The Economics of Welfare

Abstract

For Pareto, now an academic, the economics of welfare represents the logical link between general equilibrium on the one hand and the critique of economic policy on the other. In this chapter, the various phases of the most original element of Pareto’s economic thinking, tracing its origins quite evidently to his liberal activism, will be reconstructed (on the formal aspects of the Paretian optimum, Montesano (The ophelimic maximum for the collectivity: Definitions, analyses, interpretations (Il massimo di ofelimita per la collettivita: definizioni, analisi, interpretazioni). In Pareto today (Pareto oggi). Bologna: Il Mulino, ed. Busino, Giovanni, 115–138, 1991), Montesano (History of Economic Ideas V: 7–18, 1997), Scapparone (History of Economic Ideas V: 35–48, 1997); on the most important theoretical development, Allais (The general theory of surplus (La theorie generale des surplus). Grenoble: Presses Universitaires de Grenoble, 1989); on its role in the history of economic analysis, Berthonnet (History of Economic Ideas XXIV: 165–186, 2016); on its heuristic significance, Hennipman (De Economist, 1992)). Thus, having alluded to some of his early reflections on the economics of welfare (Sect. 5.1), as well as to an interesting but isolated empirical exercise on this topic (Sect. 5.2), his first attempts at formalisation of the theme will be described (Sect. 5.3), followed by the first delineation of the notion that was later to become known as the Paretian optimum (Sect. 5.4). We will conclude with the early implications that Pareto identified deriving from his demonstration of the optimality of free competition (Sect. 5.5).