Vilfredo Pareto and the Law of the Vital Few

Vilfredo Pareto (1848 - 1923)

Vilfredo Pareto (1848 – 1923)

On July 15, 1848, Italian engineer, sociologist, economist, political scientist and philosopher Vilfredo Federico Damaso Pareto was born. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals’ choices. The Pareto principle was named after him and built on observations of his such as that 80% of the land in Italy was owned by 20% of the population.

Vilfredo Pareto was well educated and attended the Polytechnic University of Turin, becoming an engineer in 1870. His interests in economy evolved early and Pareto became an economics lecturer in Florence and was known to be a very political person, often irritated with the government’s economical regulations.

In the 1890’s, Vilfredo Pareto moved to Switzerland to teach economics at the University of Lausanne. During his research, his sociological interest gradually grew and he began observing the property distribution among the population in Italy. As a result, he noticed that 20 percent of the population owned about 80 percent of Italy’s total property. The engineer Joseph Juran later found Pareto’s publications and made these findings famous as the Pareto principle. Juran generalized the principle through saying that 80 percent of the effects come from 20 percent of the causes. Somewhat related to the Pareto principle is the Pareto efficiency, which states that in the allocation of resources it is impossible to make any one individual better off without making at least one individual worse off, which was also found in Pareto’s research works.

Pareto’s presumably best known work was published in 1916, and titled The Mind and Society. In it, the scientist presented the sociological cycle theory, meaning that all events and stages of society and history are generally repeating themselves in cycles. Also, he divided the elite (as a social class) into two groups, one being the conservative and the other being promoters of change. Pareto found, that in society, both groups pass on the power constantly. The book was once named as one of the most important ever written and let Pareto’s reputation grow radically.

Pareto’s economic views kind of disagreed with those of the Italian government back then. He believed in free trade and understood economics as mostly mathematical sciences. He was part of the famous Neoclassical movement. His approaches to the general equilibrium theory were influenced by Edgeworth’s indifference curve. Pareto gave the first presentation on the Edgeworth-Box, a trade-off box, and changed microeconomics critically. His Pareto-optimality changed the way welfare could be measured more precisely, and also in concerns of game theory, he made significant improvements.

At yovisto, you may enjoy a video lecture by Professor Ian Shapiro at Yale University on how the transition from Classical to Neoclassical Utilitarianism went through. To do so, he emphasizes the roles of important economists like Vilfredo Pareto, Francis Ysidro Edgeworth and John Stuart Mill.

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