Nowadays, for economists, as well as for the majority of historians of economic thought, the name Vilfredo Pareto evokes only the notion of the Paretian optimum and, conceivably, his law on the distribution of income. Such a condensation, while not completely off the mark, is decidedly uncharitable with regard to one of the last scholars who attempted, in the typically nineteenth-century manner, to examine social phenomena from differing economic, sociological and political standpoints. As Pareto did not spend all his life as an academic, we subscribe to the view that to gain an understanding of his complex scientific output requires not only a patient and detailed exegesis of this output itself but also its meticulous contextualisation within the framework of the subject’s intellectual biography.
The 75 years of his life stretching from the second half of the nineteenth century to the 1920s were a period marked by social, economic and political changes, not only on a European scale but worldwide, and this, together with the voluminous writings which fill the 32 volumes of his complete works, in themselves justify the publication of a very extensive intellectual biography. The additional fact that his life and works continue to be very little known, and not only among an Anglo-Saxon readership, also warrants a detailed treatment.
The organisation of the results of this wide-ranging research into three volumes is in turn justified by the fact the Pareto’s intellectual life story can be meaningfully thus divided. It also offers the advantage of not imposing on our kind readership an excessive effort of concentration, especially for those readers who are less familiar with an inductive approach, where greater emphasis is placed on detail of analysis than on interpretation.
The first volume deals with a part of Pareto’s intellectual biography which is unknown to the wider public and is familiar even to the small group of specialists only on the basis of a limited number of episodes. This relates to the period of over 40 years which Pareto, having completed his academic groundwork, spent at the helm of an ironworks in Tuscany which constituted one of the first major Italian industrial concerns. From the intellectual point of view this was a phase during which Pareto gradually relinquished his youthful enthusiasm for science as a panacea for all social ills, to be replaced by a liberal ideology in the widest sense, that is, covering the political, economic and broadly philosophical arenas.
This volume opens with a section devoted to Raffaele, Pareto’s father. A younger son of a Genoese family of nobles, he was, as was common in aristocratic Italian families of the time, destined for a military career. This prospect, however, came to a sudden end following his involvement in a revolt by the army of the Kingdom of Sardinia. Raffaele went into exile in France where he remained for over 20 years (from 1833 to 1854), marrying a Frenchwoman (who bore him two daughters as well as Vilfredo) and putting to use the mathematical and engineering skills he had acquired at the Academy of the Corps of Engineers in Turin. Back in Italy, after a brief period engaged in teaching and in technical journalism, he embarked on a long career in the civil service as a hydraulic engineer, dying in 1882 after taking personal charge of Vilfredo’s early education and orienting him decisively towards mathematical and engineering studies.
The volume continues with a painstaking and groundbreaking examination of Vilfredo’s school and university education, starting from a detailed reconstruction of the curriculum he followed at Technical College in Casale Monferrato and in Turin, and later at the faculty of mathematics and at the School of Specialisation for Engineers in Turin. Thereafter, making reference once again to unpublished documentation, the content of two among the courses he attended, the courses in calculus and in theoretical mechanics, is examined. Thus, we obtain, at last, a picture of the origin of the two logical tools most used by Pareto in his later scientific career, that is, calculus and the concept of equilibrium.
The best-known aspect of Pareto’s life prior to his departure for Lausanne has hitherto been the two decades spent in the management of a major metallurgical group in Tuscany, one of the prime operators in the nascent Italian iron industry. Drawing on the masterly work on this subject published 40 years ago by Giovanni Busino and on a painstaking review of extant original documentation, including the minutes of the board of directors and, in particular, his ample unpublished correspondence, this period is reconstructed with the novelty of an in-depth focus on the twin themes of Pareto’s application of the expertise he had freshly acquired at university and his hands-on experience of the operations of a complex industrial concern. After touching on the short-lived and tempestuous period he spent working for a railway company, a detailed account is given of his eight intense years in the management of the ironworks at San Giovanni Valdarno, a locality on the Florence-Arezzo railway line. Here Pareto’s stance of constructive criticism in relation to the economic fundamentals of the company under his management is described, together with his attempts to resuscitate the business through technological improvements and through an aggressive commercial strategy, as well as his complex but caring relations with the workforce, which help to explain his later disenchantment with humanitarian ideas. Thereafter, the following decade he spent as General Manager of the group, which was owned by a merchant bank and of which San Giovanni continued to be the flagship, is reconstructed in similar detail. Having described the ongoing problems of profitability affecting the business, a thorough account is given of the interesting continuing debate within the company, including Pareto’s frequently contentious contributions, on the reasons for this poor performance and on the disastrous financial speculation which brought an end to his managerial career, regarding which many details remain in need of clarification. Against this background, the technological and organisational set-up of the San Giovanni ironworks in the 1880s (with Pareto still keenly involved) is described, together with the parallel problems experienced by the other plants in the group. Space is also dedicated to Pareto’s failed attempts to find the ideal location for the plants by transferring them either to Torre Annunziata near Naples, which offered the prospect of lower transport costs for raw materials, or to the outskirts of Milan where they would enjoy lower costs for the transport of finished products to the city which was then becoming the most important Italian market for iron. We then turn to the strategies adopted by Pareto for the purchase of the disused railway line rails which constituted the principal raw material used by the ironworks and to the complex and shifting alliances he established with some of the main rivals, as well as to a rather unprofitable venture on the island of Elba, which was Italy’s only major source of iron. Also dealt with are Pareto’s attempts to obtain more favourable railway tariffs, which he clearly preferred to the Italian government’s policy of customs protectionism.
We then accompany Pareto through the many intellectual pursuits in which he engaged during this period, all characterised by his precocious liberal intellectual outlook. Here we base ourselves on a dedicated new examination of his publications and of his correspondence. This investigation begins by expanding on his political liberalism, explicitly drawing inspiration from the ideas of John Stuart Mill but also, apart from a brief but intense period of activism in favour of a proportional electoral system, with further adjuncts in favour of religious freedom and of the emancipation of women. This is followed by an acknowledgement of his original economic liberalism which was of an avowedly ideological nature, even if it was further sustained by the disastrous consequences, as had been amply demonstrated in the course of economic history, of state interference in the economy. Lastly, we will underline his enduring interest in methodological issues, which had already manifested itself during his university years and where he fully subscribed to Mill’s positivistic stance, complemented by elements borrowed from the Franco-Belgian free-trade economist Gustave de Molinari to whom Pareto remained very close, also on a personal level, between the late 1880s and the mid-1890s.
A further aspect of Pareto’s intellectual development prior to his departure for Lausanne, hitherto acknowledged only in a very superficial and indirect manner, consists in his political activism. This is covered starting out from a detailed reconstruction of the electoral campaign leading to his ill-starred candidacy in the elections of October 1882, the first to be held under the new proportional system with a more extended electorate. His defeat, although initially accepted with stoicism, convinced Pareto never to repeat the experience and certainly contributed to the deep aversion for politicians which underlay his later sweeping analyses of political events. This is followed by an account of his activities with the municipal council of San Giovanni Valdarno, of his incipient distaste for Italian colonialism and also of his progressive but short-lived attraction for the Radical Party, on the extreme parliamentary left, after ten years of loyalty to the conservative liberalism of Florentine political circles.
The volume concludes once again with a detailed and instructive analysis of the amateur but incisive writings which Pareto published during this period, and which often took their cue from the political debates which he followed with such lively interest. Thus we present his thoughts, emerging not only from his ideological position but also from his professional experience, in regard to the government’s proposed nationalisation of the railways in the mid-1870s. Pareto was against this idea, especially as regards the bureaucratic management of the lines, using arguments which he raises into a sort of general theory of the state’s business incompetence. This is followed by descriptions of his novel economic analysis of the measures proposed in the 1880s in support of the working population and of his thoughts on the burden of taxation, public expenditure and birth control. This is followed by an investigation of the analytical grounds for his opposition to the customs barriers erected by Italy in 1887 and to the abolition of the fiat money which was decreed in 1883. Lastly, we come to a systematic review of his early ideas on socialism, on economic theory, on sociology and on political science.
The second and third volumes will deal with the last 30 years of Pareto’s life, showing, based on the broadest possible documentation and in the necessary wealth of analytical detail, his progressive and irreversible dedication to his scientific activities.
The second volume will focus on the relatively brief but intense period of eight years which saw his transformation from an ex-manager of ironworks in Italy into a university professor in Lausanne. We emphasise that, contrary to a widespread teleological perception of Pareto’s intellectual biography, here the element of chance played a role. However, certain of Pareto’s qualities, such as his tenacity, his wide-ranging and adaptable scientific skills and the fact of being a mother-tongue speaker of French, proved decisive.
The volume opens with a chapter reconstructing as accurately as possible the event that permitted Pareto to leave his past as a disgraced manager behind him and to look towards new employment. This was the invitation from the University of Lausanne, with the approval of the local administration, to replace, from the spring of 1893, the French economist Léon Walras, who, in the course of 20 years, had developed a novel mathematically based approach to economics together with a revolutionary general theory of economic equilibrium, which had brought a certain international renown to himself and to the university. Pareto’s summons to Lausanne was largely, but not decisively, prompted by Walras himself, who, although Pareto had not been his first choice, had been favourably impressed by Pareto’s early studies in mathematical economics and by his perfect command of French. Thanks also to positive feedback on the part of the students, Pareto was rapidly elevated to the chair, steadily continuing the teaching activities from which his first major work, the Cours d’économie politique, emerged, until 1898, when, having come into a large inheritance from an uncle, he decided to retire in order to dedicate himself to his studies of sociology. This marked the beginning of an amply documented ten-year period of difficult relations with the university, which, not wishing to lose its new and already prestigious professor, agreed to all Pareto’s various requests for preferential teaching conditions, which were also motivated by his increasingly precarious state of health. The organisational set-up of the university during Pareto’s time, often neglected, is here reconstructed in some detail. His involvement came to an end in 1909, with his duties being taken over by two of his protégés, the Italian Pasquale Boninsegni for political economy and Maurice Millioud of Lausanne for sociology, his relations with both of whom were to deteriorate rapidly. Our coverage will conclude with a particularly detailed and in part innovative description of Pareto’s didactic activities in Lausanne and of the very important role he played in the organisational innovations the university decided to adopt in this period with regard to the social science disciplines, culminating in the creation of the School of Social Sciences in 1902.
As in the preceding period, Pareto’s scientific ideas continued very often to take their cue from his observation of the political scene in Italy, and henceforth also in Switzerland. Thus, we provide a broad and in-depth account of Pareto’s views on the ongoing economic crisis in Italy (which he attributed to the protectionist measures introduced in 1887) and of his interpretations of the various economic, customs, monetary and banking issues faced by Italy in the sphere of economy during this period. Further detailed information, which has hitherto been largely ignored, is then provided concerning his enduring sympathy for the pacifist and anti-colonialist causes as well as the motivation for his continuing focus on the parties of Italy’s contemporary extreme left, that is, the radicals, the republicans and the socialists. We then turn to his increasingly disillusioned comments regarding the prospects for liberalism, particularly in Italy and in Switzerland, where he had for a period identified its last stronghold. Lastly, we will dwell briefly on the self-help organisations which Pareto had actively frequented towards the end of his time in Florence and after his arrival in Lausanne, whose affirmative philosophy of mutual solidarity he had viewed for a while as representing the harbingers of the future of the liberal outlook.
Against the broad intellectual canvas we have thus far painstakingly described, making use of unpublished documentation together with an innovative systematic interpretation of Pareto’s writings prior to his departure for Lausanne, we will at last be in a position to examine the development of his economic thinking, which in this period was going through its first highly intense phase. Here we will attempt to give the most rigorous descriptions possible of all its numerous facets, making use as necessary of mathematical demonstrations, but also, and most importantly, attempting to render his ideas in a clear manner accessible to readers from all types of academic background.
We will set out from the conception of pure economics which is at the root of all Pareto’s economic theory. After reviewing the methodological positions he adopted at various times, in which he consistently underlined the need for both premises and conclusions of scientific reasoning to conform to the real world, we pass on to his statistical approximation of the concept of the final degree of utility which he used as the basis for an analytical extrapolation of the laws both of supply and of demand. The fundamental theory of economic equilibrium is then explored from the viewpoint of pure economics, both in Walras’ version relating to exchange, production and capitalisation and in Pareto’s supplements dealing with international trade and economic systems involving monopolists.
This constitutes the broad conceptual context for Pareto’s most original contribution to economic theory, today referred to as the economics of welfare. Beginning from a number of Pareto’s overlooked insights and from an interesting empirical exercise relating to the utility of railways, we follow Pareto’s first demonstration of the optimality of free competition, which led him to be able to define, for the first time, the concept of optimal allocation (known today as Paretian optimality), that is, that state from which it is possible to deviate only by increasing the utility of some individuals while diminishing that of others.
This constituted the theoretical basis which Pareto took as his starting point to develop his analysis of a number of topics which he had already examined in the course of the 1870s and 1880s. Thus, his original free-trade proselytism was developed, via a free-trade formal critique of the protectionist position adopted by the Austrian mathematical economists Auspitz and Lieben, into the formulation of an innovative mathematical theory of international trade, in turn leading to a reformulation of Ricardo’s theorem and to a fresh empirical assessment of the consequences of customs protection in Italy. Issues surrounding the currency, for their part, were re-examined on the basis of the concept of the final degree of utility which imposes certain general speculations regarding the circulation of money and also further scrutiny of the problems affecting the precarious Latin Monetary Union. This topic is concluded by an eclectic and innovative outline of the general equilibrium of the international monetary system. An abundance of further reflections are then presented, in as orderly a manner as possible, on other practical questions which had already been touched on by Pareto before, such as the demographic issue, public finance and socialist economic theory, to which were added others such as the historical trend of interest rates and salaries and the investigation of economic crises.
This is the broad theoretical and empirical background to the first insight which brought Pareto renown, that is, the law of income distribution. This topic is covered in detail both in terms of its analytical development and in terms of its political implications (opposition to socialist redistribution of wealth, enthusiasm for the efficiency brought by free trade and for birth control), together with its possible conceptual links with the related studies conducted in the same period by the German sociologist Ammon. Brief summaries of Pareto’s ideas on the calculation of probability and on methods of interpolation follow.
The fact that, as of the summer semester of the 1896–1897 academic year, Pareto felt able to satisfy the university’s unexpected request to teach a course in sociology clearly suggests that his knowledge of sociological topics was already quite advanced. This will be demonstrated by an account of his considerations at the time in relation to private property and on the notion of the interdependence of social phenomena, which he viewed as also being fundamental in sociology, together with an account of his academic treatment of evolutionism, a topic he had started to give thought to 20 years earlier. Also provided are descriptions of the notions which were to typify his interpretation of sociology, notable among which was the first distinction between logical and non-logical actions. Similarly, we will investigate some of Pareto’s theoretical ideas on politics, bearing on themes such as the need for political organisation of society, the nature of government, the behaviour of politicians and the classification of political parties. The volume concludes with original research relating to Pareto’s earliest critical success in the form of the numerous international reviews of the Course in political economy and the initial debate which greeted the law on income distribution.
The third and final volume bears on the last 25 years of Pareto’s life which, with the end of his remaining illusions concerning the political and economic acceptance of the libertarian creed, were dedicated entirely to science. We have deemed the continuation of our attentive analysis of Pareto’s observation of real-world phenomena to be dispensable, on the basis that his scientific work in this period appears self-sustaining. Notwithstanding this, the great political events of the epoch, such as the F...