Habits and Expectations: Dynamic General Equilibrium in the Italian Paretian School

The Paretian school was one of the most important schools of economic thought in the interwar period in Italy. It comprised a small but combative group of economists, among whom the names of Luigi Amoroso and Giulio La Volpe stand out. The most ambitious project undertaken by the Paretians was to make dynamic the theory of general equilibrium by grounding it in the use of then sophisticated mathematical instruments, such as functionals, differential equations, and the calculus of variations drawn by analogy from mechanics. Amoroso, utilizing his scientifi c background to emphasize analogies with the physical sciences, in particular with rational mechanics, proposed a view of economic dynamics based on the past; La Volpe took a totally different tack by concentrating on choices based on plans and predictions, that is, on the future. The Paretian approach to dynamics was one of the most original products of the Italian tradition between the two world wars, at least in the fi eld of pure theorizing; but, for reasons that we will explore, it did not have a signifi cant impact on the working out of economic dynamics in the postwar period.