Liberty Matters

Pareto’s Value to Contemporary Political Economy

What might Pareto offer for carrying forward a liberal orientation toward political economy? In this my final post to this series, I shall mention six themes within the spirit of Pareto that I believe have value going forward. 
(1) Societies are open-ended and tectonic. While Pareto followed Walras at Lausanne, he did not continue Walras's style of theorizing. Pareto used equilibrium concepts, but these pertained to the form of his theorizing and not the substance, which was emergent and evolutionary. In no way would Pareto reduce a society to the representative agent that equilibrium theory enables.
Nicholas Vriend (2002) argues that Friedrich Hayek would have used agent-based computational models to illustrate his themes about incomplete and distributed knowledge if only that analytical platform had been available. The same can be said about Pareto. Agent-based modeling offers a platform that has potential for working with Pareto's distinction between logical and non-logical action, which can lead easily into a conception of society as open-ended and evolving, with a locus of tectonic disturbances set in motion by clashes between sentiments grounded in persistence and in combination.
(2) The emergence of classes is significant. Classical liberalism has tended to theorize in terms of a classless society, or at least it has regarded class as insignificant. Sure, there have been tendencies to theorize about entrepreneurship, which allows some semblance of class to appear. But even here, it is often noted that entrepreneurship is ubiquitous and potentially open to everyone.
Yet societies are not undifferentiated masses of humanity. Joseph Schumpeter (1934) described entrepreneurship as the locus of leadership in capitalist societies. Modern societies are no longer capitalist in Schumpeter's sense, but leadership persists to give direction to society all the same. That direction, however, is polycentric and not monocentric. There is no lord of the manor to whom subjects must look. There are competing lords, as it were. Leadership creates classes within society, which is a reality with which our theories should seek accommodation.
(3) Leadership is a source of power. Economists treat exchange as mutually beneficial, as illustrated by the Edgeworth box.[16] Behind that box, however, lies a process of leadership and followership. Strangers don't just suddenly trade. Behind any trade rests a relationship between a proposer and a responder. Someone must propose a trade to someone else. If that trade works to the responder's satisfaction, it is surely plausible that the proposer receives some modicum of deference from the responder. An accumulation of such instances, moreover, surely leads to the emergence of the general template leadership-followership.
Within a purely market setting, followership is voluntary as leaders can lead only so long as followers follow. Hence, firms grow only so long as they accord with their follower's judgments. But leaders need not limit themselves to the voluntary judgments of followers. They can turn to politics. Just how they do this depends on the form of political organization. Monarchies differ from democracies. Here again, we come up against Pareto's recognition of the distinction between the generic form of a theory and the specific form that is useful for concrete historical situations.
(4) Pareto and Carl Schmitt are kindred spirits. While much classical liberalism seeks to abolish the political by reducing politics to some combination of ethics and economics, Pareto would surely have accepted Schmitt's (1932) assertion of the autonomy of the political. Where Schmitt asserted that autonomy, Pareto would have sought to explain the processes at work in creating that autonomy.
As for being kindred spirits, Pareto was wrongly tarred with being a Fascist, and Schmitt was similarly wrongly tarred with being a Nazi. Sure, Schmitt was a Nazi for two years and Pareto was never a Fascist. This difference between the two is not minor, but it is pretty much erased by Schmitt's larger biography. (Mehring 2009) A decade before joining the Nazi party, Schmitt implored Chancellor Hindenburg to eject the Nazis and Communists from parliament, which Hindenburg refused to do. It is eminently plausible to think that Schmitt believed he could more effectively civilize the Nazis from within the party than by remaining outside it. He was wrong.
(5) Political power is a Faustian bargain, as Vincent Ostrom (1996) notes. Government entails the use of evil, force over other people, to secure the good of peace. The late 18th-century debates between Federalists and Antifederalists (Storing 1981), shows that the protagonists shared the Faust-like presuppositions, and differed only in empirical presumptions about virtue in relation to the size of government and the ability of individual states to fend off predation from the British, French, and Spaniards.
As a piece of conjecture, it would be interesting to know the outcome of a Gallup poll from around 1780 to determine what share of the population agreed that government entailed a Faustian bargain. My guess is that this share would be well in excess of 90 percent. Should that question be asked today, however, I would guess that number to be under 30 percent. This difference would surely provide useful information for the situation we face.
(6) Eternal vigilance is the price of liberty, and preaching won't reduce it.  Pareto recognized that strongly felt desires trumped constitutional parchment, which Schmitt also recognized in explaining that politics thrives on the exceptions that are always present in any situation. We might have gotten the institutions about right in 1789, but Pareto also recognized that all social processes operate under entropy. History has no end. All the same, theorizing about such an end might soothe a theorist's troubled mind, a sentiment that Mauro Fasiani (1949) attributed to Pareto at the close of Fasiani's paper on Pareto's contributions to public finance.
[15.] Editor's note: On the longstanding tradition of classical liberal class analysis see the Liberty Matters discussion led by David M. Hart, "Classical Liberalism and the Problem of Class" (Nov. 2016) <> and the anthology of writings Social Class and State Power: Exploring an Alternative Radical Tradition, ed. David M. Hart, Gary Chartier, Ross Miller Kenyon, and Roderick T. Long (Palgrave Macmillan, 2018).
[16.] "Edgeworth Box," Wikipedia <>.