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History of Political Economy 33.1 (2001) 21-49
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Vilfredo Pareto and the Epistemological Foundations of Choice Theory
Luigino Bruni and Francesco Guala
Of all Pareto’s contributions there is probably none that exceeds in importance his demonstration of the immeasurability of utility. To most earlier writers … utility had been a quantity theoretically measurable; that is to say, a quantity that would be measurable if we had enough facts. Pareto definitely abandoned this, and replaced the concept of utility by the concept of a scale of preferences.
—John Hicks and R. G. D. Allen, “A Reconsideration of the Theory of Value” [End Page 21]
Scientific revolutions are often revolutions in scientific standards.1 Revolutionary philosophies of science may, however, produce a number of negative effects: they sometimes misdirect research in the weakest disciplines; they may force scientists in the most developed disciplines to lie about their methodology in order to show that their work fulfills unreasonable standards;2 and they tend to create historiographical misunderstandings.
In this essay we shall be mainly concerned with the last case. The philosophical doctrine at stake is the peculiar mixture of ordinalism and operationalism that affected neoclassical economics in the 1930s and 1940s. Ordinalist-operationalist historiography dates the birth of modern choice theory back to 1900,3 when Vilfredo Pareto, building on F. Y. Edgeworth’s analysis of indifference curves, showed that it was possible to construct or test economic theories without assuming a cardinal utility function. Pareto’s seeds, however—so the story goes—flowered only several years after his death. His results were reproposed and publicized in 1934 by John Hicks and R. G. D. Allen, the protagonists of the real ordinalist revolution, which replaced traditional utilitarianism with modern consumer theory. From the late thirties onward Paul Samuelson in a series of works took the ordinalist revolution to the extremes with his “revealed preferences” approach, and the mathematical economists of the fifties finished the job. Hicks and Allen began to speak of Pareto’s as an incomplete revolution, relying in particular on the numerous passages in which Pareto used concepts that were still founded on some form of cardinalist utilitarianism. Several historians and economists have followed Hicks and Allen in making the same judgment.
Some scholars, such as Franco Donzelli (1997), Roberto Marchionatti and Enrico Gambino (1997), and Martin Gross and Vincent Tarascio [End Page 22] (1998), have recently tried to reread Pareto’s contributions to choice theory starting from his methodology. This essay follows their lead; in particular, we challenge the thesis of a “failed” Paretian ordinalist revolution, an important topic that has not been addressed in the recent literature. Our main claim will be that Pareto could not have failed, simply because he never had in mind the radical philosophical programs of reform later endorsed by his followers. Indeed, his philosophical standpoint was more sophisticated than the ordinalism and operationalism ante litteram that historians have mistakenly attributed to him.
In section 1 we sketch the main tenets of ordinalism and operationalism in choice theory. Section 2 is devoted to a survey of the standard historiography on Pareto’s failed revolution. Section 3 provides a brief account of the development of Pareto’s views on the foundations of economic theory. In section 4 we review the traditional explanations of Pareto’s “inconsistencies” on cardinalism and hedonism. Section 5 is the core of the article and contains our favored interpretation of Pareto’s revolution in light of his philosophy of science. Section 6 concludes.
1. Ordinalism and Operationalism
Whereas the marginalists of the first generation mostly took utility to be a psychophysical entity such as pleasure-pain, modern economists have officially replaced it with a more abstract mathematical “index of preferences.” The origins of economists’ dissatisfaction with the old concept of utility coincided with the slow decline of the psychophysical project of measuring the intensity of sensations. Positivistically minded economists thought that the difficulties in measuring a fundamental economic quantity such as utility could potentially discredit the whole of economics, and they tried to solve the problem by...