Vilfredo Pareto; A Mathematical Answer to Economics Problems – Businessamlive

0

BY ANTHONY KILA

One of the main differences between those who studied or applied economics in the 18th and 19th centuries and those who studied and applied economics from the 20th century onwards is their conception of economics. For the former, economics, generally known as political economy, was a branch of philosophy and other moral thinking aimed at understanding the creation of wealth and at suggesting better ways of governing society and improve the well-being of citizens. The thinking and language of that time was common sense and the messages were generally intuitive and inspiring. For students and economists of our time, economics is primarily a study of collected data and it is expressed in mathematical laws. The economy of our time relies heavily on statistics, charts, graphs and equations.

Vilfredo Pareto

Our unforgettable today is one of those who led the metamorphosis of the economy from its original state to a mathematical study of human relations. His name is Vilfredo Pareto and he was born in 1848 into an aristocratic family in Paris. Her father, Raffaele Pareto, was an Italian engineer and nationalist while her mother, Marie Metenier, was a French activist. Vilfredo Pareto lived for 75 years during which he contributed to a range of disciplines. He is generally remembered as an engineer, philosopher, political scientist, sociologist and economist. Interestingly, Vilfredo Pareto entered economics late in life and we owe his entry into economics largely to Maffeo Pantaleoni.

Vilfredo Pareto’s first years of study and profession in more than 40 years focused on mathematics, engineering and philosophy. He studied mathematics and physics and obtained his doctorate in engineering. He started as an engineer, then became a business manager and tried his hand at partisan politics, but without success. His belief in the natural scientific method was so strong that even when he approached sociological studies, he insisted on basing sociology on such a method that he once declared: “My wish is to build a system of sociology on the model celestial mechanics, physics, and chemistry.

Vilfredo Pareto’s first major contribution to economics was his articulation of the distribution of wealth, when in his 1895 publication based on data he collected first in England and later in other countries, he used mathematical formulas (logarithmic expressions) to explain that most of the wealth of every society is in the hands of a very few. He also showed that such a skewed distribution was neither random nor accidental, but followed a clear pattern that indicates that no matter where you go in the world or at any time in history, wealth has always been and will be. always distributed in a way few people will always have the greater part of the available wealth and the greater number will always have the lesser part of the available wealth. His articulation of the distribution of wealth has been named Pareto distribution.

The Pareto distribution has had such an impact in our lives and in so many disciplines that after more than 120 years since its introduction, many now use it and in different ways beyond the original reason for its conception. His observation now held to be universally valid by many is presented in different situations and in many nuances, sometimes as the “80 20 rule”, “Pareto’s Law”, “Pareto’s Principle” or “Vital Few”. This last expression was coined by Joseph Juran.

Today many of us discover Vilfredo Pareto in sales and marketing planning sessions when we are shown that 80% of our goods and services are purchased by only 20% of our customers or that 80% of our revenue comes from only 20% of our offerings. ; or in general manufacturing and production planning sessions, where we are shown that 20% of production inputs represent 80% of our total production. The principle is also very well cited and applied in the general business and project management sessions, where it is held that 80% of the funds given or invested and the general participation come from 20% of the participants. Readers and scholars from underdeveloped countries will readily observe that a government capable of solving a few problems such as the judicial system, security, infrastructure and education would have solved 80% of the problems facing the development of such a country.

A realist at heart, Vilfredo Pareto also introduced an important element into our understanding of welfare economics: the zero-sum property of economic policies. For Vilfredo Pareto, a system or an economy will be said to be in an optimal or efficient state when it is impossible to reallocate resources for the benefit of an individual without this having a cost or a disadvantage for another individual. This theory is based on and must be contextualized in the idea that in the economy or system in question, all resources and all goods have been allocated to its maximum efficiency. The economy of a situation that reflects or responds to this theory is described as having “Pareto efficiency” or “Pareto optimality” by those in favour, as well as those against the theory. It has been argued that, like the perfect market run by the invisible hand of classical economists, Pareto efficiency, at least in its purest form, can only be conceived and studied in theory or seen as a possible outcome. .

It should be noted that while Vilfredo Pareto had a great impact with his introduction of mathematics into the study of economics and even took over the chair of political economy once held by Léon Walras, another mathematical economist who influenced a lot, Vilfredo Pareto spent the last part of his life in sociology where he also made remarkable contributions, and yes, he tried to take his mathematical methods there, but he finally concluded that men were not not as logical as they would like or claim to be.

Join me if you can @anthonykila to continue these conversations.

Anthony Kila is Jean Monnet Professor of Strategy and Development. He is currently center director at CIAPS; the Center for International Advanced and Professional Studies, Lagos, Nigeria. He is a regular BBC commentator and works with various organizations on international development projects across Europe, Africa and the United States. He tweets @anthonykila, and can be reached at anthonykila@ciaps.org

I’m on business. is committed to posting a diversity of views, opinions and commentary. He therefore welcomes your reaction to this article and to any of our articles by e-mail: comment@businessamlive.com

Share.

About Author

Comments are closed.