Vilfredo Pareto and the Birth of Modern Microeconomics

Vilfredo Pareto and the Birth of Modern Microeconomics

Luigino Bruni

There has been a recent resurgence of interest in the work of Vilfredo Pareto, one of the founders of modern economics. This book reconstructs the genesis and significance of Pareto’s theory of choice which is Pareto’s greatest contribution to economic science and which was used by John Hicks, amongst others, to develop microeconomics.

Chapter 6: A Unitarian Reading of Pareto’s Paradoxes in the Theory of Choice, and of Its (Mis)Interpretations

Luigino Bruni

Subjects: economics and finance, economic psychology, history of economic thought


CHAPTER 6 13/3/02 8:56 am Page 1 6. A unitarian reading of Pareto’s paradoxes in the theory of choice, and of its (mis)interpretations 1 HICKS’S READING OF PARETO The analysis of the previous chapters now allows us to deal with the methodological questions presented in the Introduction. These questions are central both to this book and to the various interpretations of Pareto’s economics made in the twentieth century. In 1900 Pareto proved that traditional economic analysis could stand on weaker theoretical assumptions than was thought. This is the basic (technical) result needed to establish the ordinalist position. By showing that the assumption of cardinality of the utility function could be eliminated without any theoretical loss, Pareto showed that economics stood on firmer empirical foundations. It is the (philosophical) claim which has led not only to Hicks’s and Allen’s ordinalism, but also to Samuelson’s operationalism, a philosophy which inspired his theory of revealed preferences.1 John Hicks, in his famous article on the theory of value written with Allen (1934), and in other later works, is credited with having spread the ordinalist approach among economists. The core of the ordinalist position is (1) the substitution of an index of preference satisfaction for the old psychophysical, and (2) the proposition that, for the sake of consumer theory, we do not need to assume that the utility function is cardinal. The substitution of the obsolete and useless concept of decreasing marginal utility with the decreasing marginal rate of substitution was the main...

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