Liberty Matters

Vilfredo Pareto’s Scholarly Journey from Economics to Sociology


Vilfredo Pareto graduated in civil engineering in 1869, having written a thesis titled "Principles of Equilibrium in Solid Bodies," which Pareto surely carried forward to some degree when he turned to economics in the mid-1880s. Even as an engineer, Pareto was an outspoken liberal in objecting to the regulations he encountered. After turning to economics, Pareto maintained his liberal opposition to state regulation. Alberto Mingardi is surely right to assert that Pareto has a secure place within the pantheon of liberal political economists.
Pareto was a liberal for sure, but it was his interest in scientific explanation that animated his efforts. Pareto's political economy looks different from that of most of his contemporaries. It resembles engineering with such constructs as equations of forces and stresses. Pareto's interest in economics stemmed more from his scientific interests than from a desire to advocate for liberal values and practices. Sure, Pareto engaged in plenty of advocacy on behalf of liberalism. Still, Pareto was more a theorist than an advocate. For Pareto, advocacy must be reconciled with theory and not the other way around.
One can accept a claim on behalf of the social beneficence of free trade while at the same time recognizing that free trade is not the practice of the day. The posture of the activist, which was often the posture Pareto took in the earlier years, would be to engage in adventures in persuasion. All the same, the weakness of the support for free trade presents a scientific question for examination: if free trade is truly superior to restricted trade by some reasonable metric, how can the dominance of restricted trade be explained? This latter type of question came increasingly to engage Pareto's attention.
Indeed, Pareto turned his attention primarily in this direction when he embarked on his sociological studies. Pareto was convinced that a social system based on free and open competition was superior to any of the options where the few dominated the many. Yet free and open competition showed no signs of winning any kind of popularity contest. This situation led Pareto to wonder how he could account for the ability of an inferior social system to dominate a superior system. Wearing his scientific hat while doing so, moreover, Pareto had to engage in explanation and not in exhortation.
In doing this, Pareto imported his understanding of science into his economics. Where economists had mostly started from utilitarian introspection, Pareto thought that economics should be purged of metaphysics. Rather than starting with some metaphysical vision of the human agent, economics for Pareto would start from observed human actions. One can observe what people do and also observe what rationalizations people might give for their actions, which Pareto described as derivations, but one cannot observe states of mind.
Starting economic theory from observations and not from introspection about marginal utilities was a difficult theoretical challenge, as Pareto recognized. Among other things, the observed space of actions is but a small part of the potential space, and generalization from observations is difficult without some way of filling the missing spaces. This is the problem of the integrability of demand functions. Regardless of the obstacles to starting from actions, Pareto thought that economic theory should recognize that actions but not motives are observable. Why people really do what they do is not observable, though people can be inventive in rationalizing their actions. Given our inability truly to know what animates us, we tell ourselves stories about these matters to enable us to feel good about ourselves. Pareto once remarked in this respect that derivations are huge in number while the residues that animate people are few. 
Pareto turned increasingly to sociology after 1900, publishing his four-volume Treatise on General Sociology in 1912. Where his earlier books sought to explain how a social system grounded on freedom of exchange would enable exploitation of the gains from social interaction more fully than the socialist-style systems then in play, his sociological work began from the puzzle of explaining the weak popularity of social systems based on free exchange. Pareto was convinced of the superior merits of free exchange and turned to his sociological inquiries to better understand the limited hold that liberalism exercised over the moral imaginations of Italians despite what Pareto accepted as liberalism's beneficial social value.
Pareto distinguished between logical and non-logical action. This distinction does not mean that Pareto flirted with irrationality. It means simply that Pareto distinguished between the generic form of rational action and the substance of action. Pareto thought substance varied with the environment in which people acted, anticipating some of the work associated with Gird Gigerenzer (2008) in the process. Market environments prompted logical action; political environments prompted non-logical action, which should not be confused with irrational action. Non-logical action has regularity about it; irrational action is chaotic, even in the subject's consideration.
In market environments people work with their own money, whether in their capacity as consumer or business owner. Action in this setting resembles the formation and testing of a scientific hypothesis. A person has money to spend, and several possibilities appear in the mind's eye. A person in this position faces the standard problem of rational action: images must be formed of the options and the one that is anticipated to provide the greatest satisfaction then selected. The chooser might later regret the choice. These things happen. Such happenings, moreover, encourage the formation of secondary markets in used merchandise.
People will doubtlessly differ among themselves in how much attention they pay to the choices they make. People take different approaches to exercising the cares associated with their daily lives. Whatever the associated levels of care a person might take, it occurs within an environment where the chooser gains from wise choices and loses from foolish choices. This is the nature of logical action within market environments. In all environments Pareto regarded people as acting to attain what they viewed as the best among the attainable options. James Buchanan didn't cite Pareto when Buchanan wrote Cost and Choice, but he could have because both thought similarly about human action as seeking to select the best among available options, with availability stressed because political environments present different options for choice than do market environments.
Political environments are different from market environments. People do not bear the value consequences of their political choices. Choosing between candidates is nothing like choosing between products or inputs. One might express a preference for one candidate over the other, but that expression does not yield the product or the input that might have been associated with that candidate. This situation does not mean that action is irrational. It means only that the rationality of action manifests differently in political environments. There can still be reasons for selecting one candidate over the other, only it has nothing to do with products or inputs. It has to do with images and the penumbra of associations those images carry in their wake.
In this respect, Pareto, and also his compatriot Gaetano Mosca, treated political competition as a process by which candidates sought to articulate ideological images that resonated more strongly with voters than the images set forth by other candidates. The result of this competitive process was the possibility of inferior outcomes dominating superior outcomes. Along these lines, Jürgen Backhaus (1978) explained how importing some implications of Pareto's thought into public choice theory could lead to a sharper understanding of how acceptable political programs would have been rejected under market arrangements, with Patrick and Wagner (2015) amplifying Pareto's scheme of analysis.
Michael McLure (2007) provides a careful and masterful survey of Pareto's scheme of thought in relation to other Italian public-finance theorists of Pareto's time. The friendly debates among these thinkers concerned the extent to which the gulf between economic and political action could be bridged. Theorists like Pareto and Gino Borgatta thought the gulf unbridgeable. Theorists like Maffeo Pantaleoni, Antonio de Viti de Marco, and Luigi Einaudi labored under the belief that a bridge could be developed. All of these Italians contributed to the development of an explanatory treatment of public finance and anticipated public choice thinking, with Buchanan continuing that scheme of scholarship mostly in the vein of Pantaleoni, de Viti, and Einaudi.
To a passionate supporter of liberalism, Pareto must have seemed aloof and even cold. Yet that view is surely superficial. One of Pareto's most avid students, Mauro Fasiani, published a lengthy survey of Pareto's scholarship on the theory of public finance in the 1949 issue of Giornale degli Economisti. In closing his essay, Fasiani recalled Pareto being asked whether he thought society would be better if more people shared Pareto's belief in the value of scientific detachment. Pareto responded negatively, declaring that most people live on faith and need to believe in the goodness of their efforts at persuading one another. Societies need some people imbued with scientific spirit, but mostly they need people who have faith in their efforts at mutual persuasion.