Pareto was overjoyed with his new law, and set out to explain it. According to Pareto, the possible sources of income inequality included chance, social institutions and human nature.
Hypothesizing a simple binomial process of chance accretions to individual incomes, he argued that the resulting frequency distribution would hardly square with his new law. Chance would produce neither the right skew nor the right curvature.
Using a mass of empirical evidence, Pareto asserted that the observed similarity across time and space in income distributions ruled out social institutions as important contributors.
Pareto remained somewhat vague as to exactly what in human nature determined the law. At places he argued that it corresponded to an underlying distribution of human abilities, truncated by the necessities of survival. Those
with abilities considerably lower than the mean must either die or be supported by others. Hence, the observed distribution had a truncated lower tail.
In a quite different vein, Pareto put forth a highly original argument that focused not on the distribution of abilities but rather on the will of the most successful to command the resources of society.
Pareto suggested that those who won in the struggle for society's rewards would have a tendency to accept a certain share (as measured by his distribution) rather than fight without end.
Human nature here determined the appetite of the victors in the social struggle, whatever their abilities, to appropriate the product of society, whatever its character
This curve gives an equilibrium position, and if one diverts society from this position, automatic forces develop which lead it back there.
This argument, while highly speculative and a bit ad hoc, at least made clear the forces that prevented a legislative
redistribution of income. Whatever the institutional structure, those best adapted to it would eventually demand a well-defined share of the total income.
Pareto encouraged society to focus on raising mean incomes, rather than pursuing short-sighted efforts to
change the income distribution. That distribution rested on fundamental structural realities of human nature.
Since the law implied a preset distribution for society, the role of elites or aristocracies in stimulating economic growth became essential.
According to Snyder, "Pareto's Curve is destined to take its place as one of the great generalizations of human
knowledge," since it reflected the economic manifestations of our inability to create "by legislation or any fanciful law . . . a Newton, a Shakespeare or an
Edison," (1937, p. 61).
For all the excesses of the Paretian camp followers, there remains the significant insight that the history of all hitherto existing society is a history of social hierarchies. There is the feel of structure behind income distributions.
Almost all income distributions are continuous, unimodal and highly skewed. We have no examples of uniform distributions or egalitarian distributions or strikingly trimodal distributions. Something is going on here.
A postscript. In his fine discussion of the problems of the middle class in the 1980s, Frank Levy (1988) concludes that it was the slowdown in the national growth rate and not any drastic redistribution of income that created
the anxieties of the "vanishing middle." Pareto would have approved.
Source: Retrospectives Pareto's Law
Joseph Persky - Journal of Economic Perspectives—Volume 6, Number 2—Spring 1992—Pages 181–192
Hypothesizing a simple binomial process of chance accretions to individual incomes, he argued that the resulting frequency distribution would hardly square with his new law. Chance would produce neither the right skew nor the right curvature.
Using a mass of empirical evidence, Pareto asserted that the observed similarity across time and space in income distributions ruled out social institutions as important contributors.
Pareto remained somewhat vague as to exactly what in human nature determined the law. At places he argued that it corresponded to an underlying distribution of human abilities, truncated by the necessities of survival. Those
with abilities considerably lower than the mean must either die or be supported by others. Hence, the observed distribution had a truncated lower tail.
In a quite different vein, Pareto put forth a highly original argument that focused not on the distribution of abilities but rather on the will of the most successful to command the resources of society.
Pareto suggested that those who won in the struggle for society's rewards would have a tendency to accept a certain share (as measured by his distribution) rather than fight without end.
Human nature here determined the appetite of the victors in the social struggle, whatever their abilities, to appropriate the product of society, whatever its character
This curve gives an equilibrium position, and if one diverts society from this position, automatic forces develop which lead it back there.
This argument, while highly speculative and a bit ad hoc, at least made clear the forces that prevented a legislative
redistribution of income. Whatever the institutional structure, those best adapted to it would eventually demand a well-defined share of the total income.
Pareto encouraged society to focus on raising mean incomes, rather than pursuing short-sighted efforts to
change the income distribution. That distribution rested on fundamental structural realities of human nature.
Since the law implied a preset distribution for society, the role of elites or aristocracies in stimulating economic growth became essential.
According to Snyder, "Pareto's Curve is destined to take its place as one of the great generalizations of human
knowledge," since it reflected the economic manifestations of our inability to create "by legislation or any fanciful law . . . a Newton, a Shakespeare or an
Edison," (1937, p. 61).
For all the excesses of the Paretian camp followers, there remains the significant insight that the history of all hitherto existing society is a history of social hierarchies. There is the feel of structure behind income distributions.
Almost all income distributions are continuous, unimodal and highly skewed. We have no examples of uniform distributions or egalitarian distributions or strikingly trimodal distributions. Something is going on here.
A postscript. In his fine discussion of the problems of the middle class in the 1980s, Frank Levy (1988) concludes that it was the slowdown in the national growth rate and not any drastic redistribution of income that created
the anxieties of the "vanishing middle." Pareto would have approved.
Source: Retrospectives Pareto's Law
Joseph Persky - Journal of Economic Perspectives—Volume 6, Number 2—Spring 1992—Pages 181–192