyard of aristocracies." V. Pareto
