Between Economics and Political Ideology

The casual (as it seems) meeting between Pantaleoni and Pareto in 1890 marked the beginning of a friendship and intellectual exchange that were to deeply affect the development of the ideas of both.

In the 1892 essay, questions of meaning and implementation of collective optima were intertwined with the question of who has what power in society. Pantaleoni (1898), and the related 1901 essay on “the characters of initial positions” (Pantaleoni 1904: 387-421), contain further enquiries into the matter. When there is a clear imbalance of force between two interacting social parties, the “hedonic calculus of the stronger” will naturally lead the latter to exploit its advantage and to enforce a state of affairs in which the weaker will be subjected to predatory or parasitic spoliation. Only if force is evenly distributed, or if there is no clear understanding of which is the stronger side, will the situ­ation be settled peacefully by means of a contract voluntarily entered into by both sides. Thus, the hedonic principle provides basic fuel to two kinds of social phenomena: those that involve actual or threatened violence and result in power exerted by one group over others, and those that arise out of common interests of independent parties free to arrange agreements of mutual collaboration - respectively, the fields of sociology (as intended in Pantaleoni’s times) and of economics. While Pantaleoni insisted on the separation of the two disciplinary fields, that of economics being limited to the action of ophelimity in a free choice context, the point of the whole essay is that, as a matter of fact, the two kinds of phenomena never come about in their pure state and unequal power relations lurk everywhere in economic transactions. “Whilst we are always constructing economics on the basis of ophelimity, we are also continually falling out of our role and introducing other criteria” in order to take the political side of economic phenomena into account (Pantaleoni 1898: 200-201). The conclusion of the essay is that the space of economics is characterized not by freedom from force, but by the latter being distributed in such a complex way as to make it impossible to tell apart power from negotiation.

Indeed, the overlapping of free contract and political force in the making and unmak­ing of the institutions through which a competitive economy works is the subject of a series of essays on syndicates of firms, trade unions and co-operatives written in the early 1900s and containing some of Pantaleoni’s finest pages (most of them collected in Pantaleoni 1924-25 [1963]). What these institutions have in common is the attempt to build up a force differential by means of coalitions based on common egoistic interests (the “species” or “tribal” egoism recalled above), with each coalition trying to realize a surplus the origin of which is either the new wealth created by the superior efficiency of the coalition with respect to the unorganized group of its members, or wealth plundered from the social groups that have become relatively weaker. It might appear that the theo­retical background of this analysis should lie in Pareto’s and Barone’s demonstration that a general competitive equilibrium always belongs to the ophelimity frontier: a coalition is a creator of wealth, or a plunderer, or a wealth destructor, according to whether or not it is able to imitate competition in implementing cost-minimizing productive formulas. In fact, Pantaleoni was rather late in acknowledging the relevance of the notion of Pareto’s frontier and continued for a while to think in terms of collective hedonistic maxima. Moreover, the relationship between competitive equilibrium and efficiency could not suit his purposes because Pantaleoni’s competitive markets were not the fictional atom­istic markets of the welfare theorems. Price-cutting was only the final manifestation of that complex of heterogeneous activities, involving both contract and coercion, in which competition consisted for him. “Competition is invention” (Pantaleoni 1924-25 [1963], II: 204), and the question whether the starting of an innovative line of action, by either an economic or a political body, will move the system towards a collective optimum or away from it, runs into the difficulty that the optimum is an imaginary locus that never coincides with the actual position, and that locating and even conceiving it is shrouded in doubt (ibid.: 206).

The interest that prompted Pantaleoni’s theoretical research was not only scientific, but also political. In fact, he aimed to channel the scientific prestige of the new marginal- ist economics into a support for his main political thesis, according to which all kinds of working-class organizations (co-operatives and trade unions alike) concealed forms of protection backed by political power and therefore acted as parasites of the social system. However, there was the fact (Pantaleoni 1924-25 [1963], II, 277 ff.) that also firm syndicates introduced elements of monopoly and protection into the competitive game, and it was not clear why they should be treated differently from workers’ coalitions. In 1911 Pantaleoni believed that he had found a way to separate the two cases. “Every mod­ification in the social regime comes to light in the form of a change in prices” (Pantaleone 1911: 114), he affirmed, and consequently introduced a distinction between what he called “political” and “economic prices”: the former were prices that vary depending on who — in the sense of census, class belonging and the like — one of the parties of the underlying transaction is. But he had to recognize that there may also be perfectly eco­nomic prices that discriminate between purchasers, although on a non-political basis, and therefore that the distinction had no objective foundation and relied entirely on the intentions - political or otherwise - of the price setter (ibid.: 21-3). The ultimate crite­rion is perhaps to be found in another principle to which Pantaleoni held consistently all through his life, one which asserts that, while purely economic (that is, contractual) social arrangements are self-supportive, parasitic or predatory arrangements are either self-defeating or are supported by some tributary economic system.

In order to be applicable, Pantaleoni’s principle naturally needed a dynamic frame of reference. In essays written from 1901 (Pantaleoni 1904: 387-421, 1924-25 [1963], II: 177-209) to the fundamental Pantaleoni (1909) he elaborated a theory of his own in which dynamics, differently from the moving temporary equilibrium envisaged by Pareto, involved some kind of discontinuity in the premises on which a state of equilib­rium is based; psychological and sociological attitudes, technology, political institutions and the like.

The previous reconstruction makes it clear that disagreements with Pareto on points of theory were inevitable, although these never went beyond their private correspondence. It was only after Pareto’s death that Pantaleoni (1923) distanced himself publicly from general equilibrium theory and proclaimed that it had reached a dead end. No prediction has ever been more inaccurate, but Pantaleoni had his reasons for wishing that it be true. Pareto wanted economics to be rigorously separated from sociology so as to avoid the exactness of the “first approximation” being spoilt by the jumble of illogical factors that operate outside it. On the contrary Pantaleoni, never the pure economist, had tried all his life to blur the dividing line in an attempt to bring economics to bear upon what he perceived as the political problem of his age: how to prevent tribal egoism, of which he recognized the positive economic role, from turning into a regressive force by taking hold of the state and using it as an instrument for the protection of particular interests. He had other reasons for disagreeing, such as his penchant for psychological explanations (which Pareto dismissed), and his idea that price adjustments are better studied with reference to groups of “connected commodities” rather than in a general equilibrium perspective (see Pantaleoni 1924 25 [1963], I: 191-4, II: 267 ff.). However, the urgency of his political concerns seems to have been the main motive behind his theoretical choices.

Marco Dardi

See also:

Competition (III); Economic dynamics (III); Vilfredo Pareto (I); Public economics (III); Social choice (III).