Considerations on the Fundamental Principles of Pure Political Economy

Vilfredo Pareto, Roberto Marchionatti, Fiorenzo Mornati, Roberto Marchionatti, Fiorenzo Mornati

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134149834
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Between May 1892 and October 1893 the Giornale degli Economisti published Vilfredo Pareto's Considerazioni sui principi fondamentali dell'economia politica pura in five parts. Viewed in its entirety, the outcome is essentially a classic monograph on the fundamental issues in pure economic theory in the Lausanne tradition.

Pareto's work forms a document of major historical significance which, to date, has only been available to the relatively small number of international economists and historians of economics who read Italian. This first English language edition isa significant landmark in the history of economics.

1 Considerations on the fundamental principles of Pure Political Economy, I

(Giornale degli Economisti, May 1892)

Introductory remarks

In keeping with the general propensity of natural sciences to progress towards a higher degree of perfection, Political Economy has for some years now been showing a tendency to replace the qualitative method used in its beginnings with the quantitative one.

In fact, one could not say that economists have until now neglected the quantitative principle, in the same way ancient physics never totally did; but its use by economists was always limited, whereas now it is increasing and becoming prevalent in the study of economics.

If we consider what has happened to the other sciences, we shall easily come to the conclusion that Political Economy would not extract a lesser benefit from the use of the quantitative method than the one they attained. However, if we do not wish to forgo all necessary prudence, we must at the same time add that one should not deem any method as good or any theorem derived from it as true only because it carries the ‘quantitative’ label.

In our view, all arguments regarding the method that should be adopted in a particular science are somewhat useless. Only from experience can one find out the benefit that can be attained from using a given method. Employ whatever reasoning method you prefer, seek the support of history, physics, mathematics, accept or reject the evolutionary theories, and, if ancient logic does not satisfy you, apply the new mathematical logic; all is allowed, all is fair, provided you can discover new truths, or shed new light on old ones, and rectify errors; in short, if you can increase the quantity or the quality of human knowledge. Here the public lies in wait, and your work will be judged according to the new ideas it divulges.

If it is to be found later, that it is possible to arrive at the goal that you have reached through an easier path, such a path will replace the method you used, but without taking anything away from the praise you deserve for having increased our scientific wealth. Celestial mechanics treatises no longer make use of the synthetic form of Newton’s demonstrations,^I but this has not detracted from the reverence and admiration that every mathematical scientist feels for that man, whose genius was certainly equal, if not greater than any of the most outstanding human beings.

On the other hand, considerations on methodology are not only legitimate, but also necessary, when they arise as a consequence of the quest to find whether a proposition is true or not. If a theorem seems right to some scientists but is not, it is not a waste of time to search for the reasons for their mistake, in order to avoid it in the future.¹ It is still necessary diligently to examine the premises of any new proposition, and the quantity and the quality of the rigour of the deductions that stem from it.

Difficulty of the topic

Anyone who wishes to learn any science, such as physics or mathematics, knows that it will imply hard work, and while they can ask the author whom they are studying to ease the burden, they cannot expect it to be completely removed, as some people seem to expect in the study of Political Economy, which is accused by Thiers^III of being ‘a kind of boring literature’ – as if in the study of any science one should pursue one’s personal enjoyment, rather than the usefulness and pleasure of acquiring the knowledge of new truths.

The reader who wishes to acquire wholesome and precise concepts of the theorems of economics must shed all such prejudices. In turn, the author must make sure that the difficulties of the topic are not increased through his fault, and that the reader is not subjected to more hard work than is required by the very nature of the subject matter.

Explanation of the ways that have been followed in this work

In order to fulfil this duty of ours, we have deemed it appropriate to make use of some little devices that we shall now explain to the reader.

There is no mathematics used in the paragraphs printed in large font, which we have attempted to construct in such a way that they may stand alone, without the mathematical part, which is printed in small font. In doing this, we have followed Marshall’s example; he consigns the exposition of the mathematical propositions to the footnotes.^IV

Those who do not wish to read the parts where mathematics is used, will have to accept their conclusions as they would accept the testimony of a trustworthy witness. But it is necessary, for that, to have another principle, which we have tried to apply consistently, by giving space exclusively in the paragraphs written in large font to anything that might [not] be the object of economic controversy. From time to time this has not been possible, and in those cases, we have pointed it out to the reader.

We should also say a few words about the comparisons, whose number some may perhaps see as excessive. Since it is only from the experience of the past that men can find reliable guidance for the future, we believe it necessary to take into account the tests and trials made in other sciences by various methods of reasoning, so that we may discern a correct way of using that method in the science of economics.

Such comparisons could have been taken either from the moral sciences, or from the sciences of physics and mathematics. In favour of the former kind of comparisons is the advantage of being easily understood by all; against, that it is not easy to find any that may not lead to controversy. We have therefore chosen the latter kind of comparisons; they are much more reliable, though with the drawback that fewer people can easily understand them. The paragraphs containing such comparisons will be marked with an asterisk [*].

Various quantitative methods

It is necessary to distinguish between essentially different things, such as: the use of quantitative considerations in general, the higher degree of rigour in demonstrations, the use of mathematical methods in demonstrations and, in particular, the use of analytical and geometric methods.^V

* Not all quantitative sciences are also mathematical. With its atomic theory, chemistry has become an almost entirely quantitative science, after having already come close to becoming one with the theory of definite proportions, but it is not yet a mathematical science. Statistics is definitely a quantitative science and it is on the point of becoming mathematical as well, but on this subject there are still treatises that make little or no use of mathematical symbols.

An empirical quantitative method is already in use in the science of economics, with the ever-increasing habit of verifying the propositions of this science through statistically derived information. For example, one can no longer simply state that a very heavy tax causes a decrease in the consumption of the targeted goods, but one is also required to know of practical cases where that effect of the law has actually been observed.

The treatise on Political Economy published in 1887 by Mr Yves Guyot^VI has nearly half of its pages taken up by diagrams and by numerical tables. Quite rightly, Prof. Marshall states that ‘many of the faults, many of the injustices that are the consequence of the economic policies of governments arise from the lack of statistical information’.²

But this method, however excellent in verifying theorems found in other ways, taken by itself could only lead to empirical propositions;³ consequently, it is crucial to take advantage of the deductive method first. It is therefore natural that many economists are turning to the most perfect form of the latter, i.e. the quantitative method, and are looking for help in it.

As we all know, by acting in such a way other sciences obtained great benefit. The path they followed was always the same. Some hypotheses were put forward; from them, through logical or mathematical deductions – which is the same thing, since mathematics is nothing but a type of logic – some consequences were obtained; the latter were then compared with information gathered from observation or from experience, and were acknowledged to be true. Only from that, and nothing else, did the postulated hypotheses acquire credit and authority.

To recall these things, when they are by now universally known, might seem redundant, but we need these principles to help us wholly to understand some of the statements of the new science of economics.⁴

For instance, after demonstrating how one can infer the way of achieving price equilibrium from the principles of Pure Economics, Prof. Walras goes on to say:

Quelques critiques se sont pourtant égayés du nombre de pages que j’employais à démontrer qu’on doit arriver au prix courant en faisant la hausse en cas d’éxcédent de la demand sur l’offre, et la baisse en cas d’éxcédent de l’offre sur la demande.

Et vous, ais-je dit une fois à l’un d’eux, comment le démontrezvous? – Mais, me réponditil, un peu surpris, et même assez embarassé, cela a-t’il besoin d’être démontré? Il me semble que c’est une chose évidente. – Il n’y a d’évident que les axiomes, et ce n’en est pas un.⁵

[Some critics, nevertheless, have laughed at the number of pages that I found necessary to demonstrate that one must arrive at the current price by making it increase in the case of excess demand relative to supply and making it diminish in the case of excess supply relative to demand. And you, I once said to one of these critics, how would you demonstrate it? But, he responded to me a little surprised and also rather embarrassed; is there a need to demonstrate it? It seems obvious to me. Only the axioms are obvious and this is not.]

Now if, by saying that, Prof. Walras simply meant to attack those who...