Pareto, Vilfredo Federico Damaso (1848-1923)

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James Knight

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Updated: Aug 20, 2021

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An Italian born in Paris, Pareto was trained as, and practised as, an engineer. He succeeded his father to a post in the ltalian Railways, and in 1874 was appointed Superintendent of Mines for the Banca Nazionale, Florence. He succeeded L. Walras to the Chair of Economics in the Faculty of Law at Lausanne University in 1892. His publications include Cours d’economie politique (1896-7) and Manuale di Economica Politica (1906). He retired in 1907. He developed analytical economics from the foundation laid by Walras. He pointed out the shortcomings of any theory of value in so far as it rested upon assumptions of measurable or ‘cardinal’ rather than ordinal utility. He demonstrated that an effective theory of consumer behaviour and exchange could be constructed on assumptions of ordinal utility alone. Exchange would take place in a competitive market between individuals such that the ratios of the marginal utilities of the goods traded equalled the ratio of their prices. An optimum point of exchange could be defined without the need to compare one individual’s total utility with another’s. He defined an increase in total welfare as occurring in those conditions in which some people are better off as a result of the change, without at the same time anybody being worse off. Pareto’s work in this field, coupled with the development of indifference curve analysis, invented by F. Y. Edgeworth, was the foundation upon which modem welfare economics is based. A study of the distribution of personal incomes in an economy led him to postulate what became known as Pareto’s law, that whatever the political or taxation conditions, income will be distributed in the same way in all countries. He noted that the distribution of the number of incomes is heavily concentrated among the lower income groups, and asserted that the number of incomes fell proportionately with the size of income. Pareto’s law has not, in fact, proved valid in its strict sense.

Reference: The Penguin Dictionary of Economics, 3rd edt.