Formation and Early Work
Pantaleoni studied law as did most economists in Italy in those days - the “Scuole Superiori di Commercio” were to start later in the century - graduating from the University of Rome with a thesis on the theory of the shifting of taxation that became his first published work (Pantaleoni 1882).
“He chose economics by chance”, de Viti recollected, “I can’t remember how it was that we stumbled upon Stanley Jevons’ little book which, unlike the university courses, engrossed us enormously” (De Viti de Marco 1925: 168). For Pantaleoni marginalism meant Jevons’s conditions for the optimal allocation of a common resource among different uses, rather than the integration of these into a general equilibrium system as in Walras’s theory. Walrasian general equilibrium was hard to understand for the innumerate young Pantaleoni, and remained a secondary interest even later, in spite of his intellectual closeness to Pareto. It is also to be noted that the channel through which he approached marginalism in the course of the 1880s was, as emphasized by Buchanan (1960) and Barucci (1972), the theory of public finance, that is, a special field in which economic analysis is in close contact with political philosophy.Apart from a few allusions to the final degree of utility, the analysis of tax shifting in Pantaleoni (1882) was entirely based on a conventional, pre-marginalist supply and demand framework. The terms of the political dispute between a free-trade interpretation of the role of the state, prevented from interfering in the distribution of wealth brought about by market competition, and the socialist view, according to which the state should take sides and represent the interests of one class against another, were clearly stated but left undecided. Just one year later, however, in an 1883 essay on the optimal distribution of public expenditure (reprinted in Pantaleoni 1904: 49-110; partially translated in Musgrave and Peacock 1967: 16-27), Pantaleoni availed himself of Jevons’s utility maximization conditions in order to arrive at a precise definition of the role of the state.
How to characterize an optimal tax-expenditure plan - was the essay’s central issue. The answer was in two parts. First, the batch of services provided by the state should be such that, in the given technical conditions, their production cost is lower if they are produced jointly and for citizens all together, rather than separately and for citizens one by one. Secondly, the entire tax revenue should be distributed among types of expenditure so as to equalize their weighted marginal utilities as perceived by the “average intelligence of Parliament”. Marginalist foundations for a notion of a minimal state were thus established: this is a state that acts as a homo oeconomicus on the basis of the “hedonic principle” in an efficient division of labour scheme.Further questions naturally followed from such an approach. Alert as he was to the problem of public corruption in fin de siecle Italy, Pantaleoni could not be content with the vague formula of the “average intelligence of Parliament”. Exactly whose utility does the state maximize? In general, how is the hedonic principle to be applied when the decisionmaker is a collective entity? In the Principii di economiapura of 1889 Pantaleoni prepared the ground for his subsequent investigation. Slighted as “old truths in fresh associations” by A.W. Flux (1898: 360), the volume in fact contained a number of original hints, two of which provide clues to what was to come. First, Pantaleoni stressed a dual interpretation of the hedonic principle, which he took to mean a search either for maximum individual advantage or for maximum advantage of the group to which the individual belongs, as he or she understands it. He dubbed the two interpretations, respectively, “individual” and “species” (“tribal” in Bruce’s English translation of the volume) egoism, a duality that he may have derived from the Italian tradition of eighteenth century utilitarianism as well as from Edgeworth and Sidgwick. Secondly, he began to develop the practice, which would become habitual with him, of identifying common logical patterns behind apparently different social phenomena, so that these could be subjected to analogous analytical treatment. In the Principii he followed Ferrara in subsuming exchange and production under a general notion of transformation, arguing that this move would lay bare the continuity between marginalism and the classical theory of value from Ricardo to Cairnes. Later, this practice would lead him to deal with coercion as just another manifestation of the hedonic principle alternative to contract, justifying the extension of marginal analysis from the field of economic to that of political action.