DECON Conference 2023

Vilfredo Pareto, a continuing, contentious legacy: Commemorating the centenary of Pareto’s death

“The foundation of political economy, and, in general of every social science, is evidently psychology. A day may come when we shall be able to decide the laws of social science from the principles of psychology […]” (Pareto, 1906, p. 35, En. tr.).

Celebrated by some and decried by others, Vilfredo Pareto’s place in modern economics and social analysis continues to arouse debates, controversies, but also ambivalences, especially with regard to subjects and methodologies. If neoclassical economists unarguably acclaim his preeminence within the standard approach to economics, while disputing and rebutting his breakthrough in economic sociology, other social scientists are quite outraged by some of his works, as well as his fairly impenetrable theories and epistemology. Though sometimes not fully understood and digested by much of the standard economics profession itself, Pareto is one of the few scientists still regarded as a classic in several areas of research in the social sciences, quantitative methods, engineering, social physics, and policy-making. In addition to economics, indeed, he is a classic of economic sociology, philosophy of science, political science, public finance, and statistics, just to mention some, with an extraordinary combination of scientific competencies and qualities (among others, see mainly Pareto, 1900, 1901a, 1901b, 1910; de Finetti, 1935; Davis, 1949; Fasiani, 1949; and Mirowski, 1989).

It is fitting to open this Call by highlighting the broader Pareto frontier and some references for the analysis eschewing and crossing sharp disciplinary boundaries with the scientific aim that is proper to Pareto, that is, to attempt bridging economics and the social world. If a reflection on the end of post-modernity and the beginning of the post-truth age could be elaborated by having an eye for economics and the substantive view of the economy, Vilfredo Pareto’s scientific thought would become a critical point of reference for the new generations of scholars and a must-read, particularly for those with a background in the social sciences. Although questionable and even idiosyncratic for some, Pareto (1892-3) contributes significantly to providing social scientists above all with methodological tools and meta-logical structures for understanding a complex and difficult-to-define reality: Consider, by way of example, the current stalemate in economic and social development which finds no solution either in socio-economic stimuli of the Keynesian type, or in favouring economic stability by targeting the growth rate of the money supply along with austerity measures and the related autopilot, due to the absence or scarcity of trust and for the abnormal effects generated by financial behaviour in recent decades (among other issues, see how fragmented and polarised the public sphere has become, as well as how market decisions are actually made—especially financial market decisions—and the subtle mechanisms that drive public opinion nowadays, operating at various levels and degrees of intensity).

In Pareto, indeed, the fundamental unit of analysis is human action, which leads him to formulate the theory of logical and non-logical actions, the former connect means with ends and are studied by economics, the latter, conversely, where such a connection does not exist being basically inspired by economic sociology, among other disciplines and areas of research. In other words, logical actions—which represent only a fraction of human actions—are those where the means are adequate to the ends both subjectively (for those who perform them) and objectively (for correctly informed external observers, i.e. scientists). Non-logical actions, however, are those in which both of these conditions are missing, or at least the second is missing, specifically objectivity. Therefore, non-logical does not mean illogical, i.e. lacking in any logic, but only a non-scientific means-ends nexus because it is not objective, that is, empirically and experimentally verifiable (see Pareto, 1906; 1935(1916); Bruni, 1999; and Bruni and Guala, 2001).

In this perspective, Pareto’s awareness of the spatio-temporal contingency of cognitive acquisitions emerges: Every goal achieved, and every piece of knowledge acquired is contextualised and shaped by the contingency of where and when it was achieved. The cognitive goals of the social sciences—towards the end of the nineteenth century, the clash over the methodology of economics was still alive and well—are so profoundly different from those of sciences such as physics and chemistry that Pareto manages to define the contours of a non-science. Based on Pareto’s scientific thought, non-logical actions are certainly the most numerous of those performed in many fields of life and are coloured with standard logic, sometimes instantiated in different logical structures and meanings, and enable them: They reflect the widespread way of thinking and acting of (boundedly rational) human beings, social and cultural conditioning, prejudices, values and beliefs (e.g., see Schumpeter, 1949; de Finetti, 1974; Kirman, 1987, 1999).

Despite his excellent scientific production as an economist (e.g., see Pareto, 1896-7, 1897, 1906, 1911, see also Schumpeter, 1951), he begins to doubt conventional economic theory just like other distinguished contemporaries or thereabouts such as Marx, Veblen, Keynes, and Schumpeter (e.g., see Aspers, 2001; and Stiglitz, 2016) to name a few: This is emblematic of the growing distrust that is felt towards the normative appropriateness and effectiveness of the outcomes of the so-called standard economics, which fails to deliver entirely coherent indications of human action and interconnected knowledge frameworks and methodologies, being not plainly legible and intelligible at the very least. Maintaining its frameworks of understanding and methodologies seems to rely on selective information seeking and conveying, and on active avoidance of more efficient and practicable potential alternatives. Against this background, a Paretian commitment to accepting, indeed actively seeking, potentially disruptive knowledge that could change and extend the understanding of economics is the endeavour to eradicate the hedonistic assumption and replace it with the empirical (naked), observable fact of choice.

In order to highlight specific involvement in the Paretian framework, human reality cannot be reduced to production, trade, finance, and derivatives alone. In this vein, one of Pareto’s recurring argumentative themes is to claim that the construct theorised as “homo oeconomicus” does not actually subsist in the real market, while the theory of choice at the origin of economics reveals and originates the economics of welfare and collective choices and perhaps behavioural economics itself (see Thaler and Sunstein, 2008). From Walras’s equilibrium system, Pareto maintains a line of scientific inquiry, despite the disorder of his exposure, which involves examining human behaviour and leads to demonstrating that instinct and passions contribute to developing theories that have great importance in determining the shape of human societies (see Whitehead, 1925). His theory of equilibrium is still very topical in the contemporary debate, above all for the harsh criticism it has raised and, in some ways, for having rekindled a long-standing debate. Standard economics studies homo oeconomicus, an abstract individual who responds to the force of ophelimity—a neologism that Pareto derives from the Greek óphelimos to distinguish economic utility from utility understood as a characteristic that makes a thing or an experience something useful, good, or advantageous—as a measure of purely economic satisfaction or a relationship of convenience or, in other words, a question of marginal utility or the final degree of utility of Jevons and Walras’s rareté, expressing a relationship between a person and a thing, usually a commodity or intangible asset (see Schumpeter, 1949).

Rather than the abstract maximum of utility, therefore, ophelimity is a concept introduced by Pareto to develop ordinal utility theory based on the hypothesis that consumers are able to consistently classify different baskets of goods and services into ordinal orders according to preferences. Human beings, Pareto argues, however, generally perform non-logical actions, whose social actions are analysed as revealing social forms, as pre-rational orientations of real action. As stated in Pareto (1901), therefore, any human behaviour can be analysed starting from the action and its explanation, demonstration and argumentation in which truth does not coincide with utility. Thus, it happens that a non-logical, untrue principle can be socially useful, while another, true logic can be harmful to the economy and society.

Pareto contributed enormously to detaching economic theory from the earlier prevailing paradigm by introducing the idea of ordinal utility theory. In any case, although in Pareto there remains an ambivalence regarding the concept of utility and its cardinal/ordinal measurement—demonstrating an emerging tension between his mathematical needs for generalisation and his empiricism and the related need for measurement—the entire theory of economic equilibrium can be constructed without the cardinal measurement of utility (essential hypothesis in the first generation of marginalist economists, from Jevons to Edgeworth, up to Pantaleoni), even without the concept of utility itself: In Pareto’s opinion, the empirical and observable fact of choice is enough, which actually reveals the preferences of consumers (see Bruni, 1999).

Economy and economics are thus reduced by Pareto to the study of only logical actions that human beings put in place to best satisfy their own interests. The only form of rationality allowed to homo oeconomicus is therefore the instrumental one; the only paradigm to be taken as a reference is that of Newtonian physics (similar reductions were not present in Pareto’s early work, starting with his well-known Cours d’économie politique (1896-7), in which, under the influence of Pantaleoni and Marshall, there were even hints and references to biology and evolutionary theory). Human beings and economic behaviour were still regarded in the flesh within the Cours; while in the Manuale di economia politica (1906) humans become material points, being able to even disappear once their "maps of indifference" are left to us.

Pareto’s economic ideas, therefore, postulate that economic agents would expect to maximise their preferences in a context characterised by the rarity of goods and the limited information available: Here rationality is instrumental in nature and finds its raison d’être in the coherence of the individual’s preferences hierarchical in an ordinal manner, by behavioural predispositions revealed through cultural universals. By emphasising Pareto’s commitment to engagement with preferences—i.e., certain states of mind which then really do cause choices—as the foundations of social sciences as a general rule, it is worth noting that in the social sciences, the concept of preference came to prominence for explanatory and predictive purposes with the methodological critiques of Irving Fisher (1892) and Vilfredo Pareto (1909) addressed to the cardinal utility theory along with its inner hedonistic hypothesis. Economic theory, and the theory of demand accordingly, had to be limited to what is strictly ascertainable and computable, hence the refusal of cardinal measurability.

A useful analogy, although by no means comprehensive of the reality of human motivations, might come from physics: At stake is the psychological element of the hedonistic theory of value threatened by Pareto who would like pure economics to be no different from rational mechanics, that is, to develop a mathematical logic of perfectly general systems (Jevons, too, claims economics in terms of the mechanics of utility and self-interest). Furthermore, it becomes seriously problematic to reconcile the theory of value with the theory of equilibrium, just as it becomes complicated to put the general equilibria together with the Marshallian ones. Earlier economists largely agreed that judgements and decisions were motivated and dominated by individuals’ pursuit of pleasure, and that the difference in the amount of pleasure derived from different alternatives was crucial to decision-making. In this framework, the concept of preference, to the extent that it has been used, stemmed simply from the hedonic utility: X is preferred to Y if X produces more utility than Y. Pareto argued that since an accurate procedure for measuring cardinal hedonic utility was not functional, social scientists should limit themselves to merely ordinal comparisons: This argument turned preferences into a major concept in the social sciences, supplanting (hedonistic) utility, and continues to be a thought-provoking subject for economists and other social scientists (e.g., see Mandler, 1999).

On top of that, the standard approach to economics radicalised Pareto’s idea by stating that cardinal utility would have to be ruled out to free economics from psychological hedonism (see Hicks and Allen, 1934). During the first decades of the twentieth century, however, the concept of preference retained a recognisable psychological content, according to which it assumed that people behave consciously and have preferences accordingly which are actually mental evaluations, rather than ex-post rationalisations of economic behaviour (see Lewin, 1996). When all is said and done, on the whole, Pareto efficiency symbolises the economic criterion: Collectively, a situation is optimal when it is impossible to increase one individual’s satisfaction without worsening someone else’s. Nevertheless, critical voices and policy action have pointed out that the maximisation of individual self-interest through the market cannot ensure the preservation of natural resources over time, and have advocated the introduction of extra-market mechanisms which are better positioned to address the idea of limits that are attached to entropy.

Following this line of reasoning and conscious of the challenges lying ahead in the scientific community and elsewhere, we wonder where have gone the Paretian mutual dependence between all phenomena and the inner motivations that hang over the search for the global maximum of individual utility/ophelimity, especially in times of persisting global crisis, growing risks, and the weakening of key public institutions. And, above all, what contemporary value does Pareto’s thought imply in terms of the ethics of institutions and individual and collective behaviours, as well as social responsibility and respect for the environment and common goods? Among other issues, this year’s Conference aims to critically examine the way in which Pareto was portrayed as an inspired and inspirational figure for the standard approach to economics, while also exploring the wider underlying theoretical and methodological elements of processes that shape contemporary economic decisions and uncertainty, problem-solving, and strategic analysis. Finally, at the most recent Conference on Decision Economics held at the University of L’Aquila in July 2022, several strong appeals were launched to favour further interdisciplinary approaches with different areas—especially social and cognitive areas—and connect different approaches. In this vein, DECON’s steering and organising committee invites proposals that consider these approaches as well, in addition to Pareto analysis. While the conference committee will give some preference to papers and panels that focuses on the centenary celebration of the death of Vilfredo Pareto and his multiple work products, it will also take into consideration papers and panels that engage topics concerned with economics, statistics, operations research, computer science, advanced mathematics, cognitive sciences, including business information systems, experimental research, modelling and simulation, decision analysis and uncertainty, algorithmic social sciences research, and cross-disciplinary related fields.

The above and some broader questions and issues about the intellectual forces operating in the development of scientific thought will be examined in the course of the conference together with the founding topics of DECON 2023.

 

References

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• Bruni, L., & Guala, F. (2001). Vilfredo Pareto and the epistemological foundations of choice theory. History of Political Economy, 33(1), 21-49.
• Davis, H. T. (1949). Pareto statistico. Giornale degli Economisti e Annali di Economia, 8(3/4), 199-206.
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* Given the topicality of Pareto’s thought, the verbs included in this Call are intentionally conjugated in the historical present.