Pareto, Economics and Society

The Mechanical Analogy

Michael McLure

• Publisher: Routledge
• Year: 2002
• Print ISBN: 9780415758413
• eBook ISBN: 9781134578443
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Vilfredo Pareto was one of the great systems theorists of the twentieth century, embracing economics, psychology, sociology and politics. In this important work, Michael McLure takes as his subject of study the rapport between Pareto's economic and sociological theory, and consequently, illuminates the role of economics in public policy development.

1 Introduction

1.1 The purpose of the study

The purpose of this study is to examine the relationship between Pareto's economic and sociological theory in the context of government and public policy processes. The primary focus of this research is on those theoretical contributions of Pareto's that are relevant to the study of politics, with emphasis given to his analogy with mechanics.

Pareto's body of work is enormous. It ranges across disciplines, addresses many varied phenomena, and contains fragmented theoretical contributions to many of the social sciences. His work can, and has been, successfully studied without reference to the mechanical analogy. Consequently, this study provides one perspective on Pareto's work, and there is no suggestion that it is the only legitimate approach. Nevertheless, the mechanical analogy is adopted in this study because it was extensively utilised by Pareto and, since it defines a clear rapport between pure economics and general sociology, it is highly suited to the study of government and public policy.

In this context, the mechanical analogy constitutes a framework for a theoretical analysis of economic and social 'forces' using analytical instruments that reveal some similarity with physics. It is not predicated on the assumption that human conduct in society is mechanistic and precisely determined. Pareto recognised the complexities and vagaries of human conduct, and his instruments of sociological analysis developed within his mechanical analogy are applied to the study of society within that context.

Given the purpose of this study, with the associated emphasis on economic and sociological theory, Pareto's specific empirical findings have not been examined here. Applied studies are only considered in a general methodological context, where their relationship to pure or general theory (such as theory built on the mechanical analogy) is discussed.

Pareto's works of most relevance to this research are his four major theoretical treatises: the 1896-97 Cours d'Economie Politique (Pareto 1971a); the 1901-02 Les Systèmes Socialistes (Pareto 1974b); the 1906 Manuale di Economia Politica (Pareto 1974c); and the 1916 Trattato di Sociologia Generale (Pareto 1935). These works are briefly summarised in the Appendix to this volume.

The central thesis of the research and the research goals are outlined in Section 1.2 below. The contribution to the literature on Pareto that is claimed for this research is set out in Section 1.3. The approach taken in this study relative to other studies is outlined in Section 1.4. The structure of this book is summarised and discussed in relation to the research goals in Section 1.5. Conclusions drawn from the study are included in Section 1.6.

1.2 Central thesis and research goals

The central thesis

The central thesis of this study is that Pareto's methodology, and the rapport between pure economic and general sociological theory defined by the mechanical analogy, provides a useful framework for integrated and timeless studies of government and public policy.

The context within which the term 'timeless' is used in this study is general. It is based on Pareto's contention that pure theory facilitates consideration of 'virtual' movements from which hypothetical propositions can be derived. Although it is classed as 'timeless', this does not suggest that time is irrelevant to theoretical explanations of economic and social outcomes. Virtual movements take time. However, the analogy does not incorporate a clearly specified relationship between virtual movements and real time, and it does not incorporate sequences of cause and effect to introduce the passage of time as a variable that is related to economic and social outcomes.

In this study, the terms 'government' and 'public policy' both refer to political conduct. The two terms have been separately distinguished to assist the synthetic union of Pareto's general sociology and pure economics in their political contexts. Political activity that relates to the pursuit of political authority and the consequent stability or change in the collective, is referred to as 'government' activity. Political activity considered in isolation from the pursuit of political authority is referred to in the study as 'public policy'.

The central thesis of this study is sustained by establishing that the framework of Pareto's mechanical analogy enables the utility of conduct to be considered irrespective of whether the relationship between utility and conduct is 'stable and enduring' or 'unstable'. It is important to appreciate that references in this book to a 'stable and enduring' relationship between utility and conduct do not simply allude to the shape of an individual's utility function (which is important when considering stability at an equilibrium point). They also refer to the stability of the utility function itself, where individuals' preferences remain unchanged in response to virtual movement within the defined parameters of the utility function. References to an unstable relationship between utility and conduct allude to instability in the shape of the utility function, and/or instability in preferences following virtual movement within the defined parameters of the utility function.

Pareto's mechanical analogy extends beyond the notion of a stable and enduring relationship between utility and conduct; it also embraces nonenduring but generally recurring 'regularities' associated with the processes of economic and social change. In this context, the mechanical analogy suggests a rapport between Pareto's pure economics and general sociology that provides a general basis for the timeless study of conduct, including political conduct, regardless of whether utility is dependent on, or independent of, the irreversible historical path taken to achieve an outcome.

In the course of this study, the important features of the system-wide framework of the mechanical analogy, and its relevance to the study of government and public policy, is examined in some detail. It is established that Pareto's general timeless theoretical approach to examining politics is based on a synthetic unification of varying perspectives of concrete conduct, and that such a unification is possible because 'utility' is an important common theoretical element in each perspective.

The originality of Pareto's achievement is evident from the contrast between his use of utility to develop timeless generalisations about the process of social change, and the current 'received view' that timeless theoretical expressions be limited to instances where utility is always independent of the path taken to an end.

When considering the notion of ophelimity, the term that Pareto used for economic utility in circumstances where the expected and realised (cardinal or ordinal) change in utility from an action do not diverge, Pareto's tools of theoretical analysis were finely honed to yield precise and deterministic results. This is the case in pure economics. Alternatively, when expected and realised change in utility from conduct diverge, the utility function is not 'stable and enduring' in the manner described above. In this circumstance, Pareto's tools of theoretical analysis were intended to yield results that reflect broader-level generalisations about the ongoing process of change. Such generalisations abstract away from the precise form of a concrete fact. This is the case in general sociology.

This study reflects the view that Pareto's allowance for varying degrees of determinism between pure economics (highly determinant) and general sociology (not highly determinant) is based on a recognition that the extent of theoretical precision depends on whether individuals' ophelimity/utility functions are, or are not, stable and enduring. Pareto's system-wide framework is an attempt to achieve the greatest level of precision achievable from timeless theoretical constructions, without resort to a false theoretical precision. That is, without resort to outcomes from an internally consistent theoretical construction that bears little or no relation to observed conduct.

Surprisingly, Pareto's original delineation of the importance and limits of timeless theoretical models is not generally appreciated by English-speaking economists (though there are a few notable exceptions). A symptom of this general lack of appreciation is the significant misrepresentation or misinterpretation of Pareto's work by some leading (English-speaking) historians of economic thought. Perhaps this is partly a consequence of Pareto's decision to largely treat issues related to the instability of the relationship between utility and conduct in his sociology (rather than in his economics), and the limited number of Pareto's works translated into English. There may also be other reasons for this lack of emphasis. Pareto's consideration of the impact of conduct and time on the stability of utility was often indirect, as it was presented as a contextual element of his broader goal of establishing general sociological regularities. His consideration of the matter in relation to ophe-limity in pure economics was also mathematically flawed. Furthermore, some economists may not have appreciated the rapport between general sociology and pure economics, because Pareto's sociology did not limit consideration of utility to the economic context of exchange and commodity consumption.

The research goals

There are four specific research goals associated with the central thesis of this study. They are:

1. to establish the relationship between determinism and ideology in Pareto's work, after consideration of his methodology and his exposition of pure economics and general sociology in terms of an analogy with rational mechanics
2. to review the development of Pareto's application of pure economic theory to the analysis of collective economic welfare
3. to compare and contrast methodological features of Pareto's political sociology with:
   • (a) relevant aspects of public choice theory, specifically Buchanan's 'economic' approach to politics
   • (b) the analysis of 'irreducibly social' goods, the economic analysis of 'merit' goods and the political modification of preferences carried out by contemporary public policy analysts
4. to employ Pareto's methodological distinction between form and substance to develop a timeless and synthetic 'successive approximations' approach to interpreting the processes of 'government' and 'public policy'

These goals are cumulative. The methodological basis for Pareto's distinction between economics and sociology, and the use of the mechanical analogy in the development of timeless theory (goal 1) places Pareto's economic analysis of collective welfare (goal 2) in the correct context. The rapport between his pure economics and general sociology, and consequent scope of Pareto's application of the economic approach to collective welfare (goals 1 and 2) provides the necessary context for a comparative examination of Pareto's political sociology and some of the main contemporary economic approaches to politics (goal 3). Finally, consideration of Pareto's theory of social equilibrium and social utility as a synthetic 'successive approximations' approach to government and public policy (goal 4) requires contextual background on methodology (goal 1), the economic approach to collective welfare (goal 2), and the sociological approach to collective welfare (goal 3).

Since Pareto was a prolific author and the secondary literature on his work is voluminous, it is essential that the research task remain focused on the goals of the thesis. In this regard, the study concerns theory derived from the mechanical analogy. The methodology employed in this thesis is a critical appraisal of relevant primary and secondary literature. The primary literature examined includes Pareto's four main treatises. Other important publications by Pareto are also considered, especially articles dealing with theory in the Giornale degli Economisti, as well as articles on methodology in the Rivista Italiana di Sociologia.

1.3 The contribution of the study

This study contributes to the literature on Pareto in three ways. Misrepresentations or errors in the secondary literature on Pareto's pure and general theory are corrected, similarities and differences between Pareto's approach and some modern economic approaches to government and public policy are clarified, and existing work on Pareto on policy is (moderately) enhanced.

Corrections of errors in the secondary literature

The major corrections of errors in the secondary literature contained in the study relate to misrepresentation of issues associated with Pareto's analogy between rational mechanics and pure economic theory, and their application to the study of collective economic welfare. Corrections have been made to interpretations of:

• Pareto's methodology, including concerns about hidden assumptions and the differentiation between logical and non-logical conduct;
• the implications for economic theory of Pareto's failure to master the mathematics of integrability; and
• the perceived 'crudely one sided' ideological implications of Pareto's emphasis on general interdependencies.

Clarification of issues raised in the literature

Clarification of two types of issue is attempted. First, to clarify issues raised in the secondary literature that are, in some instances, incomplete or obscure. Second, to clarify issues which concern the relationship between Pareto's framework and theory and other more contemporary economic approaches to government and public policy.

In relation to the first type of issue, aspects missing from the secondary literatur...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of illustrations
• Foreword
• Preface
• Acknowledgements
• 1 Introduction
• 2 Methodology
• 3 Method: the analytical elements of pure economics and general sociology
• 4 Determinism, ideology and the mechanical analogy
• 5 Collective economic welfare
• 6 Les Systèmes Socialistes and Buchanan's constitutive elements of economic policy
• 7 Rationality, individualism and public policy
• 8 Government and public policy
• 9 Conclusion
• Appendix: Pareto's major publications
• Notes
• Bibliography
• Index