Pareto on the History Of Economic Thought as an Aspect of Experimental Economics



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2) Experimental Economics

Pareto’s system of analysis is predicated on three major ontological elements. First, he recognised that all observed social ‘facts’ are influenced, to varying degrees, by subjective factors which ‘deform’ representations of the objective phenomenon.3 Second, he suggested that subjective influences need not totally dominate scientific observation of social facts in experimental science because subjective influences on observation can be progressively reduced (not eliminated) in the classes of theory that are capable of scientific progress. The accumulation of scientific knowledge enables observers to progressively reduce the influence of subjective factors on observations of social conduct, enabling observation to bring social scientists closer to the objective phenomenon. Of course, he recognised that non-experimental sciences may not progress: it is only experimental science that Pareto linked to increased knowledge. Third, and most important for his views on the history of economics, he contended that the objective form of a phenomenon can be directly observed (albeit imperfectly) and the subjective form can be indirectly observed as residual ‘sentiment’ evident from textual analysis (once pure reason has been stripped away from text).

Importantly, Pareto did not just recognise the objective form and the subjective form of phenomena, he also emphasised interaction between the objective and subjective forms. This was the catalyst for Pareto treating the social phenomena as a dichotomy: one which required treatment using two distinct sets of analytical methods. One set of analytical methods was adopted for circumstances where each individual’s subjective intent is independent of objective events and acts as a constant (invariable) force on human action in like objective circumstances. This set of analytical methods provides for highly deterministic closed system analysis predicated on logical action. Another set of analytical methods was required when each individual’s subjective intent is interdependent with objective events, resulting in subjective intent acting as a variable force on human action in otherwise like objective circumstances. This set of analytical methods is predicated on non-logical action and only provides for a low degree of determinism and relatively open ended system analysis.

Pareto regarded the economic phenomenon as covering both sides of this dichotomy, and for the economic phenomenon to be investigated with analytical instruments appropriate for each side of the dichotomy. The primary issue Pareto faced when studying economic phenomena concerned the first part of the dichotomy: how to undertake experimental investigation of economic conduct when human action is influenced by subjective elements in a ‘constant’ manner under like objective circumstances. This may be considered the ‘economic part’ of the economic phenomenon, and it is the subject of pure economic theory. The secondary issue in Pareto’s study of economic phenomena was how to undertake experimental investigation of conduct when human action is influenced by subjective elements in a variable manner in like objective circumstances. This may be called the ‘sociological part’ of the economic phenomenon, which Pareto studied with reference to the history of economics.



The ‘Economic Part’ of the Economic Phenomenon

Pareto’s pure economic equilibrium addresses the economic part of the study of the economic phenomenon. In this context, experimentalism is presented as the cornerstone of economic study. Importantly, experimentalism to Pareto was not just about observation, as it also relied on abstractions to identify general uniformities:

“we are still perfectly within the experimental field, as long as we never forget that these abstractions were created by us, that they do not dominate the facts but are themselves dominated by the facts, and that the results to which they will lead us do not conform to experience but within certain limits, and that, in order to have a concept, however distant and rough, of these limits, it is necessary to define either rigorously, or approximately, or, at worst, roughly, how these abstractions of the facts are obtained.” (Pareto [1918] 1980, p. 725)

To underline his conviction that abstractions must be dominated by facts and conform with experience, “Economia Sperimentale” devotes considerable attention to non-experimental approaches to value theory. After confessing his ‘ignorance’ of the notion we call value, and armed only with an understanding of the experimental method, Pareto sought enlightenment from the works of Paul Leroy-Beaulieu (1896), John Bates Clark (1907) and Camillo Supino (1904). With a level of sarcasm that was not a-typical, he could find no experimental meaning of this notion in the work of these authors, only propositions in which abstractions dominate facts.4 When Pareto introduced his own abstraction, ophelimity, it was subordinate to facts. The experimental character of pure theory does not depend on whether an ordinal or cardinal approach to value is utilized, rather, it simply requires “… a mathematical function of experimental data” (Pareto [1918] 1980, p. 719). Mathematical economics does not loose its experimental character:

“if the abstraction of ophelimity were only put forward as a hypothesis, with the obligation to verify experimentally the results the hypothesis leads to. But mathematical Economics loses its character as a logico-experimental science if it allows ophelimity to exist independently of the facts of which an explanation is sought, and if it wishes to assume the logical consequences of a hypothesis as demonstrations.” (Pareto [1918] 1980, p. 728)

Critically, Pareto’s notion of experimental economics does not end here. In fact, the fundamental importance of experimental observation in Pareto’s system is largely missed if one does not relate experimental economics back to his basic behavioural dichotomy. The primary purpose of experimental economics is to confirm whether an economic phenomenon is dominated by its ‘economic part’ (in which case subjective intent acts as a constant force on human action in like objective circumstances) or whether it is dominated by its ‘sociological part’ (in which case subjective intent is dependent on objective events and acts as a variable force on human action in like objective circumstances). Phenomena that fall into the first part are amenable to theoretical representation based on deductive reasoning that commences from a hypothetical postulate, such as the postulate of ophelimity maximizing action. Phenomena that fall into the second part are not. Instead, they are treated by deduction based on uniformities first established through textual analysis.

The experimental character of the ‘economic part’ of Pareto’s study of the economic phenomenon has been well considered recently in Marchionatti and Gambino (1997), Marchionatti (1999) and Bruni (2002). However, the importance of the experimental character of economics for the sociological part of Pareto’s study of the economic phenomenon has not received due consideration. The two parts must be considered together before Pareto’s notion of experimental economics can be fully appreciated. That is, experimentalism provides the basis for determining whether the economic or sociological parts prevail in economic problems:

“there is almost no concrete problem that is exclusively economic, and not economic and sociological at the same time. In fact, very often the sociological part prevails over the economic part; examples of this are: the problem of free trade, or tariff protection; many monetary problems; almost all taxation problems; and other similar problems. ... one does not leave the experimental field if one studies the economic and sociological parts separately.” (Pareto [1918] 1980 , p. 733).






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