Pareto built on the system of general equilibrium that Walras
had developed. In his Cours d’économie politique (1897) and his
Manuel d’économie politique (1906), Pareto set forth the
foundations of modern welfare economics. He showed that
theories of consumer behaviour and exchange could be
constructed on assumptions of ordinal utility, rather than
cardinal utility, eliminating the need to compare one person’s
utility with another’s. Using the indifference curve analysis
developed by F. Y. Edgeworth, Pareto was able to demonstrate
that total welfare could be increased by an exchange if one
person could be made better off without anyone else becoming
worse off. Pareto applied this analysis to consumption and
exchange as well as to production. Pareto’s contributions in
this area are remembered in economists’ references to Pareto
optimality and Pareto efficiency.
Joseph Schumpeter (1883–1950)