Pareto was born of an exiled noble Genoese[->0] family in 1848 in Paris, the centre of the popular revolutions of that year. His father, Raffaele Pareto (1812–1882), was an Italian civil engineer and Ligurian marchese who had left Italy much like Mazzini and other Italian nationalists.[3] His mother, Marie Metenier, was a French woman. Enthusiastic about the 1848 German revolution[->1], his parents named him Fritz Wilfried, which became Vilfredo Federico upon his family's move back to Italy in 1858.[4] In his childhood, Pareto lived in a middle-class environment, receiving a high standard of education. In 1869, he earned a doctor's degree in engineering from what is now the Polytechnic University of Turin[->2].[3] His dissertation was entitled "The Fundamental Principles of Equilibrium in Solid Bodies". His later interest in equilibrium analysis in economics[->3] and sociology[->4] can be traced back to this paper.
From Civil engineer to liberal, and then to economist[edit[->5]]
For some years after graduation, he worked as a civil engineer[->6], first for the state-owned Italian Railway Company and later in private industry. He was manager of the Iron Works of San Giovanni Valdarno and later general manager of Italian Iron Works.[3]
He did not begin serious work in economics until his mid-forties. He started his career a fiery liberal[->7], besting the most ardent British liberals with his attacks on any form of government intervention in the free market[->8]. In 1886 he became a lecturer on economics and management[->9] at the University of Florence[->10]. His stay in Florence[->11] was marked by political activity, much of it fueled by his own frustrations with government regulators. In 1889, after the death of his parents, Pareto changed his lifestyle, quitting his job and marrying a Russian, Alessandrina Bakunin. She left him in 1902 for a young servant.
Economics and sociology[edit[->12]]
In 1893, he succeeded Léon Walras[->13] to the chair of Political Economy at the University of Lausanne[->14][3] in Switzerland where he remained for the rest of his life. In 1906, he made the famous observation that twenty percent of the population owned eighty percent of the property in Italy, later generalised by Joseph M. Juran[->15] into the Pareto principle[->16] (also termed the 80-20 rule[->17]). In one of his books published in 1909 he showed the Pareto distribution[->18] of how wealth is distributed, he believed "through any human society, in any age, or country".[5] He maintained cordial personal relationships with individual socialists, but always thought their economic ideas were severely flawed. He later became suspicious of their humanitarian motives and denounced socialist leaders as an 'aristocracy of brigands' who threatened to despoil the country and criticized the government of Giovanni Giolitti[->19] for not taking a tougher stance against worker strikes. Growing unrest among labor in Italy led him to the anti-socialist and anti-democratic camp.[6] His attitude toward fascism[->20] in his last years is a matter of controversy.[7]
Personal life[edit[->21]]
In 1923 Pareto remarried with Jeanne regis, just before he died in Geneva[->22], Switzerland, 19 August 1923, "among a menagerie of cats that he and his French lover kept" in their villa; "the local divorce laws prevented him from divorcing his wife and remarrying until just a few months".
Sociology[edit[->23]]
Pareto's later years were spent in collecting the material for his best-known work, Trattato di sociologia generale (1916) (The Mind and Society, published in 1935). His final work was Compendio di sociologia generale (1920).
In his Trattato di Sociologia Generale (1916, rev. French trans. 1917), published in English by Harcourt, Brace[->24] in a four-volume edition edited by Arthur Livingston[->25] under the title The Mind and Society[->26] (1935), Pareto developed the notion of the circulation of elites[->27], the first social cycle theory[->28] in sociology. He is famous for saying "history is a graveyard of aristocracies".[8]
Pareto seems to have turned to sociology for an understanding of why his abstract mathematical economic theories did not work out in practice, in the belief that unforeseen or uncontrollable social factors intervened. His sociology holds that much social action is nonlogical and that much personal action is designed to give spurious logicality to non-rational actions. We are driven, he taught, by certain "residues" and by "derivations" from these residues. The more important of these have to do with conservatism and risk-taking, and human history is the story of the alternate dominance of these sentiments in the ruling elite, which comes into power strong in conservatism but gradually changes over to the philosophy of the "foxes" or speculators. A catastrophe results, with a return to conservatism; the "lion" mentality follows. This cycle might be broken by the use of force, says Pareto, but the elite becomes weak and humanitarian and shrinks from violence.[9]
Pareto's sociology was introduced to the United States by George Homans[->29] and Lawrence J. Henderson[->30] at Harvard, and had considerable influence, especially on Harvard sociologist Talcott Parsons[->31], who developed a systems approach to society and economics that argues the status quo is usually functional.

Pareto turned his interest to economic matters and he became an advocate of free trade, finding himself in difficulty with the Italian government. His writings reflected the ideas of Léon Walras[->32] that economics is essentially a mathematical science. Pareto was a leader of the "Lausanne School[->33]" and represents the second generation of the Neoclassical Revolution[->34]. His "tastes-and-obstacles" approach to general equilibrium theory[->35] were resurrected during the great "Paretian Revival" of the 1930s and have influenced theoretical economics since.[15]
In his Manual of Political Economy (1906) the focus is on equilibrium in terms of solutions to individual problems of "objectives and constraints". He used the indifference curve of Edgeworth (1881) extensively, for the theory of the consumer and, another great novelty, in his theory of the producer. He gave the first presentation of the trade-off box now known as the "Edgeworth-Bowley" box.[16]
Pareto was the first to realize that cardinal utility could be dispensed with and economic equilibrium thought of in terms of ordinal utility[17] – that is, it was not necessary to know how much a person valued this or that, only that he preferred X of this to Y of that. Utility was a preference-ordering. With this, Pareto not only inaugurated modern microeconomics, but he also demolished the alliance of economics and utilitarian philosophy (which calls for the greatest good for the greatest number; Pareto said "good" cannot be measured). He replaced it with the notion of Pareto-optimality, the idea that a system is enjoying maximum economic satisfaction when no one can be made better off without making someone else worse off. Pareto optimality is widely used in welfare economics and game theory. A standard theorem is that a perfectly competitive market creates distributions of wealth that are Pareto optimal.[18]
Concepts[edit[->36]]
Some economic concepts in current use are based on his work: • The Pareto index[->37] is a measure of the inequality of income distribution.
He argued that in all countries and times, the distribution of income and wealth is highly skewed, with a few holding most of the wealth. He argued that all observed societies follow a regular logarithmic pattern: 1. log N = log A + m log x where N is the number of people with wealth higher than x, and A and m are constants. Over the years, Pareto's Law has proved remarkably close to observed data. • The Pareto chart[->38] is a special type of histogram[->39], used to view causes of a problem in order of severity from largest to smallest. It is a statistical tool that graphically demonstrates the Pareto principle or the 80-20 rule[->40]. • Pareto's law[->41] concerns the distribution of income. • The Pareto distribution[->42] is a probability distribution[->43] used, among other things, as a mathematical realization of Pareto's law. • Ophelimity[->44] is a measure of purely economic satisfaction.

When economists say that a particular government policy or an institutional change (that is, change in the rules according to which people do business with each other) leads to a gain in efficiency they mean something very specific. They mean that under the new arrangement it would be possible to make everyone better off. That is, the gainers could compensate the losers and still have something left over. Once such efficiency gains have been fully exploited and a situation has been reached where no further efficiency gains are possible---where one person's situation can only be improved by making someone else worse off---we say that the allocation of resources in the economy is Pareto Optimal or Pareto Efficient. The concept is named after Vilfredo Pareto (1848-1923).
The production and consumption of the various goods in the economy is Pareto Optimal when the combined rents to producers and consumers are the largest that can be obtained. Since these optimal quantities produced and consumed depend on the positions of the demand curves for the various goods, and since the demand curve for any good depends on the distribution of income between those who like the good a lot and those who do not, changes in the distribution of income will affect the demand curves for the various commodities and the maximum consumer and producer rents that can be obtained by producing and consuming them. The Pareto-Efficient production and consumption levels for the commodities produced and consumed in the economy will thus depend on the distribution of income---the fact that a situation is Pareto Optimal therefore does not imply that the distribution of income at which it arises is a socially desirable one.
We have established that an important requirement for the usefulness of straight-forward supply and demand analysis is that products be competitively priced. By this we mean that each individual buyer and seller buys such a small portion of the total quantity of the good that his/her actions cannot appreciably influence the market supply or demand---hence each market participant takes the price as given. Economists call this perfect competition. If there are no externalities, then competitive pricing implies that the Pareto-Efficient quantity will be the one at which the supply and demand curves intersect. These are the quantities that will maximize combined producer and consumer rents for the particular distribution of income that leads to these supply and demand curves.
This condition that in the absence of externalities perfect competition will lead to Pareto Optimality is called the first theorem of welfare economics. While the ideas behind this theorem have been known for decades, it was made precise by Kenneth Arrow (1921- ), and Gerard Debreu (1921-2004). Note again that this is a theorem about efficiency, not social welfare in general. There are many possible competitive equilibria since every different distribution of income will have associated with it a different Pareto-Efficient mix of goods produced and consumed. Economic efficiency involves getting to one such equilibrium---choosing an appropriate distribution of income and thereby picking the particular Pareto-Efficient equilibrium that will be the socially desirable one involves value judgments and goes beyond the scope of economic analysis.
A movement to Pareto Optimality without the gainers compensating the losers involves a redistribution of income. The new equilibrium is still a Pareto-Efficient one in the sense that, the redistribution having been made, it is now impossible for any individual to gain without someone else losing. Because of the distribution effects from moving to a Pareto-Efficient situation, the losers will frequently engage in rent seeking to prevent such a move from taking place.
If there are no transaction costs involved in making and enforcing agreements among individuals and groups of individuals and if the individual rights of all transacting parties are properly guaranteed by the legal system, then the gainers would bribe the losers to obtain their agreement and Pareto-Efficiency would occur naturally. This notion that Pareto-Efficiency will occur automatically if transactions costs are zero and gainers can always compensate losers is called the Coase Theorem (due to Ronald Coase (1910- )

[->0] - http://en.wikipedia.org/wiki/Genoa
[->1] - http://en.wikipedia.org/wiki/Revolutions_of_1848_in_the_German_states
[->2] - http://en.wikipedia.org/wiki/Politecnico_di_Torino
[->3] - http://en.wikipedia.org/wiki/Economic_equilibrium
[->4] - http://en.wikipedia.org/wiki/Social_equilibrium
[->5] - http://en.wikipedia.org/w/index.php?title=Vilfredo_Pareto&action=edit§ion=2
[->6] - http://en.wikipedia.org/wiki/Civil_engineer
[->7] - http://en.wikipedia.org/wiki/Classical_liberalism
[->8] - http://en.wikipedia.org/wiki/Free_market
[->9] - http://en.wikipedia.org/wiki/Management
[->10] - http://en.wikipedia.org/wiki/University_of_Florence
[->11] - http://en.wikipedia.org/wiki/Florence
[->12] - http://en.wikipedia.org/w/index.php?title=Vilfredo_Pareto&action=edit§ion=3
[->13] - http://en.wikipedia.org/wiki/L%C3%A9on_Walras
[->14] - http://en.wikipedia.org/wiki/University_of_Lausanne
[->15] - http://en.wikipedia.org/wiki/Joseph_M._Juran
[->16] - http://en.wikipedia.org/wiki/Pareto_principle
[->17] - http://en.wikipedia.org/wiki/80-20_rule
[->18] - http://en.wikipedia.org/wiki/Pareto_distribution
[->19] - http://en.wikipedia.org/wiki/Giovanni_Giolitti
[->20] - http://en.wikipedia.org/wiki/Fascism
[->21] - http://en.wikipedia.org/w/index.php?title=Vilfredo_Pareto&action=edit§ion=4
[->22] - http://en.wikipedia.org/wiki/Geneva
[->23] - http://en.wikipedia.org/w/index.php?title=Vilfredo_Pareto&action=edit§ion=5
[->24] - http://en.wikipedia.org/wiki/Harcourt,_Brace
[->25] - http://en.wikipedia.org/wiki/Arthur_Livingston
[->26] - http://en.wikipedia.org/wiki/The_Mind_and_Society
[->27] - http://en.wikipedia.org/wiki/Circulation_of_elite
[->28] - http://en.wikipedia.org/wiki/Social_cycle_theory
[->29] - http://en.wikipedia.org/wiki/George_C._Homans
[->30] - http://en.wikipedia.org/wiki/Lawrence_Joseph_Henderson
[->31] - http://en.wikipedia.org/wiki/Talcott_Parsons
[->32] - http://en.wikipedia.org/wiki/L%C3%A9on_Walras
[->33] - http://en.wikipedia.org/wiki/Lausanne_School
[->34] - http://en.wikipedia.org/wiki/Neoclassical_Revolution
[->35] - http://en.wikipedia.org/wiki/General_equilibrium_theory
[->36] - http://en.wikipedia.org/w/index.php?title=Vilfredo_Pareto&action=edit§ion=8
[->37] - http://en.wikipedia.org/wiki/Pareto_index
[->38] - http://en.wikipedia.org/wiki/Pareto_chart
[->39] - http://en.wikipedia.org/wiki/Histogram
[->40] - http://en.wikipedia.org/wiki/80-20_rule
[->41] - http://en.wikipedia.org/wiki/Pareto%27s_law
[->42] - http://en.wikipedia.org/wiki/Pareto_distribution
[->43] - http://en.wikipedia.org/wiki/Probability_distribution
[->44] - http://en.wikipedia.org/wiki/Ophelimity