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Before Macroeconomics: Pareto and the Dynamics of the Economic Aggregate

Pareto based his interpretation of business cycles on a disaggregated general equilibrium system with dynamics determined by frictions (or “inertia”). The present article investigates his interpretation of the motion of the economic aggregate, in the sense of the set of individual consumers and producers forming the economic system in general equilibrium. Did Pareto develop a representative agent model avant la lettre? This is discussed from the double perspective of Pareto’s interpretation of the synchronism of economic “vibrations” and his rejection of the analytical relevance of the “Robinson Crusoe” economy. He was aware that the general equilibrium system could not provide a practical method of solving the equations for each and every individual. This has been called the “Cournot problem” in the literature, as Augustin Cournot was the first to state it. Pareto reacted to that problem by defining economics as the study of average phenomena involving large numbers in repeated markets.