A Century of Methodological Individualism

Andy Denis City University London a.m.p.denis@city.ac.uk Version 2: August 2010

Paper for the 42nd annual UK History of Economic Thought conference, Kingston University September 2010 Please do not disseminate further

Proposal 2009 marks the centenary of methodological individualism (MI). The phrase was first used in English in a 1909 paper by Joseph Schumpeter in the Quarterly Journal of Economics. Yet after 100 years there is considerable confusion as to what the phrase means. MI is often invoked as a fundamental description of the methodology both of neoclassical and Austrian economics, as well as of other approaches, from New Keynesianism to analytical Marxism. However, the methodologies of those to whom the theoretical practice of MI is ascribed differ profoundly on the status of the individual economic agent, some adopting a holistic and some a reductionist standpoint. My purpose is to uncover and evaluate some of the meanings of the phrase 'methodological individualism'. The first part considers the contributions of Joseph Schumpeter, who was the first to use the term, and of Carl Menger, considered by many to be the founder of MI. I find evide nce that both writers recommend a highly reductive, atomistic methodology. I then consider the contributions of von Mises and Hayek, concluding that Mises and Hayek based their methodological stance on fundamentally different ontologies, with von Mises building on the reductionism of previous writers such as Schumpeter and Menger, and Hayek, on the contrary, adopting a holistic ontology more in line with Adam Smith, Marx and Keynes. From an ontological perspective this seems to leave Hayek as something of an outlier in the Austrian tradition. The final part concludes, touching on some of the more recent literature, and suggesting that the analytical Marxism of Jon Elster and others has more in common, methodologically, with reductionist writers such as Bentham, Malthus after 1800, Ricardo, Menger, Schumpeter, Mises, Friedman and Lucas, than with more holistic writers such as Adam Smith, Dugald Stewart, Malthus before 1800, Marx, Keynes and Hayek.

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Part One: Schumpeter and Menger

1. Introduction February 2009 marked the centenary of the term methodological individualism (MI). The phrase was first used in English in a 1909 QJE paper by Joseph Schumpeter. MI is often invoked as a fundamental description of the methodology both of neoclassical and Austrian economics, as well as other approaches, from New Keynesianism to analytical Marxism. However, the methodologies of those to whom the theoretical practice of MI is ascribed vary widely and, indeed, differ profoundly on the status of the individual economic agent, some adopting a holistic and some a reductionist standpoint. Even after 100 years there is considerable confusion as to what the phrase means: Denis (2006b) shows with reference to a case study, a debate on the subject of MI between members of the History of Economics Societies email list, the hazard of mutual misunderstanding caused by lack of a shared understanding of the meaning of MI. The purpose of the research of which this paper is part is therefore to uncover, clarify and evaluate some of the meanings of the phrase methodological individualism (MI). This first paper considers the contributions of Joseph Schumpeter, who was the first to use the term, and of Carl Menger, considered by many to be the founder of MI. The approach adopted is to apply the intellectual apparatus developed in Denis (2004) to the arguments of these writers. This constitutes a test of that apparatus: is it able to clarify the standpoints to which it is applied? My interest in the topic is thus quite specific. In JEM 2004 I published a paper,Two rhetorical strategies of laissez-faire, setting out a new approach to economic methodology, an approach which emerged in my study of Smith, Hayek and Keynes (Denis, 2004). My 2006 paper on Malthus in History of Economic Ideas(Denis, 2006a) was an attempt to test this approach was the two-rhetorical-strategies approach able to enlighten us, to tell us more about Malthus? The answer, I felt, was encouraging. Application of the new approach revealed a fundamental shift in Malthuss methodology around the turn of the 19th century, between the First and Second Essays, a shift which had not previously been noticed in the literature. My interest here is the same: can this new approach enlighten us can it help us to understand the meanings of MI? This part of the paper briefly recapitulates the two-rhetorical-strategies approach, then applies this approach to the founding fathers of the literature on MI, Schumpeter and Menger. The conclusion reached is that both Schumpeter and Menger adopt a reductionist ontology in the sense of Denis (2004). Subsequent parts examine the contributions of Mises andHayek, and of the analytical Marxists. 2. Two rhetorical strategies of laissez-faire and interventionism1 This section sketches the view developed in Denis (2004), that proponents of conservative policy prescriptions, such as laissez-faire, are compelled, to the extent that they are confronted with ontological issues, to make a choice between reductionism and holism, and, if they choose the latter, have to attach to it an invisible hand mechanism to underpin the Page 2 of 39

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reductionist policy prescription of laissez-faire. In the research project summarised in Denis (2004) I have tried to show two things: Firstly, that in a world of partially overlapping and partially conflicting interests there is good reason to doubt that self-seeking agent behaviour at the micro-level will spontaneously lead to desirable social outcomes at the macro-level. The presence in such a world of externalities, such as the prisoners dilemma, implies that Nash equilibria cannot be assumed to generate socially desirable outcomes, even in the minimal sense of Pareto efficiency. And, secondly, that we can usefully distinguish between two kinds of argument for laissez-faire. Reductionist laissez-faire writers argue or assume that important aspects of the society we live in can straightforwardly be reduced to the behaviour of individuals: individual utility maximisation leads to social welfare maximisation by a process of aggregation. Apparent macro-level irrationality, such as unemployment, can thus be reduced to micro-level decisions on the trade off between leisure and labour. This is the well-known stance of Friedman and Lucas. There are, however, more holistic economic proponents of laissez-faire, writers who also would like us to rely on the spontaneous interaction of self-seeking agents, but who recognise that social or collective rationality, or irrationality, may be emergent at the macro-level, and not reducible to the rationality, or otherwise, of substrate-level behaviour giving rise to it. In order then to present the macro-level outcomes as desirable, they have proposed various invisible hand mechanisms which can, in their view, be relied upon to educe good from ill. Smith, I argued, defended the simple system of natural liberty as giving the greatest scope to the unfolding of Gods will and the working out of natural, providential processes, free of interference by artificial state intervention the expression not of divine order but of fallible human reason. Hayek, adopting a similar policy stance, based it in an evolutionary process in which those institutional forms best adapted to reconciling individual agents interests would, he believed, spontaneously be selected for in the inter-group struggle for survival. Reductionism (often referred to in the literature as atomism) can be defined as the view that an entity at one level can be understood as a congeries, an aggregate of entities at a lower, substrate level, and that the properties and behaviour of higher level entities can be understood in terms of the properties and behaviour of its constituent lower level parts, taken in isolation. Holism (often referred to as organicism) is the opposite view, namely that phenomena at one level can be understood as emergent at that level, that a higher level entity can be understood as a product of the interrelationships between its component parts. The opposition between the two is often expressed in the literature by means of the formula that the whole is (reductionism), or is not (holism), equal to the sum of the parts. The contrast between the reductionist and holistic approaches can be illustrated by comparing the status of the individual in Friedman and in Hayek. Economics, Friedman says, is based in the study of a number of independent households, a collection of Robinson Crusoes (1962: 13). For Hayek, however, individuals are merely the foci in the network of relationships (1979: 59). So for one we arrive at the macro by aggregating large numbers of isolated micro elements, whereas for the other, it is the interconnections between the micro elements which are key. An alternative to both of these approaches is to combine Smiths and Hayeks recognition of the holistic nature of the world we live in with rejection of their postulate of an invisible hand. In this view, rational self-seeking behaviour on the part of individual agents is by no means either the necessary or the sufficient micro substrate for the desirability of social outcomes. According to Keynes, for example, uncoordinated egotistical activity in unregulated markets may lead to inefficient outcomes. The price system aggregates rational individual actions but the aggregate is an unintended outcome as far as those individuals are Page 3 of 39

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concerned. There is no particular reason why unintended outcomes should necessarily be desirable and often they are not. Individuals take responsibility for maximising their own welfare, given what everyone else is doing, but society as a whole has to take responsibility for organising the aggregate outcome, if undesirable aggregate outcomes are to be avoided: there is no design but our own ... the invisible hand is merely our own bleeding feet moving through pain and loss to an uncertain destination (Keynes, 1981: 474). The purpose of the present paper is to apply this structure of ideas to the case of methodological individualism.

3. The meanings of MI: the founding fathers (i) Schumpeter

It seems appropriate to start with the originator of the term MI. The term methodologischer Individualismus was introduced in Joseph Schumpeters 1908 Das Wesen und der Hauptinhalt der theoretischen Nationalkonomie. Chapter 6, Methodological Individualism, was translated into English and published as a pamphlet in 1980, with a Preface by Hayek (Schumpeter, 1980). A year after publishing his book in German, Schumpeter published a paper in English in the Quarterly Journal of Economics, On the concept of social value, and the first appearance of the term methodological individualism in English occurs at the end of this paper (Schumpeter, 1909: 231). The first sentence of the final section, Summary, is First of all, it is here claimed that the term methodological individualism describes a mode of scientific procedure which naturally leads to no misconception of economic phenomena. This is the first and only reference to MI in the paper. A footnote states that the claim made here is more fully elaborated in Schumpeters 1908 book in German, just mentioned. The main purpose of Schumpeters paper is to investigate the meaning of the term social value. Section I, Methods of pure theory are individualistic, sets the scene methodologically, and the rest of the paper Section II, Meaning of the concept of social value; Section III, Concept of social value opens up an optimistic view of society and its activities, and Section IV, Relation of the theory of prices to the concept of social value applies this methodology to the specific question in hand. Our interest is in the method, and its application to the concept of social value is only of interest in so far as it illuminates thatmethodological approach. However, methodology is in Schumpeters paper in the foreground throughout, as the question of the meaning of social value is a purely methodological one (Schumpeter, 1909: 213) 2. Schumpeters analysis is presented as empirical and positive: this is what economists do, he says: the point is not to comment on their methodology, not, that is, to make value judgements about it, but merely to show some of its implications: At the outset it is useful to emphasize the individualistic character of the methods of pure theory. Almost every modern writer starts with wants and their satisfaction, and takes utility more or less exclusively as the basis of his analysis. Without expressing Page 4 of 39

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any opinion about this modus procedendi, I wish to point out that it unavoidably implies considering individuals as independent units or agencies. For only individuals can feel wants. (Schumpeter, 1909: 214). Since standard assumptions about those wants give us utility curves3, the latter therefore, have a clear meaning only for individuals. We should note that though Schumpeter says here that he expresses no opinion about the procedure, he does say elsewhere that it is free from inherent faults, and, as far as it goes, fairly represents facts and that it naturally leads to no misconception of economic phenomena (Schumpeter, 1909: 215, 231). We may take it, therefore, that in fact MI is to be endorsed, and this is much more explicit in the book (Schumpeter, 1980). So the argument is: (i) most economists start with wants and analyse utility via utility curves; (ii) only individuals can feel wants; and therefore (iii) utility curves are only meaningful for independent individuals, individuals as independent units. Further, utility curves and the quantities of goods together determine marginal utilities for each individual, which are the basis and the chief instruments of theoretical reasoning; and they seem, so far, to relate to individuals only Marginal utilities do not depend on what society as such has, but on what individual members have ... we have to start from the individual: first, because we must know individual wants; and, secondly, because we must know individual wealth. (Schumpeter, 1909: 214-5). Schumpeter summarises how economics starts from individualist assumptions and, via individualist reasoning, builds up to social phenomena as follows: Marginal utilities determine prices and the demand and the supply of each commodity; and prices, finally, tell us much else, and, above all, how the social process of distribution will turn out. We gather from the theory of prices certain laws concerning the interaction of the several kinds of income and the general interdependence between the prices and the quantities of all commodities. This, in nuce, is the whole of pure theory in its narrowest sense; and it seems to be derived from individualistic assumptions by means of an individualistic reasoning. We could easily show that this holds true not only for modern theories, but also for the classical system. It is submitted that this treatment of economic problems is free from inherent faults, and, as far as it goes, fairly represents facts (Schumpeter, 1909: 215). By contrast, we cannot start from Society: It now becomes clear that the same reasoning cannot be directly applied to society as a whole. Society as such, having no brain or nerves in a physical sense, cannot feel wants and has not, therefore, utility curves like those of individuals ... Two points are worthy of note here. Firstly, Hodgson (2007: 212-3) suggests that for Schumpeter, methodological individualism was no universal injunction or methodological principle from which we depart at our peril. Instead for him it was an attempt to demarcate the pure theory of economics from other approaches and methods of scientific inquiry Schumpeter upheld methodological individualism as Page 5 of 39

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neither a universal principle of social scientific research nor an obligatory rule for all social scientists. Well, this is sort of true, but only sort of4. As Hodgson points out, we need also to look at Schumpeter (1986) to clarify his stance. There Schumpeter identifies a Sociological Individualism, by which we mean the view, widely held in the seventeenth and eighteenth centuries, that the self-governing individual constitutes the ultimate unit of the social sciences and that all social phenomena resolve themselves into decisions and actions of individuals that need not or cannot be further analyzed in terms of superindividual factors (Schumpeter, 1986: 888). Before proceeding, the reader is invited to pause and consider: is this description consistent with what Schumpeter wrote in 1909? And is it consistent with the methodology of neoclassical economists such as Friedman and Lucas? On the first question, it is difficult to discern a difference here, from what Schumpeter was saying in 1909. It is surprising and instructive to see what Schumpeter says next in History of Economic Analysis: This view is, of course, untenable so far as it implies a theory of the social process (Schumpeter, 1986: 888-9). Nevertheless, it remains permissible for the special purposes of a particular set of investigations to start from the given behaviour of individuals without going into the factors that formed this behaviour In this case we speak of Methodological Individualism (Schumpeter, 1986: 889). The contrast which Schumpeter draws here between MI and Sociological individualism (SI) is as follows. MI means starting with the behaviour of individuals and treating that behaviour as primitive and given. As he has already explained Schumpeter (1909), this is a requirement for economic science: it is a procedure which is free from inherent faults, fairly represents facts and naturally leads to no misconception; and we have t start o from the individual the same reasoning cannot be applied directly to society (Schumpeter, 1909: 215, 231). SI is untenable, however, according to Schumpeter, not because there is anything wrong with the methodological approach it describes, so far as economics is concerned that methodological approach simply is MI but because it makes MI a requirement for other disciplines, disciplines which may wish to further analyze the decisions and actions of individuals. So Hodgson is correct that Schumpeter is proposing a division of labour between different social disciplines (Schumpeter 1986: 889), but this is not be taken as endorsement of methods other than MI for the understanding of social phenomena. In other words, it is a demarcation criterion combined with a very clear injunction as to what methods are applicable in social science. The violation of SI which his standpoint admits is a very precise one, namely the further analysis, by disciplines other than economics, of the decisions and actions of individuals in terms of superindividual factors. Preferences may be themselves socially determined. He has already said this in the QJE paper: it is only as long as an individual is isolated that the total as well as the marginal utilities of all commodities he may possess depend exclusively on him. All utilities are changed when he lives in society, because of the possibility of barter which then arises Our individual will now put a new value on his goods because of what he can get for them in the market This fact may be said to show the direct social Page 6 of 39

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influence on each individuals utility curves. Secondly Everyone living in a community will more or less look for guidance to what other people do The phenomenon of fashion affords us an obvious verification of this We must look at individual demand curves and marginal utilities as the data of purely economic problems Social influences form them, but for us they are data, at once necessary and sufficient, from which to deduce our theorems. So a clear methodological approach emerges, and one which is reductionist in the sense discussed above in Section 2 of this paper, one which is entirely consistent with that of Friedman and Lucas. Indeed, individuals are not isolated and their utilities depend upon social influences including the value they place on commodities due to the psychological forces of fashion and herd behaviour, and because the fact of a market places a new value on items which individuals could conceivably sell. These influences on individual decisions and behaviour are the domain of other sciences, such as psychology. But in economics, we are able to put aside questions as to the reason for this or that individual preference, and ask instead only about the consequences of such preferences: For theory it is irrelevant why people demand certain goods: the only important point is that all things are demanded, produced, and paid for because individuals want them. Every demand on the market is therefore an individualistic one (Schumpeter, 1909: 216). To study the social consequences of these individual preferences, by using the individualistic methods which Schumpeter describes, we assume that the isolated individual is indeed the atom of society. Hence Schumpeters verdict on the neoclassical writers of the marginal revolution: it may be shown that, within the range of problems that primarily interested them, that is within the range of the problems that come within the logic of economic mechanisms, the procedure of the theorists of that period [sc 1870-1914] may be defended as methodological individualism, and that their results, so far as they went, were not substantially impaired by the limitations that are inherent in this approach (Schumpeter 1986: 889). This subsection has tried to show the true and the false in Hodgsons reading of Schumpeter as proposing MI as a (sub)disciplinary demarcation device, but not a methodological imperative. A footnote to this account considers the relation between Schumpeter and his teacher, Max Weber. Joseph Heath, in the online Stanford Encyclopedia of Philosophy, writes that the theoretical elaboration of this doctrine [sc the doctrine of methodological individualism] is due to Weber, and Schumpeter uses the term as a way of referring to the Weberian view ( Heath, 2009: 2). Webers point of departure and the ultimate unit of his analysis is the individual person (Gerth & Wright Mills, 1970: 55). In Webers own words: Interpretative sociology considers the individual [Einzelindividuum] and his actions as the basic unit, as its atom In this approach, the individual is the sole carrier of meaningful conduct (Weber, 1922: 132). In general, for sociology, such concepts as state, association, feudalism, and the like, designate certain categories of human interaction. Hence it is the task of Page 7 of 39

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sociology to reduce these concepts to understandable actions, that is, without exception, to the actions of participating individual men. (Weber, 1922: 142). Given the close connection between Schumpeter and Weber, it seems highly likely that what Weber here describes is exactly the Sociological Individualism that Schumpeter rejects in History of Economic Analysis. His criticism of it being that, while the mode of procedure Weber describes is unexceptionable and indeed necessary in economics, it should leave open the possibility of other disciplines exploring the social influences on the preferences and hence on the decisions and understandable actions of participating individual men. Turning now to Schumpeter (1980), the first point to note is that Schumpeter appears to take a stronger line here than he does in the QJE paper the following year, and an instance of this is his use of the term atomism throughout as a synonym for MI: in this day and age, the validity of the individualistic concept is strongly queried; indeed atomism is most frequently disputed by the opponents of the theory (1980: 2). He speaks of the hatred of atomism in political economy which, he says, stems from opposition to political individualism (1980: 3). MI, Schumpeter says, has no specific propositions and no prerequisites, it just means that i[t] bases certain economic processes on the actions of individuals. Therefore the question really is: is it practical to use the individual as a basis or would it be better to use society as a basis. This question is purely methodological and involves no important principle (1980: 3). When he says that MI lacks specific propositions, prerequisites and important principles, the contrast he has in mind is with political individualism, which starts from the proposition or principle that freedom contributes to the well-being of individuals and society (1980: 3). Schumpeter is explicit here that the underlying issue concerns the adoption of a holistic or reductionist ontology: If we wanted to study the nature of economics we would have to comment on the two concepts which represent two completely opposite points of view in this field. One the one hand there is the concept of the national economy as an organism and, on the other hand, there is the concept of economy as a result of economic actions and the existence of individuals. (1980: 4) This is a critical distinction although, as we will see it does not cut the way Schumpeter expects it to, nor as subsequent readers have understood it to do. In brief, my thesis is that the holistic, or organicist approach, seeing macro level entities as an organism or a system, characterises Smith, Dugald Stewart and the early Malthus, as well as Marx, Keynes and Hayek, while the reductionistic approach, the standpoint which reduces social entities to the economic actions and existence of individuals, is characteristic of Malthus from the Second Essay of 1803 onwards, of Bentham and Ricardo, of Schumpeter, Weber, and Mises, of Friedman and Lucas, and of the analytical Marxists such as Elster and Roemer. Schumpeter identifies this fundamental division in the methodology of economics, but immediately spoils things a little by denying that this ontological question is of any relevance; rather the real question is an epistemological one, and for practical purposes the two can be separated, and ontology discarded: Page 8 of 39

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What counts is not how these things really are, but how we put them into a model or pattern to serve our purpose as best as possible This proposition is as paradoxical as it is fundamental: is the nature of a political economy supposed to be of no significance to the political economist? We not only believe that this is a valid question but we can go further by saying that even the nature of economics is not important to us (1980: 5). As we will see later, Mises adopts the same line, that ontology is a waste of time and ontological questions both unanswerable and unimportant. It is a theme of my approach that one cannot so easily dispense with ontological questions. On the contrary, everything Schumpeter says here is laden with ontological implications, and indeed relies upon and expresses what I have called a reductionist ontological orientation. How we know the world is not to be divorced so easily from how the world is. Continuing the theme that ontology is irrelevant, Schumpeter claims that MI is desirable because it is what computer scientists would call a quick and dirty way to obtain desirable results: All we are saying is that the individualistic concept leads to quick, expedient and fairly acceptable results, and we believe that any social-orientated concept within the pure theory would not give us any greater advantages and is therefore unnecessary. However, if we go beyond pure theory, things are different. For instance in organisation and even more in sociology, atomism would not get us very far, but in view of its methodological character this is not of any consequence Principal5objections against atomism as we represent it, therefore, do not exist (1980: 6). The apparent concession that atomism would not get us far in other disciplines, such as sociology, is to be understood in the sense already discussed that other disciplines may wish to investigate the social origins of the preferences of individuals, but for pure economic theory this is unnecessary. This does not therefore in any way indicate any deviation from a reductionist ontology of economics. I conclude therefore that the version of MI which we find at the beginning of the twentieth century in the work of Schumpeter and Weber, consists of the reductionist claim that we can start out with individuals conceived of in isolation, and by considering the behaviours which such isolated individual atoms will engage in, in pursuit of their own interests, we may arrive at the social phenomena we wish to explain. There only remains the footnote, that Schumpeter feels a need for space for other disciplines to explain individual preferences, including the social influences thereon. (ii) Menger

From a consideration of Schumpeter, the originator of the term methodological individualism, we turn to Menger, seen by many as the founder of the approach designated MI, even if he did not himself use the term. Menger is certainly extremely important for the debate on MI; opinions vary, however, on what exactly Mengers role was. For Udehn,

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according to Menger The ultimate explanation of all economic phenomena is in terms of the behaviour of economising individuals. The starting-point of Mengers analysis is the isolated individual, represented by Robinson Crusoe alone on his island This is Mengers atomistic method which would later become known as methodological individualism (Udehn, 2001: 88). To conclude: Carl Menger may be considered the founder of methodological individualism, but he did not use this term himself he called it atomism which means that complex phenomena should be explained in terms of their simplest elements, or parts (Udehn, 2001: 94) For Heath, however, It is worth emphasising the difference between methodological individualism, in Webers sense, and the older traditions of atomism (or unqualified individualism) in the social sciences. Many writers claim to find the origins of methodological individualism amongst the economists of the Austrian School (especially Carl Menger) The atomistic view is based upon the suggestion that it is possible to develop a complete characterisation of individual psychology that is fully pre-social, then deduce what will happen when a group of individuals, so characterized, enter into interaction with one another. Methodological individualism, on the other hand, does not involve a commitment to any particular claim about the content of the intentional states that motivate individuals, and thus remains open to the possibility that human psychology may have an irreducibly social dimension Most theorists of the Austrian School, however, like Carl Menger and Ludwig von Mises, were pure atomists. (Heath, 2009: 3-4). It is clear from Heaths account that what is here designated atomism is a close parallel of sociological individualism in Schumpeters account. That is, it is Schumpeterian MI plus the claim that individual tastes and preferences may themselves be analysed on the basis of the isolated individual. We should note that this atomism is thus more demanding, more strongly reductionist, than the atomism that Schumpeter defends in his 1908 book, and which he identifies with MI. So is Menger fairly to be associated with either of these reductionist versions of MI? Setting out the case against this reading, Chris Matthew Sciabarra, in his 2000 book Total Freedom: toward a dialectical libertarianism, discusses Menger in a section of Chapter 3, After Hegel, entitled Beyond the atom: The organic legacy of classical liberalism (Sciabarra, 2000: 111-121). After quoting Barry Smiths claim that Marx and Menger share an Aristotelian antipathy to atomism (Sciabarra, 2000: 117), Sciabarra writes: In praising the organic orientation of social research, Menger seeks an integration of micro and macro approaches. The former, disparagingly called atomistic, can never deny the unity of organisms His micro-level analysis is not opposed to the organic orientation (Sciabarra, 2000: 121). Finally, Sciabarra quotes Menger on the organic metaphor in social science: The normal function of organisms is conditioned by the functions of their parts (organs), and these in turn are conditioned by the combination of the parts to form a Page 10 of 39

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higher unit, or by the normal function of the other organs Organisms exhibit a purposefulness of their parts in respect to the function of the whole unit, a purposefulness which is not the result of human calculation, however There exists a certain similarity between natural organisms and a series of structures of social life, both in respect to their function and to their origin (Menger, cited in Sciabarra, 2000: 120). It seems clear from this that Menger cannot be regarded as an atomist in Heaths meaning of the term. To evaluate Sciabarras reading, however, we need to turn to what Menger himself wrote. Menger deals explicitly with this question in his 1883 work Investigations Into the Method of the Social Sciences(Untersuchungenber die MethodederSocialwissenschaften und derPolitischenOekonomieinsbesondere), in particular Book Three, The Organic Understanding of Social Phenomena (Menger, 1985: 129-159). Indeed, the fundamental opposition between the atomic and the organic standpoints is set out early in the Preface: in the postclassical period, Menger writes, The conception of the national economyas an organism and of its laws as analogous to those of anatomy andphysiology confronted the physical conception; the biological point ofview in research confronted the atomistic (Menger, 1985: 24). We should start, however, by noting that the passage Sciabarra cites is a list of contents of Book 3 Chapter 1 not a list of statements that Menger endorses, but a list of arguments that he proposes to address. It is therefore invalid to cite this passage in support of Mengers use of organic analogies or to underpin the contention that Menger relies heavily on the organic metaphor, as Sciabarra does (2000: 120). Menger starts his discussion of organicism with the statement that There exists a certain similarity between natural organismsand a series of structures of social life, both in respect to their functionand to their origin. After some discussion of this statement he moves on to society: We can make an observation similar in many respects in reference to aseries of social phenomena in general and human economy in particular (Menger, 1985: 129-30). Natural organisms almost without exception exhibit, when closelyobserved, a really admirable functionality of all parts with respect to thewhole, a functionality which is not, however, the result of human calculation,but of a natural process. Similarly we can observe in numerous socialinstitutions a strikingly apparent functionality with respect to the whole They, too, present themselves tous rather as natural products (in a certain sense), as unintended resultsof historical development. One needs, e.g., only to think of the phenomenonof money, an institution which is the unintended product of historical development (Menger, 1985: 130). If this analogy holds, then it has far-reaching consequences for the methodology of economics: Now if social phenomena and natural organisms exhibit analogies withrespect to their nature, their origin, and their function, it is at once clearthat this fact cannot remain without influence on the method of researchin the field of the social sciences in general and economics in particular if state, society, economy, etc., areconceived of as organisms, or as structures analogous to them, the notionof following directions of research in the realm of social phenomenasimilar to those followed in the realm of Page 11 of 39

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organic nature readily suggestsitself. The above analogy leads to the idea of theoretical social sciencesanalogous to those which are the result of theoretical research in the realmof the physico-organic world, to the conception of an anatomy and physiology of social organismsof state, society, economy, etc (Menger, 1985: 130-131). Thus far, it would seem, Sciabarras reading holds up. However, the very next lines tell us that Mengers purpose is quite otherwise: In the preceding discussion we have presented the basic ideas of thetheory of the analogy of social phenomena and natural organisms we do, indeed, believe that inthe foregoing we have presented the nucleus of the above theory in theform and in the sense in which it is expounded by the most careful andmost reflective writers on this subject (Menger, 1985: 131). All along, Menger is not articulating his own standpoint, but setting out the ideas he is going to criticise. Against this view he makes two points, firstly, that the analogy between society and natural organisms is only very partial, and, secondly, that it is superficial. The analogy between social and biological entities is partial because A large number of social structures are not the result of a naturalprocess They are the result ofa purposeful activity of humans Social phenomena of this type, too, usually exhibita purposefulness of their parts with respect to the whole. But this is notthe consequence of a natural organic process, but the result of humancalculation Thus wecannot properly speak of an organic nature or origin of these socialphenomena (Menger, 1985: 132). The analogy is superficial because it is by no meansone which is based upon a full insight into the nature of the phenomenaunder discussion here, but upon the vague feeling of a certain similarityof the function of natural organisms and that of a part of social structures.It is clear that an analogy of this kind cannot be a satisfactory basis foran orientation of research striving for the deepest understanding of socialphenomena Natural organisms are composed of elements which serve the functionof the unit in a thoroughly mechanical way. They are the result of purelycausal processes, of the mechanical play of natura l forces. The so-calledsocial organisms, on the contrary, simply cannot be viewed and interpretedas the product of purely mechanical force effects. They are, rather,the result of human efforts, the efforts of thinking, feeling, acting humanbeings (Menger, 1985: 133). So for Menger organic notions offer an explanation of only some but not other social phenomena, and even here only offer an incomplete explanation: that part of the social structures in reference to which the analogywith natural organisms comes in question at all exhibits this analogy,therefore, only in certain respects. Even in these respects it only exhibitsan analogy which must be designated in part as vague, in part really asextremely superficial and inexact (Menger, 1985: 134). Page 12 of 39

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Because organic notions are so limited, superficial and inexact in social science, scientific research simply cannot be based on them, though they may have purely presentational advantages: there seems to be no doubt that play with analogies between natural organisms and social phenomena is a methodological procedure which scarcely deserves a serious refutation. Yet I should still not like in any way to denythe value of certain analogies between natural organisms and social phenomenafor certain purposes of presentation. Analogy in the above sense,as method of research, is an unscientific aberration. As means for presentationit still may prove useful for certain purposes (Menger, 1985: 137) So the presentation of social entities as organic may conceivably be a useful figure of speech, an analogy or metaphor, but should never be taken literally. This leaves open the question, how we are to understand those social phenomena which arise behind mens backs, as the unintended consequences of the behaviour of many humans. To see how Menger addresses this, we have to understand his view that there are two basic orientations of theoretical research, the realistic-empirical orientation, and the exact or atomistic orientation. The former sets out to investigate the types and typical relationships of phenomena as thesepresent themselves to us in their full empirical reality,that is, in thetotality and the whole complexity of their nature (Menger, 1985: 56). In contrast, The function of the exact orientation oftheoretical research is to apprise us of the laws by which not real life inits totality but the more complicated phenomena of human economy aredeveloped from these most elementaryfactors in human economy, in their isolation from other factors (Menger, 1985: 63). The phrase in their isolation suggests a reductionistic approach, and this is no accident: The nature of this exact orientation of theoretical research in the realmof ethical phenomena consists in the fact that we reduce humanphenomena to their most original and simplest constitutive factors and try to investigate the laws by which more complicated human phenomenaare formed from those simplest elements, thought of in their isolation (Menger, 1985: 62). Without being diverted into a potentially lengthy discussion of the adequacy of this dualistic account of scientific knowledge, it is very clear that the exact orientation which Menger describes, is wholly consistent with reductionism, as I have defined it: the reduction of entities at one level to an aggregate of lower level entities taken in isolation. The relation between the two orientations is that exact economics by nature has to make us aware of the laws holding for an analytically or abstractly conceived economic world, whereas empirical-realistic economics has to make us aware of the regularities in the succession and coexistence of the real phenomena of human economy (Menger, 1985: 72-73). Thus, for all Mengers assertions that the two are complementary in theoretical science, it is nevertheless clear that for Menger only the atomistic method can generate theoretical Page 13 of 39

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knowledge, while the empirical-realist method is little more than description, stylized description perhaps, but description nonetheless. We are now in a position to understand Mengers approach to the understanding of social entities embodying the unintended consequences of individual actions, such as money, markets, language, religion and the state (Menger, 1985: 146). His response is the same for natural as for social science: to attempt to understand entities as organic is to remain at the descriptive level and to fail to provide true theoretical insight: From the circumstance that organisms present themselves to us in eachcase as units and their functions as vital manifestations of them in theirtotality, it by no means follows that the exact orientation of research isin general inadequate for the realm of phenomena discussed here The actual consequenceof the above circumstance for theoretical research in the realm of organismsis that it establishes a number of problems for exact research, andthe solution of these cannot be avoided by exact research. These problemsare the exact interpretation of the nature and origin of organisms (thoughtof as units) and the exact interpretation of their functions This problem is undertaken by the exact orientation of research in the realm of social phenomena also, and especially in the realm of those which are presented to us as the unintended product of historical development. (Menger, 1985: 143). So the scientific response to the existence of apparently organic entities is exact or atomistic analysis, that is, a reconstruction on the basis of the simplest elements, thought of in their isolation. This is a clear statement of reductionism in the sense set out in Denis (2004). In Denis (2004) I drew attention to the Panglossian consequences of the adoption of a reductionistic ontology. If the macro is just the aggregate of isolated micro behaviours, then individual rationality implies a socially rational outcome. Any apparent macro pathology, such as employment, can be ascribed to micro level decisions which are either rational, in which case the apparent unemployment can be safely regarded as voluntary, a species of leisure, or they are the consequence of micro-level errors pricing oneself out of a job which cannot be rectified by collective action. A reductionist ontology creates a strong default policy prescription of laissez-faire. Just so in the case of Menger. The exact or atomistic analysis of the unintended social consequences of individual actions money, markets, language, and so on shows that they result from deliberate self-seeking behaviour of individuals. These social phenomena come about as the unintended result of individual human efforts (pursuing individual interests) without a common will directed toward their establishment (Menger, 1985: 133). An analysis drawing on a different ontology might ask in which case to what extent the institution in question served society, and what, if anything, could be done to improve it. But for Menger, can therefore simply be assumed to be socially desirable. With respect to language, religion, law, markets and money, We are confronted here with the appearance of social institutions which to a high degree serve the welfareof society. Indeed, they are not infrequently of vital significance for the latter and yet are not the result of communal social activity. It is here that we meet a noteworthy, perhaps the most noteworthy, problem of the social sciences: Page 14 of 39

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How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common willdirected toward establishing them? (Menger, 1985: 146) In conclusion to this sub-section, therefore, we can see that Sciabarras attempt to present Menger as holding an organic view of social institutions seems not to work. Udehns reading that The starting-point of Mengers analysis is the isolated individual, represented by Robinson Crusoe alone on his island does seem to be supported by the passages from Menger that I have cited above.

4. Conclusion This part of the paper constitutes the first part of an examination of the topic of methodological individualism. The study has consisted of an application of the ideas set out in Denis (2004), in particular, the concepts of holism the standpoint that phenomena may be understood as emergent and based in the interrelationships between substrate entities, and reductionism the standpoint that phenomena are to be understood as congeries of substrate entities taken in isolation. An examination of the writings of two foundational figures in MI, Schumpeter and Menger, suggests that both clearly operated within the reductionist paradigm. If correct, this implies that there is a fundamental methodological commonality between both writers and others adopting a reductionist standpoint, such as Bentham and Ricardo, and Friedman and Lucas. On the other hand it does imply a surprising and profound difference in methodology between them and those writers, such as Smith and Hayek, with whom they might have been expected to share an approach. The sequel will examine the contributions of Mises and Hayek, and of the analytical Marxists.

Part Two: Mises and Hayek

1 Introduction

The second part of the present paper considers the contributions of von Mises and Hayek. The conclusion drawn is that Mises and Hayek based their methodological stance on fundamentally different ontologies, with von Mises building on the reductionism of previous writers such as Schumpeter and Menger, and Hayek, on the contrary, adopting a holistic ontology more in line with Adam Smith, Marx and Keynes. From an ontological perspective this leaves Hayek as something of an outlier in the Austrian tradition. 2 Hayek on methodological individualism

The key text for Hayeks views on MI (Heath, 2009) is his wartime series of articles in Economica on Scientism and the Study of Man, later published as the first part, Scientism and the Study of Society, of The Counter-Revolution of Science. Studies on the Abuse of Reason (Hayek, 1979). At the beginning of the chapter on The Subjective Character of the Data of the Social Sciences (Chapter 3), Hayek reviews the object and method of the social sciences: Page 15 of 39

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They [sc social sciences] deal not with the relations between things, but with the relations between men and things or the relations between man and man. They are concerned with mans actions, and their aim is to explain the unintended or undesigned results of the actions of many men (Hayek 1979: 41). This emphasis on social relationships and unintended consequences already expresses a holism very different from the reductionism of the neoclassical school. For Friedman, for example, economics is based in the study of a number of independent households, a collection of Robinson Crusoes (1962: 13). In this view we understand the economy by aggregating the isolated actions of the many Robinsons on their islands. Any interrelationships between them are irrelevant, epiphenomena. In this paradigm the focus on unintended consequences is lost: on the contrary, if social outcomes are merely the aggregate of many presumably intended individual actions, then they too are intended. In Lucas, for example, unemployment is treated as an individual problem and as therefore necessarily voluntary, a choice (Denis, 2004: 344-346). The notion of unintended consequences is typically reserved for the discussion of market imperfections and state interventions in the economy which generate perverse incentive structures. For Hayek, the object of social science is to explain different social structures in terms of the recurrent elements of which they are built up (Hayek, 1979: 58), and these recurrent elements are said to be the social relations between agents: If the social structure can remain the same although different individuals succeed each other at particular points, this is because they succeed each other in particular relations The individuals are merely the foci in the network of relationships (58-59). This notion of a social structure emerging from the interrelationships of the substrate level entities is what I have defined as holism. This standpoint is echoed throughout Hayeks work, as we can see when Hayek addresses the question of the relationship between wholes and parts: That a particular order of events or objects is something different from all the individual events taken separately is the significant fact behind the [phrase of] the whole being greater than the mere sum of its parts [I]t is only when we understand how the elements are related to each other that the talk about the whole being more than the parts becomes more than an empty phrase (1952: 47). The overall order of actions in a group is more than the totality of regularities observable in the actions of the individuals and cannot be wholly reduced to them a whole is more than the mere sum of its parts but presupposes also that these elements are related to each other in a particular manner (1967: 70). Returning to Chapter 3 of The Counter-Revolution of Science, having just said that individuals are focuses in networks of relationships, Hayek goes on to say that it is the various attitudes of the individuals towards each other which form the recurrent, recognizable and familiar elements of the structure (Hayek, 1979: 59). It is these attitudes of the individuals towards each other that constitute a constant structural element which can be separated and studied in isolation. So Hayek identifies the network of relationships with the attitudes of the individuals towards each other. This does not mean how two (or more) people feel about each other, but the beliefs about each other that they entertain and which drive their behaviour. For example, if a man is a policeman, he will, qua policeman, Page 16 of 39

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entertain certain attitudes toward his fellow man, while himself being the object of certain attitudes of his fellow men which are relavant to his function as policeman (59) because that is what it means to be a policeman. We should note here the contrast between the essentially asocial notion of the individual as Robinson Crusoe, characterising such neoclassical writers as Friedman and Lucas, and the essentially social notion of the individual in Hayek. The individual here is a vehicle of social relations: what is of interest about an individual is not that he is Fred or Susan, or prefers jam or peanut butter, but that he plays a rle dictated by the totality of social relations focused in him. Substituting another person at this nodal point in the social network will preserve a constant structural element, and it is this structural element which is the proper object of study of social science. Identifying these constant structural elements is possible, according to Hayek, because we can empathise with the agents beliefs, motivations and actions. We can intuit the meaning these actions have for the participants. We do not simply observe and obtain rules of social behaviour via induction, but are able to infer motivation on the basis of the humanity shared by agent and observer. The objective, on the basis of this Verstehen, is to identify and understand the unintended and often uncomprehended results of the separate yet interrelated actions of men in society to reconstruct these different patterns of social relations (59). In this reconstruction we start with the separate yet interrelated decisions made by individuals decisions which are made separately by each person on the basis of his own beliefs and his own goals, but which are interrelated because what the individual believes will be the consequence of his actions depends on his place and rle in the network of social relations. The latter, therefore, the unintended pattern of social relations, thus enters into the account in two ways as a determinant of the individual actions, and as a result of the actions taken by the many. It is both what we start with, and what we reconstruct by the following up of the implications of those individual decisions. Chapter 4, entitled The Individualistic and Compositive Method of Social Science (Hayek, 2979: 61-76), is as one might expect key for our understanding of Hayeks version of MI. Hayek starts by noting that in the social sciences our data or facts are themselves ideas or concepts. He has already in the previous chapter identified these facts, these data, with the network of social relations. It is therefore the case that ideas enter into social sciences in two capacities, as it were, as part of their object, and as ideas about that object (61). We need to distinguish between the views held by the people which are our object of study and those peoples ideas about the undesigned results of their actions popular ideas about the various social structures or formations. Only the former, the ideas which people hold which motivate them to behave in certain ways are the object of study of the social science: the latter are the views which social science attempts to refine or replace with scientific views of the unintended social structures. This is not to say that that the second class of ideas cannot itself motivate behaviour and constitute the data for a scienc and e, Hayek argues that this is perfectly possible. This contrast between ideas which being held by the people become the causes of a social phenomenon and the ideas which people form about that phenomenon (62-63) turns out to be essential for Hayeks definition of MI:

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that he [sc the social scientist] systematically starts from the concepts which guide individuals in their actions and not from the results of their theorizing about their actions, is the characteristic feature of methodological individualism (64). MI, for Hayek, is to be contrasted with scientism, which starts with popular generalizations, the speculative concepts of popular usage, naively accepting them as facts. Since this is popular speculation about patterns of social relations, about unintended social structures, that is, about social wholes, these popular generalisations are collectives and scientism is to be identified with collectivist prejudice (65). Since, as I have indicated, Hayek uses the social to explain the social: the network of relations determines the attitudes and motivating beliefs of each nodal individual, and the unintended consequences of the resulting individual actions constitute the social structure, the pattern of social relations, then the question arises, what is it which is individualist about this method? To answer this, Hayek changes tack. He represents science as a passage from the part to the whole or the whole to the part. The physical sciences necessarily begin with the complex phenomena of nature and work backward to infer the elements from which they are composed the method of the natural sciences is in this sense, analytic (65 -67). The phenomenon is complex: the given whole has to be traced back to its more simple parts. In society the opposite is true: what is given to us, by our Verstehen of the knowledge and motives of individuals, are the simple parts: what we have to do is to combine them in thought to discover the principles of coherence of the wholes which we cannot observe. This path of the mind from the simple to the complex is compositive or synthetic. What Hayek does not say explicitly here is that if we follow this logic faithfully, and it is this that makes social science methodologically individualist, then natural scientists must necessarily be methodological holists. I am not at this point primarily interested in the adequacy of this characterisation of social and natural science. We only need to note here, firstly, that natural scientists d ont just analyse the given into its simplest categories, but they then also retrace their steps, working those simple elements up into mental models of the given. Our understanding of an amoeba is not complete when we can say how much carbon, nitrogen, etc, one contains. Natural science is as synthetic as analytic and generally analysis and synthesis are inseparably bound together. And, secondly, that the simple elements of social science are, as Hayek himself has shown in the previous chapter, not individual persons, but the beliefs which motivate them. And the latter are a product of the constellation of social relations within which the individual person is embedded. Since social relations are intangible, it is not given to anyone what the relevant relations are, what beliefs and what incentive structure they present to the individual. These can only be discovered by analysis, by thought, by comparison with empirical observation, in a word, by work. Moreover, it is obscure in Hayeks account how we are to reconstruct social wholes, starting with the simplest elements, in order to discover the principles of structural coherence of those social wholes, if we dont know what those principles of coherence are in the first place: knowledge of the principles of coherence is a prerequisite of this reconstruction, not a consequence of it. These principles can, again, only be found by abstraction, by analysis. In the study of social activity analysis thus plays as great a rle as synthesis. So this model of science as analytical in the natural and synthetic in the social domains doesnt seem to work. The point here, however, is to note the rle of the model in Hayeks argument. The method of the social sciences is said to be individualist because it starts with individuals. But when we recall that these individuals are not considered qua individuals, but as vehicles of specific socially inculcated beliefs, as nodes in Page 18 of 39

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networks of social relations, the aptness of the designation seems questionable. Methodologically what Hayek describes is entirely holist. It may be useful in conclusion to this account, to examine Chapter 6 The Collectivism of the Scientistic Approach (Hayek, 1979: 93-110), where Hayek again attempts to bring out what he believes is individualist about his methodology by contrast with the collectivism of the approach he is arguing against. Collectivism, he says, is the tendency to treat wholes like society or the economy, capitalism (as a given historical phase) or a particular industry or class or country as definitely given objects about which we can discover laws by observing their behavior as wholes (93). This, for Hayek, is impossible since these social wholes are not given or observable: what of social complexes are directly known to us are only the parts the whole is never directly perceived but always reconstructed by an effort of our imagination (93, n 1). It is worth dwelling on this. In particular, it is worth underlining that Hayek is absolutely not denying the existence of social wholes, or our ability to say anything sensible about them. On the contrary, reconstructing social wholes in thought forms the very raison dtre of social science: The social sciences, thus, do not deal with given wholes but their task is to constitute these wholes by constructing models from the familiar elements models which reproduce the structure of relationships between some of the many phenomena which we always simultaneously observe in real life (98) . What is collectivist about scientism for Hayek is thinking that social wholes are given to observation instead of having to be reconstructed by the compositive method. Whatever the virtues and vices of this distinction between methodological individualism and collectivism in Hayeks account, it is clear that both are species of holism. 3 a Misessnotion of methodological individualism Misess rhetorical strategy

I will confess at the outset that Mises is one of the more difficult writers I have read on the subject of MI. I have argued in Part One, above, that Schumpeter and Menger adopted a reductionist stance comparable to Friedman and Lucas, as well as to Bentham, Ricardo and the later Malthus, while in the earlier part of the present paper I have argued that Hayeks standpoint is holistic in the tradition of Adam Smith, Dugald Stewart and the earlier Malthus, as well as of Marx and Keynes. We are now in a position to examine Misess contribution to the discussion on MI. The source of the difficulty is that in some ways Mises adopts elements of both standpoints. It will be necessary to set out his rhetorical strategy with care, to see how he combines these disparate and contradictory elements. Once that is in place it will be possible to turn to what he has to say explicitly on the topic of MI. We start with Misess rhetorical goals: what does he want to convince us of? We can then move on to the means he adopts to attain that goal. It is abundantly clear that Mises, like Adam Smith, Dugald Stewart, Malthus, Hayek, Friedman and Lucas, is a pro-capitalist, promarket forces writer: The market economy or capitalism, as it is usually called, and the socialist economy preclude one another. There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy, a system that would be in part capitalist and in part socialist (Mises, 1996: 258).

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Socialism is not a realizable system of societys economic organization because it lacks any method of economic calculation Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics (679-680). The purpose of economics, for Mises, is to convince us of the virtues of capitalism and the impossibility of socialism or any kind of mixed economy. How does he propose sell us this agenda? What is the central argument that he deploys? Mises argues that under capitalism, agents do not have conflicting, but only common interests, a postulate he refers to as the orthodox ideology of the harmony of the rightly understood, i.e., long-run, interests of all individuals, social groups, and nations (176). So for Mises there is a natural harmony between the interests of individuals. Any supposed conflict of interest is only apparent: For what the individual must sacrifice for the sake of society he is amply compensated by greater advantages. His sacrifice is only apparent and temporary; he foregoes a smaller gain in order to reap a greater one later. No reasonable being can fail to see this obvious fact In striving after his ownrightly understoodinterests the individual works toward an intensification of social cooperation and peaceful intercourse The utilitarian economist does not ask a man to renounce his wellbeing for the benefit of society. He advises him to recognize what his rightly understood interests are (146-147). The source of this harmony of interest is the division of labour: What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions (673). Mises is very specific about the circumstances in which this natural harmony of inte rests would be violated. Harmony will arise, he argues, just as long as population is below its optimum level: The natural scarcity of the means of sustenance forces every living being to look upon all other living beings as deadly foes in the struggle for survival, and generates pitiless biological competition. But with man these irreconcilable conflicts of interests disappear when, and as far as, the division of labor is substituted for economic autarky of individuals, families, tribes, and nations. Within the system of society there is no conflict of interests as long as the optimum size of population has not been reached. As long as the employment of additional hands results in a more than proportionate increase in the returns, harmony of interests is substituted for conflict. People are no longer rivals in the struggle for the allocation of portions out of a strictly limited supply. They become cooperators in striving after ends common to all of them. An increase in population figures does not curtail, but rather augments, the average shares of the individuals (667). So, for Mises, as long as population is below the point at which declining returns to additional labour set in, people cannot have essentially conflicting interests. The significance Page 20 of 39

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of the level of population is this: if there are increasing returns to labour, people have the incentive to cooperate, to divide their labour and share the benefits of doing so. If there were no unexploited benefits from cooperation, there could be no coop eration, and hence no society. We would have a merely animal existence. If population exceeded its optimum level, additional labour would reduce the productivity of all. At the margin, there would be an incentive not to cooperate. But everyone can be thought of as marginal, so everyone would have an incentive not to cooperate: we would live in an asocial, even antisocial, world of conflicting not harmonising interests. In Misess account, then, men may seem to have an interest to lie, cheat and steal, but to do so would damage private property, the market and division of labour. In the long run, we all benefit from these features of capitalism, so we have an incentive not to engage in behaviours which disturb them. The incentive to lie, cheat and steal is a short-term or apparent interest, the incentive not to is the real, rightly-understood, long-run interest of individuals. But this depends on population not exceeding its optimum level. Mises believed that it was, at the time of writing, not the case that the optimum level of population had been reached, and indeed not likely ever to be the case. The reason is relevant to our enquiry, as we will see shortly. For Mises, humans will not reproduce in excess of the numbers which can be supported at the level of overall satisfaction which people aim for. Differently from animals, Man integrates the satisfaction of the purely zoological impulses, common to all animals, into a scale of values, in which a place is also assigned to specifically human ends. Acting man also rationalizes the satisfaction of his sexual appetites. Their satisfaction is the outcome of a weighing of pros and cons. Man does not blindly submit to a sexual stimulation like a bull; he refrains from copulation if he deems the coststhe anticipated disadvantagestoo high. In this sense we may, without any valuation or ethical connotation, apply the term moral restraint employed by Malthus (668). Individual behaviour led by rational self-interest moral restraint will thus automatically lead to the desirable social outcome that the level of population will not exceed its optimum level. Given that individual people in society have no conflicting interests, one might ask, why then do we need a state? Misess response is revealing. A typical defence of the rle of the state is to say that, because individuals have divergent interests, and if not prevented from acting on them, will do so, to each others detriment. But for Mises, on the contrary, the state is only necessary to protect us from those who are not fully rational the old, the young, the mentally ill, and the people too stupid to be able to see their own interests properly, or too morally weak to be able to control themselves: The anarchists overlook the undeniable fact that some people are either too narrowminded or too weak to adjust themselves spontaneously to the conditions of social life. Even if we admit that every sane adult is endowed with the faculty of realizing the good of social cooperation and of acting accordingly, there still remains the problem of the infants, the aged, and the insane. We may agree that he who acts antisocially should be considered mentally sick and in need of care. But as long as not all are cured, and as long as there are infants and the senile, some provision must be Page 21 of 39

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taken lest they jeopardize society. An anarchistic society would be exposed to the mercy of every individual. Society cannot exist if the majority is not ready to hinder, by the application or threat of violent action, minorities from destroying the social order. This power is vested in the state or government (149). This argument that the individual and society have interests which aligned so that what the individual does in his own interest is exactly would society would have wanted him to do calls for careful examination. One might thing that the essence of the human condition is that we have partially overlapping and partially conflicting interests: we all want a bigger cake, which we can get by cooperating, and we all want a bigger slice, which we can get by competing. This is the structure of the prisoners dilemma: overlapping interests on the main diagonal, and conflicting interests in off-diagonal outcomes. But for Mises, we only have the overlapping interest of the larger cake. It is worth dwelling on this point. Given that we have a society in which population does not exceed its optimum level, there are, at the margin and for all intra-marginal units, unexploited opportunities to gain from cooperation and division of labour. Hence it is in the interest of any individual to cooperate and he has no interest in any action which would damage that cooperation. However, this makes a big assumption. It assumes that there are no (significant) externalities. If there are externalities, then it might very well be in the interest of the individual to engage in socially undesirable behaviour. For this conclusion to be avoided we would have to be able to demonstrate that the adverse consequences to society would be felt by the individual actor himself. But this may not be the so. A case in point is the argument about moral restraint(Denis, 2006a). Malthus wrote that the improvement to society due to the practice of moral restraint is to be effected by a direct application to the interest and happiness of each individual. It is not required of us to act from motives to which we are unaccustomed; to pursue a general good which we may not distinctly comprehend, or the effect of which may be weakened by distance and diffusion. The happiness of the whole is to be the result of the happiness of individuals, and to begin first with them. No cooperation is required. Every step tells. He who performs his duty faithfully will reap the full fruits of it, whatever may be the number of others who fail. This duty is intelligible to the humblest capacity. It is merely that he is not to bring beings into the world for whom he cannot find the means of support It is clearly his interest and will tend greatly to promote his happiness, to defer marrying till by industry and economy he is in a capacity to support the children that he may reasonably expect from his marriage; and considerations of his own interest and happiness will dictate to him the strong obligation to a moral conduct while he remains unmarried (Malthus, 1958, II: 169). This is very much Misess argument: Every step by whichan individual substitutes concerted action for isolated action results in animmediate and recognizable improvement in his conditions (Mises, 1996: 146). In adopting this reductionist standpoint, Misess argument, like Malthuss,must depend on assuming that there are no significant externalities,prisoners dilemmas or free riders. Misess view that individual and social goals are perfectly aligned parallels Malthuss argument that the full fruits of individual restraint are enjoyed by theindividual practicing it, whatever anyone else is doing. As soon as thequestion is posed, the answer presents itself: such externalities simplycannot be assumed away. Why individual Page 22 of 39

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choices on reproduction should lead to socially desirable population levels, without any mechanism to ensure this, remains mysterious. Now it is clear that Mises is perfectly well aware of the possibility of externalities, and indeed he uses the argument against socialism: under socialism [the socialist authors say] every worker will know that he works for the benefit of society, of which he himself is a part. This knowledge will provide him with the most powerful incentive to do his best However, While the sacrifices an individual worker makes in intensifying his own exertion burden him alone, only an infinitesimal fraction of the produce of his additional exertion benefits himself and improves his own well-being (Mises, 1996: 677). Why the externality or public-good argument that Mises cites in his critique of socialism does not apply to the issue of conflicting or harmonic interests is not addressed. This kind of argument I have previously, in particular in relation to Lucas and Malthus (of the Second Essay onwards), characterised as reductionist. In a reductionist ontology the whole is held to be just the sum of the parts: the whole may be understood as the parts taken in isolation writ large. So in Lucas unemployment is understood as the sum of all the household decisions regarding the trade-off between leisure and wage income; it is therefore necessarily voluntary. Mises thinks the same: What causes unemployment is the fact that those eager to earn wages can and do wait. A job-seeker who does not want to wait will always get a job in the unhampered market economy It is only necessary for him either to reduce the amount of pay he is asking for or to alter his occupation or his place of work (598). If the whole is just the sum of the parts, apparent macro-level pathologies such as unemployment can be reduced to rational, micro-level, individual decisions. The ground for a laissez-faire policy prescription is prepared. It is if one adopts a holistic ontology, where the whole is not the sum of the parts, and macro level entities emerge from the interrelationships between the micro-level substrate entities, that a mechanism is needed to explain how social outcomes are desirable, if a policy prescription of laissez-faire is to be sustained. Examples of such mechanisms are the invisible hand of a benevolent deity in Adam Smith and a human-favourable group-selectionist process of social evolution in Hayek (Denis, 2005; Denis, 2002). Mises posits no such black-box mechanism: his approach is reductionist. b Mises on MI

Having established the outlines of Misess rhetorical strategy, we can now turn to what he has to say explicitly about MI. I will focus on Section 4, The Principle of Methodological Individualism, part of Chapter II, The Epistemological Problems of the Sciences of Human Action, of Misess Human Action: A treatise on economics (Mises, 1996: 41-44). At the beginning of the section, Mises defines MI as follows: Praxeology[ie the general theory of human action] deals with the actions of individual men. It is only in the further course of its inquiries that cognition of human Page 23 of 39

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cooperation is attained and social action is treated as a special case of the more universal category of human action as such (41). Now we have seen that both reductionists such as Menger and Schumpeter, and holists such as Hayek, can claim to start with the individual, and from the individual to move on to the social wholes of which the individual is a part. The question is, whether such individuals are the isolated atoms of Mangers atomism, or the foci of networks of social relations that Hayek posits. In the latter case, it could be argued that we are not really starting with individuals, since the individual as focus of a network of relationships already presupposes society. As I have argued elsewhere (Denis, 2006) this question of starting point is not very interesting. That top-down and bottom-up approaches may be considered to be equally valid is exemplified by Milton Friedmans (1976: 316) statement that while both Keynes and he used a top-down methodology, most Keynesians and monetarists used a bottom-up approach. Similarly, Trotsky (1973: 233-234) illustrates a discussion of Marxist notions of science by means of equally approving references to the top-down approach of Freud and the bottom-up research strategy of Pavlov. My own view here is that the choice of top-down or bottom-up heuristic is a wholly pragmatic matter: there is no issue of principle here, no golden key to knowledge of the world. The methodologically pluralistic statements of Trotsky and Friedman are therefore to be endorsed. There is no proper starting point for science: we start from wherever we happen to be. The choice of a top-down or bottom-up heuristic will depend on our interests, our goals, what we think we already know, and our hunches about what we might be about to find out. What is of great interest, however, is whether the individuals with which one starts, if one chooses to start with individuals, are conceived of as essentially social entities or, on the contrary, modelled as isolated atoms. If we are to take literally Misess statement about starting with individuals, only later moving on to the cognition of human cooperation then the clear implication is that for Mises, these individuals are atomic. The absence of any statements corresponding to Hayeks careful description of individuals as nodes in networks of social relations is also evidence for this interpretation. Immediately after this introductory statement defining MI, Mises presents a summary of the case against MI, as he has defined it: Real man is necessarily always a member of a social whole. It is even impossible to imagine the existence of a man separated from the rest of mankind and not connected with society. Man as man is the product of a social evolution. His most eminent feature, reason, could only emerge within the framework of social mutuality. There is no thinking which does not depend on the concepts and notions of language. But speech is manifestly a social phenomenon. Man is always the member of a collective. As the whole is both logically and temporally prior to its parts or members, the study of the individual is posterior to the study of society. The only adequate method for the scientific treatment of human problems is the method of universalism or collectivism. (41-42) Some discussion of this case against MI, as Mises imagines it, is warranted. The first half dozen lines appear to be a correct statement of that case, though rather vague. The point is not simply that the individual is a member of a collective, but that his behaviour is dictated by the network of relations within which he operates, that is, by the interaction and Page 24 of 39

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interdependence between the individual and myriad other individuals. The whole is not logically and temporally prior to its parts. The relation between whole and parts cannot be dismissed so lightly. The whole is indeed logically prior: in an organic unity each part only exists, and has the meaning it has, conditional on forming a part of the whole. This is the difference between an organic unity and a congeries. The whole, it is true, in turn depends on the parts, but in general not on any particular part: the relationship is not symmetric. The whole cannot be temporally prior to its parts, even though it may well chronologically predate many, even all of its extant parts, as my body is older than any of its cells. The parts must have existed prior to the emergence of the whole, though, of course, not qua parts of this whole, which did not yet exist. Finally, Mises last statement about the necessity o f universalism or collectivism needs elaboration: what exactly does this methodological collectivism consist of? Misess response to this case against MI may be quoted in its entirety: Now the controversy whether the whole or its parts are logically prior is vain. Logically the notions of a whole and its parts are correlative. As logical concepts they are both apart from time. (42) And thats all he has to say about it. We are left in doubt as to how the claim that wholes and parts are correlative meshes with the claim that we need to start our investigation with the part. In the following paragraph Mises discusses whether social entities can be said really to exist: It is uncontested that in the sphere of human action social entities have real existence. Nobody ventures to deny that nations, states, municipalities, parties, religious communities, are real factors determining the course of human events. Methodological individualism, far from contesting the significance of such collective wholes, considers it as one of its main tasks to describe and to analyze their becoming and their disappearing, their changing structures, and their operation. And it chooses the only method fitted to solve this problem satisfactorily. First we must realize that all actions are performed by individuals. A collective operates always through the intermediary of one or several individuals whose actions are related to the collective as the secondary source. (42) So social entities such as nations and states do exist: this is at least a step away from Margaret Thatchers infamous claim that there was no such thing as society. Nevertheless, if we are to base the analysis of such entities on the actions of the isolated individual, we are approaching very close to Mengers exact or atomistic orientation of research, that is, a reconstruction on the basis of the simplest elements, thought of in their isolation (see Denis, 2009). We can see this as Mises pursues the idea of the reduction of society to individual persons, of the whole to its parts: a social collective has no existence and reality outside of the individual members actions. The life of a collective is lived in the actions of the individuals constituting its body. There is no social collective conceivable which is not operative in the actions of Page 25 of 39

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some individuals. The reality of a social integer consists in its directing and releasing definite actions on the part of individuals. Thus the way to a cognition of collective wholes is through an analysis of the individuals actions (42). Throughout these statements Mises fails to distinguish between the intentions of agents actions and the consequences of those actions. The life of a collective is not just lived in the actions of the individuals which constitute it, but in the consequences to the individuals of actions taken by individuals. In what circumstances would it be permissible to ignore this distinction? The circumstance that there was no difference between the actor and the agent whose welfare is impacted by the action. This is what Mises appears to be assuming: that there are no externalities, no interests of others not shared by the interest of the actor. Mises concludes his consideration of MI with the statement that Those who want to start the study of human action from the collective units encounter an insurmountable obstacle in the fact that an individual at the same time can belong andwith the exception of the most primitive tribesmenreally belongs to various collective entities. The problems raised by the multiplicity of coexisting social units and their mutual antagonisms can be solved only by methodological individualism (43) This notion of MI is clearly a reductionist one. It is very different from the Hayekian view that individuals are embedded in networks of relationships and that it is these relationships which constitute the structural element leading to particular patterns of behaviour of the individuals. For the holistic standpoint it is not individual people which form the elements of society, but the relations between them. As Toynbee puts it in his definition of society at the start of A Study of History: Society is the total network of relations between human beings. The components of society are thus not human beings but relations between them. In a social structure individuals are merely the foci in the network of relationships (Toynbee, 1972: 42, citing Hayek) c Elements of holism and organicism in Mises

I said earlier that there were difficulties in discerning Misess rhetorical strategy, and consequently inferring what he meant by MI. The cause of this difficulty is in part the appearance in Human Action of many elements of a more organic and holistic ontology. This section will note some of these passages and attempt to reconcile them with what has already been said regarding Misess reductionist approach. Chris Matthew Sciabarras book Total freedom: toward a dialectical libertarianism (Sciabarra, 2000) examines what he claims is the dialectical heritage of the Austrian school, which makes it an intellectual cousin of Marxian economics. Without going into a lengthy discussion at this point, there is a strong overlap in meaning between what Sciabarra refers to as dialectics, what methodologists of economics commonly refer to as organicism, and what I have defined as holism; in so far as they are distinct, indeed, holism is a prerequisite for dialectics. Where Sciabarra finds dialectics, this is a strong suggestion that we should look for holism. Sciabarra (2000: 115-121) claims that Menger is a dialectical thinker who adopted an organic orientation of social research, but I have argued (Denis, 2009) that this Page 26 of 39

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is based on a simple mistake, a misreading of the text, and that in truth Mengers approach is wholly reductionist, indeed, in his own words, atomistic. Sciabarras account of dialectics in Hayek (122-133) is completely consistent with the reading I have proposed in the first part of the present paper. Mises (122-127), I suggest, comes somewhere in between. According to Sciabarra, Mises was an organic thinker (124), his portrait of the price system is thoroughly organic (124), he views market institutions as organic relational structures constituted by human actors (125), and views society itself as an organism of sorts (125). Sciabarra notes an emphasis on the organic whole in Mises (125). Structural processes are rooted in the organic relations among fully social, purposeful individuals, who think, value, and act. Methodological individualism, Mises proclaims, focuses on the becoming and the disappearing of wholes (125). What are these claims worth?
Mises repeatedly expresses the view that both the natural and social worlds are characterised by interconnection, by interrelatedness rather than isolation:

In speaking of the laws of nature we have in mind the fact that there [is] an inexorable interconnectedness of physical and biological phenomena and that act[ing] man must submit to this regularity if he wants to succeed. In speaking of the laws of human action we refer to the fact that such an inexorable interconnectedness of phenomena is present also in the field of human action as such and that acting man must recognize this regularity too if he wants to succeed (Mises, 1996: 761). For Mises, in consequence of the ubiquity of interconnectedness in social life, the discipline of economics must itself by viewed holistically: Economics does not allow of any breaking up into special branches. It invariably deals with the interconnectedness of all the phenomena of action. The catallactic problems cannot become visible if one deals with each branch of production separately. It is impossible to study labor and wages without studying implicitly commodity prices, interest rates, profit and loss, money and credit, and all the other major problems. The real problems of the determination of wage rates cannot even be touched in a course on labor. There are no such things as economics of labor or economics of agriculture. There is only one coherent body of economics (874). These are not isolated statements. Mises is here expressing a clearly holistic social ontology: Society is concerted action, cooperation. Society is the outcome of conscious and purposeful behavior The actions which have brought about social cooperation and daily bring it about anew do not aim at anything else than cooperation and coadjuvancy with others for the attainment of definite singular ends. The total complex of the mutual relations created by such concerted actions is called society. It substitutes collaboration for theat least conceivable isolated life of individuals. Society is division of labor and combination of labor. In his capacity as an acting animal man becomes a social animal. (143) Many further examples of this holistic vision could be cited. Ill confine myself to two more: What is called a price is always a relationship within an integrated system which is the composite effect of human relations (392). And The exchange relation is the fundamental social relation. Interpersonal exchange of goods and services weaves the bond which unites men into society (194). Page 27 of 39

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These passages are enough to demonstrate the Sciabarra is onto something here: there is no question but that Mises systematically adopts and presents a salient and very clearly holist social ontology. So what is going on? How does this relate to the reductionism with which Mises was associated in the first section of the present paper? To answer this we have to return to the idea of a rhetorical strategy with which this series of papers began (see Denis, 2004). The model suggested was one where many economists are seen as attempting to persuade us of something. An economist supporting, for example, a policy of large-scale government intervention in the economy, has to convince his audience that socially desirable outcomes cannot normally be expected to arise spontaneously. Similarly, an economist supporting laissez-faire as a default policy prescription has to convince us of the opposite. I argued that there were two possible kinds of arguments which might serve this cause, two possible rhetorical strategies in defence of laissez-faire. In a reductionist strategy the social outcome is presented as just the aggregate of all the individual decisions: if the latter are rational then so is the former. In a holistic strategy the social outcome is something quite different from the individual actions of substrate level agents, but emerges from the interconnections between them. The problem with the latter approach is that if the social outcome does not simply reproduce the quality of the individual actions underpinning it, there is no reason to assume that rational individual decision-making will translate into desirable social outcomes. In order to convince us that rational social outcomes will nevertheless emerge from rational individual behaviour, an additional mechanism is also required. This is represented by the invisible hand of a benign deity in Adam Smith, and by a human-favourable process of evolution of social institutions in Hayek. Returning to Mises, we can see that he systematically advance a holistic social ontology. s The question is, what work does this do in convincing us that self-seeking individual behaviour will spontaneously lead to desirable social outcomes. The answer, I suggest, is that it does no work at all towards this goal. On the contrary, as explained earlier in this paper, individuals for Mises spontaneously have a common interest: each only has to do what is in his own true, long-run interest, in order to act in a socially desirable way. There is no hint that the fact, that emergent social entities the price system, for example are something organic and therefore different in quality from the individual behaviours on which they rest, might lead to any question regarding their desirability. No mechanism is proposed wh ich might lead individual self-seeking behaviour nevertheless to underpin desirable collective outcomes for the simple reason that none is required. 4 Conclusion

In this paper I have examined the views and stances of Hayek and von Mises towards methodological individualism (MI) in order to attempt to unravel their conception of the rle of the individual in society. This study was prompted by the observation that writers to whom MI is ascribed have fundamentally diverse notions of the relation between micro and macro, between self-seeking individual behaviours and the desirability or otherwise of the social outcomes to which those behaviours lead. The reductionism of neoclassical writers such as Lucas and Friedman really does start with the asocial, biological individual, and interprets social outcomes as the aggregate of individual choices. Individual utility maximisation is directly social welfare maximisation. The previous paper in this series argued that the foundational writers in the Austrian tradition, Menger and Schumpeter, shared this perspective. Page 28 of 39

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Hayeks standpoint, however, is quite different. For Hayek, individuals are only nodes in the network of social relationships, so starting with individuals means starting with the social relations within which they are embedded. It is debateable whether term methodological individualism aptly characterises this perspective. I have suggested that Mises forms something of a transitional form between Menger and Schumpeter on the one hand and Hayek on the other. Mises presents two social ontologies, one holistic and one reductionistic. It is the reductionistic social ontology, however, which is presented as the reason that socially desirable consequences can be relied upon to emerge from individual self-seeking behaviour. Nevertheless, the holistic, organic ontology in many ways overshadows the reductionistic ontology in the pages of Human Action. It may be that Hayek spotted this and sought to rectify it in his own ontology. If social entities are organic, emerging from the interconnectedness which Mises identifies as ubiquitous within the market system, what is to guarantee that these emergent outcomes will have desirable features? We know that Hayek questioned the rationalism of Misess account (Sciabarra, 2000: 123, Klein, nd) that society is the intended consequence of purposeful individuals, instead of the unintended consequence. It may be that Hayek found the organic and holistic ontology in Misess work attractive, and that he sought to repair a perceived lacuna in Misess work by reference to an evolutionary process of the development of social institutions (Denis, 2002). While it is the case that I have noted an instance of an economist adopting both reductionist and holist ontologies (Denis, 2006a) Malthus switches from holistic providentialism to reductionism between the First and Second Essays on Population the existence of both standpoints side by side may create problems of consistency for the writer. The next part of thepaper will examine the contributions of the analytical Marxists.

Part Three: The case of analytical Marxism

1 Introduction 2009 marked the centenary of methodological individualism (MI). The phrase was first used in English in a 1909 paper by Joseph Schumpeter in the Quarterly Journal of Economics. Yet after 100 years there is considerable confusion as to what the phrase means. Lukes (1968: 77) notes the extraordinarily muddled debate provoked by the wide-ranging methodological polemics of Hayek and Popper, while according to Udehn (2002: 480) The participants in the debate appear frequently to misunderstand one another and argue at cross-purposes.MI is often invoked as a fundamental description of the methodology both of neoclassical and Austrian economics, as well as of other approaches, from New Keynesianism to analytical Marxism (AM). However, the methodologies of those to whom the theoretical practice of MI is ascribed differ profoundly on the status of the individual economic agent, some adopting a holistic and some a reductionist standpoint. The purpose of the research of which this paper is part is to uncover and evaluate some of the meanings of the phrase methodological individualism (MI). The approach adopted is to apply the intellectual apparatus developed in Denis (2004) to the arguments of these writers. In particular, I ask whether the concepts of holism the standpoint that phenomena may be understood as emergent and based in the interrelationships Page 29 of 39

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between substrate entities, and reductionism the standpoint that phenomena are to be understood as congeries of substrate entities taken in isolation, are able to clarify the standpoints to which they are applied. The first part of the present paper considers the contributions of Joseph Schumpeter, who was the first to use the term, and of Carl Menger, considered by many to be the founder of MI. This examination of the writings of two foundational figures in MI suggests that both clearly operated within the reductionist paradigm. This implies that there is a fundamental methodological commonality between both these writers and others adopting a reductionist standpoint, such as Bentham and Ricardo, and Friedman and Lucas. On the other hand it does imply a surprising and profound difference in methodology between them and those writers, such as Smith and Hayek, with whom they might have been expected to share an approach. The second part drew the conclusion that Mises and Hayek based their methodological stance on fundamentally different ontologies, with von Mises building on the reductionism of previous writers such as Schumpeter and Menger, and Hayek, on the contrary, adopting a holistic ontology more in line with Adam Smith, Marx and Keynes. From an ontological perspective this leaves Hayek as something of an outlier in the Austrian tradition. The final part of the paper continues the story with examinations of the relation between wholes and parts in social science, and of the Analytical Marxists. 2 The relationship between parts and wholes in social science The key question I am focusing on here concerns the relationship between parts and wholes. I would like to start by saying more about this, drawing on the work of Daniel Dennett on the intentional stance. In my view a bottom-up explanation of organic entities in terms of particles and subordinate components of the thing studied will always be incomplete without an account of purpose, the reason the part is there, the function of the part in the whole. Where there is an organic relationship, the whole is a precondition for the explanation of the parts. That is not to say that congeries dont exist. Marx famously compared mid-nineteenth century peasant small holdings in France to potatoes in a sack (Marx, 1937). And, of course, where there are purposes, they do not override or displace causation but work through causation. The important bit of the job is to discover where there are top-down and bottomup explanations and successfully to marry them up. In discussing the behaviour of a person we could never be satisfied by an account, however complete, in terms of molecules and cells. We would need to know about the persons identity, his past, his goals, his preferences. While it is of course the case that every aspect of the individual is underpinned by material substance, by organic activity at the cellular and system level, knowing about these subordinate levels, to any desired level of detail, would still leave us asking for more, asking about the beliefs and motivations of the individual. This is what Hayek seizes on as the foundation for the claim that his methodological approach is individualist. We can intuit what it is like to be a person because we ourselves are persons: we can draw on Verstehen: it is the concepts and views held by individuals which are directly known to us, and form the elements from which we must build up, as it were, the more complex phenomena it is the attitudes of individuals which are the familiar elements and by Page 30 of 39

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the combination of which we try to reproduce the complex phenomena, the results of individual actions, which are much less known (Hayek, 1979: 65). But this is only the start. This is an application of the intentional stance to other people. But they are not the only potential agents in the world. We can understand the purpose of things because we have purposes. We can think about the meaning of the Antikythera mechanism, or Paleys watch, because we know what it means to mean something. Whatever the provenance of either mechanism, we could not be satisfied by an account exclusively in terms of the component parts, the wheels and pinions and gears. We would have to be told how those parts interacted to achieve the purpose of the whole. For Dennett There is no substitute for the intentional stance. Either you adopt it, and explain the pattern by finding the semantic-level6 facts, or you will forever be baffled by the regularity the causal regularity that is manifestly there Even if you can describe, in matchless microdetail, every causal fact in the history of every giraffe who has ever lived, unless you go up a level or two and ask Why? you will never be able to explain the manifest regularities, such as the fact that giraffes have come to have long necks (Dennett, 1995: 421). Now the big issue is, whether indeed there are causally efficacious entities operating at social levels above that of the individual human agent. For some it is obvious that there are not, for others equally obvious that there are. This is the issue of hypostatisation. Hypostatisation is the attribution of substance or real existence to concepts or abstractions (Greaves, 1974: glossary entry for hypostasis). Mises sets out the view that hypostatisation is a mental error with great clarity in a subsection of The Ultimate Foundation of Economic Science entitled The Pitfalls of Hypostatization: The worst enemy of clear thinking is the propensity to hypostatize, i.e., to ascribe substance or real existence to mental constructs or concepts. In the sciences of human action the most conspicuous instance of this fallacy is the way in which the term society is employed by various schools of pseudo science society itself is neither a substance, nor a power, nor an acting being. Only individuals act Society does not exist apart from the thoughts and actions of people. It does not have "interests" and does not aim at anything. The same is valid for all other collectives (Mises, 1962: 78). Nagel agrees. Pointing out that the extension of, for example, the French Enlightenment, that is, whatever it is that the phrase French Enlightenment refers to,cannot be articulated with unlimited detail, he suggests that this failure may lead to a hypostatic conception of it as a causally efficacious unitary whole: such a hypostatic transformation of a complex system of relations between individual human beings into a self-subsisting entity capable of exercising causal influence is the analogue of vitalistic doctrines in biology such hypostatic interpretations have been useless as guides in inquiry and sterile as premises in explanations [T]he methodological assumption that all collective terms designate either groups of human individuals or patterns of behaviour leads to a more fruitful way of identifying the extensions of such terms than does the perplexing hypostasis of mysterious superindividuals (Nagel, 1979: 537). Page 31 of 39

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For writers such as Marx, Hayek, Keynes, Dawkins, Toynbee and Dennett, however, it is pretty much a given that such super-individual entities exist, and the issue is to identify them and explain their working. For Keynes the class of rentiers and the institutional structure of atomistic capitalism are creations of society which served their own interests, interest which now diverge from ours (Denis, 2002b) . For Hayek, the networks of social relations within which individuals are embedded undergo a process of natural selection such that the traditions we inherit embody the rules we must follow, even if we dont understand them. Traditions here clearly exist and follow their own logic. For Hayek, this logic is to act in our interest, but no mechanism is specified which guarantees this (De nis, 2002a). For Toynbee, the unit of social analysis is the civilisation, the intelligible field of study (Toynbee, 1972: 45). The activities which take place within the civilisation are directed towards the maintenance of the civilisation, for example, the sustenance of a minority, including the soldiers, administrators and priests, who are free from the necessity of producing the material requirements of the society (Toynbee, 1972: 44). For Dawkins and Dennett, the individual is itself a hypostatisation: individual organisms are gigantic lumbering robots built by genes to serve as their vehicle, but a vehicle which comes to have its own interests, which diverge from those of its creators (Dawkins, 1989: 19, 332; Dennett, 1995: 471). Finally, for Marx, states and capitals, are hypostatisations of the activity of social individuals, organic social forms which have acquired their own interests, opposed to the interest of and parasitic on the human substrate of which they are formed (Denis, 2005). It is not my purpose here to argue that all or indeed any of these views are correct. All that we need to say is that they are not all obviously incorrect. The possibility of non-human social entities cannot be dismissed in limine, but has to be explored and if incorrect refuted in each case.

3 Analytical Marxism Analytical Marxism (AM) is a movement which emerged and largely receded again in the last quarter of the twentieth century, attempting to merge aspects of Marxian thought with analytical philosophy. Some of its principle members included GA Cohen, Jon Elster, and John Roemer (Van Parijs, nd). At its heart is the methodological view that Formalmodels resting on assumption of individually rational behaviour, asinstantiated by neo-classical economic theory and the theory of strategicgames, can be used to understand the economic and political dynamics ofcapitalist societies (Van Parijs, nd: 1). Van Parijs identifies eight core questions which AM addresses, touching on the falling rate of profit, the labour theory of value and the theory of exploitation, the status of traditional Marxist ethical statements, in particular regarding equality, and the future of socialism after the decline and fall of the supposedly socialist states. However, two of the key questions identified, and indeed the first two in Van Parijss list, implicitly and explicitly refer to the issue of MI: (1) Are the central propositions of historical materialism to be construedas functional explanations, i.e. as explanations of institutions by references tothe functions they perform? If so, are such explanations legitimate in thesocial as well as in the biological realm ? (2) Is it possible, indeed is it necessary, for a Marxist to be committedto methodological individualism, i.e. to the view that all social-scientificexplanations should ultimately be phrased in terms of actions and thoughtsby individual human Page 32 of 39

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beings? Or are there some admissible structuralist Marxian explanations which are radically irreducible to an individualisticperspective? (Van Parijs, nd: 2)7 Concerns of MI are thus central to the AM project. In Making Sense of Marx, Jon Elster, a noted proponent of AM, begin[s] by stating and justifying the principle of methodological individualism, not infrequently violated by Marx, yet underlying much of his most important work. The converse of the principle is that of methodological collectivism, which is closely related to two other methods of Hegelian inspiration, functional explanation and dialectical deduction (Elster, 1985: 4). In Elsters view, MI is the doctrine that all social phenomena their structure and their change arein principle explicable in ways that only involve individuals their properties, their goals, their beliefs and their actions. Methodological individualism thus conceived is a form of reductionism (Elster, 1985: 5). In contrast to MI, Methodological collectivism as an end in itself assumes that there are supraindividual entities that are prior to individuals in the explanatory order. Explanation proceeds from the laws either of self-regulation or of development of these larger entities, while individual actions are derived from the aggregate pattern (Elster, 1985: 6). The clear implication here is that social science must seek explanations at the level of the individual taken in isolation; these individuals are logically prior to any social entities. To illustrate his notion of MI, Elster continues: To go from social institutions and aggregate patterns of behaviour to individuals is the same kind of operation a going from cells to s molecules (Elster, 1985: 5). Firstly, we should note that this reference to goingfrom institutions and cells to individuals and molecules, a passage which is apparently reversed in the account of good scientific method given on the previous page, simply means to pass from the explanandum, that which is to be explained, to the explanans, the putative explanation. Secondly, we should think carefully about what biologists do when they go from cells to molecules. What they do is absolutely not to take the molecules in isolation. Indeed, the molecules in question can only be understood as parts of the cell. One simply cannot get from naked molecules to the cell. The molecules of RNA, DNA, etc, can only be explained by reference to what they are there for. In other words, understanding of the micro presupposes the macro. Desirable social science explanations, according to Elster, are three-tiered: First, there is a causal explanation of mental states, such as desires and beliefs. Next, there is intentional explanation of individual action in terms of the underlying beliefs and desires. Finally, there is causal explanation of aggregate phenomena in terms of the individual actions that go into them. The last form is the specifically Marxist contribution to the methodology of the social sciences (Elster, 1985: 4). Page 33 of 39

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The recipe for successful science described here is reductionist as I define it. We start with individuals considered in isolation from the aggregate phenomena which, on other views, might be held to influence or even determine the behaviour of the individual. The aggregate phenomena are presumed to be a consequence of the behaviour of individuals, but cannot themselves cause that behaviour. According to Elster, the rationale for reductionism is the need to reduce the time -span between explanans and explanandum between cause and effect as much as possible in order to reduce the risk of such errors as spurious correlation (Elster, 1985: 5): these risks are reduced when we approach the ideal of a continuous chain of cause and effect, that is when we reduce the time-lag between explanans and explanandum. This, again, is closely associated with going from the aggregate to the less aggregate level of phenomena (Elster, 1985: 5). While it is not clear to me what reducing the time-span between cause and effect has to do with going from the more to the less aggregate level phenomena, it is clear that all the action is presumed to take place at the micro level: it is at the micro level that the explanans is to be sought and the macro level phenomena are merely epiphenomena, secondary by-products which play no further role. An important issue which Elster raises concerns the ultimate desirability of different kinds of explanations. In this perspective, Elster argues, reductionism is not an end in itself, only a concomitant of another desideratum. We should add however, that a more detailed explanation is also an end in itself. It is not only our confidence in the explanation, but our understanding of it that is enhanced when we go from macro to micro, from longer to shorter time-lags [T]here is a real danger that attempts to explain complex phenomena in terms of individual motivations and beliefs may yield sterile and arbitrary explanations [T]his may be the case for the problem of finding micro-foundations for collective action. In such cases we are better off with a black-box explanation for the time being, although it is important to bear in mind that this is only faute de mieux. Methodological collectivism can never be a desideratum, only a temporary necessity(Elster, 1985: 56). This presentation of the matter contains a concession to methodological collectivism, that is, to holism instead of reductionism, which it is important to appraise. From the standpoint of holistic approaches to social science, it is by no means a shortcoming of a theory that it the explanation it offers only makes sense at the macro level. On the contrary, an explanation of social entities in terms of a description of the behaviours of micro-level agents may be no explanation at all if it fails to enlighten us as to the macro reasons why the micro-level pattern of behaviour occurs. Why does this tradition persist? Because the individuals concerned behave in such a way as to maintain it, because it is in some sense in their interest to do so. But why is it in their interest to do so? The micro-level explanation stops there. The macrolevel explanation might be that the tradition has survived and developed within an evolutionary process, such that traditions which are good at presenting the human substrate with a set of incentives to act in support of the tradition itself are selected for. But that is to posit supra-individual entities that are prior to individuals in the explanatory order. It is a Page 34 of 39

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standpoint that allows institutions and practices the mafia, the catholic church, or the labour party to have their own interests. Elsters formulation contains a grain of truth however. To understand the point requires us to discriminate between two possible statements of methodological individualism: (a) The explanation of macro-level phenomena must be in terms of the behaviour of self-seeking individuals. The explanation of macro-level phenomena must be consistent with the behaviour of self-seeking individuals.

(b)

Statement (a) is a statement of reductionism, while (b) is a statement of materialism, the view that individuals act in some sense in accordance with their perceived interests. Consider the example of calculation. This can be done with a digital computer, an analogue computer such as the Phillips machine, it can be done mentally, or with a stick drawing in the sand, or with an abacus. It cannot be done with the clouds or the stars in the sky. While there is some degree of substrate-neutrality, there are limits. A complete scientific account of calculation would include a description of what is going on at the micro-level, in the cells of the brain, or the processor in a computer. An account of arithmetic, such as that in the Principia Mathematica, which has nothing to say about such substrate matters, is therefore in some sense incomplete. Similarly, Keyness theory of aggregate demand, and Marxs labour theory of value, supposing for the moment that they are true, may be considered incomplete to the extent that they do not specify the precise agent behaviours, or rather ranges of behaviour, which would be consistent with them. But the contention that such theories are black boxes, the notion that we could dropthem if only we had complete knowledge of the substrate would be rejected by holists. It is the macro-level description of what is going on which is key, the micro-level description a matter of filling in the detail. Indeed, economy and clarity is gained by excluding detail, not accumulating it. To adopt Elsters half-hearted, faute de mieux, acceptance of macro-level explanations, if need be, and to look for microlevel explanations wherever possible, is to adopt the strategy of looking for the cause of a traffic jam under the bonnet of the i ndividual vehicles (Hofstadter, 1985: 787).

4 Conclusion In this paper I have set out a sequence of studies of the proponents of methodological individualism (MI) using the notions of holistic and reductionist ontologies developed in Denis (2004). The third, and thus far final, part began by reviewing the relationship between wholes and parts in social science, and considering the crucial question of the existence of real hypostatisations. A brief consideration of the approach to MI of the analytical Marxist school of thought came to the conclusion that these writers adopted a reductionist ontology in which the non-existence of real hypostatisations was an axiom an assumption not a finding. Ultimately the rejection in limine of non-human causally efficacious social entities appears implausible and unnecessarily restrictive. Further work, bringing the story up to date, will examine the contributions of Popper and Watkins, Arrow, Udehn and Hodgson.

Bibliography Page 35 of 39

Methodological Individualism, (1909-2009), Part 1 Richard Dawkins (1989) [1976] The Selfish Gene Oxford: OUP

Andy Denis

Andy Denis (2002a) Was Hayek a Panglossian evolutionary theorist? A reply to Whitman Constitutional Political Economy 13 (3), September, 275-285. Andy Denis (2002b) Collective and individual rationality: Maynard Keyness methodological standpoint and policy prescription Research in Political Economy 20, December, 187-215. Andy Denis (2004) Two rhetorical strategies of laissez-faire Journal of Economic Methodology 11 (3): 341-353. Andy Denis (2005) The Invisible Hand of God in Adam Smith Research in the History of Economic Thought and Methodology 23-A: 1-32. Andy Denis (2005) Collective and individual rationality in the history of economic thought: the early Marxs theory of states as organisms. Unpublished working paper. Available online, URL: <http://staff.city.ac.uk/andy.denis/research/marx.doc> (accessed 23 May 2010). Andy Denis (2006a) Collective and individual rationality: Robert Malthuss heterodox theodicy History of Economic Ideas 14 (2): 9-31. Andy Denis (2006b) Some Notes on Methodological Individualism: Orthodox and Heterodox Views Working paper. Available online from Social Science Research Network, URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=947260 (Accessed 26 June 2009). Daniel C Dennett (1995) Darwins Dangerous Idea. Evolution and the meanings of life London: Penguin. Jon Elster (1985) Making sense of Marx Cambridge: CUP Milton Friedman (1962) Capitalism and Freedom Chicago: Chicago University Press. Milton Friedman (1976) Comment. In J Stein (ed) Monetarism Oxford: North-Holland Publishing Company. HH Gerth and C Wright Mills (1970 [1948]) Introduction: the man and his work in Weber (1970): 3-74. Percy L. GreavesJr (1974) Mises Made Easier. Glossary for Human Action. Available online from the Ludwig von Mises Institute, URL: <http://mises.org/easier/h.asp> (accessed 23 May 2010). Friedrich Hayek (1952) The Sensory Order. An Inquiry into the Foundations of Theoretical Psychology London: Routledge & Kegan Paul. Friedrich Hayek (1967) Studies in Philosophy, Politics and Economics London: Routledge & Kegan Paul. Hayek, F. (1979) [1952] The Counter-Revolution of Science Indianapolis: LibertyPress. Page 36 of 39

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Joseph Heath (2009) Methodological Individualism The Stanford Encyclopedia of Philosophy Edward N Zalta (ed), forthcoming URL: http://plato.stanford.edu/archives/sum2009/entries/methodological-individualism (Accessed 2 January 2010). Geoffrey M Hodgson (2007) Meanings of methodological individualism Journal of Economic Methodology 14 (2): 211-226 (June). Douglas R Hofstadter (1985) Metamagical Themas. Questing for the essence of mind and pattern New York: Basic Books John Maynard Keynes (1981) Activities 1929-31. Rethinking Employment and Unemployment Policies, in D Moggridge (ed) The Collected Writings of John Maynard Keynes Vol. XX London: Macmillan, for the Royal Economic Society. Peter G. Klein (nd) Biography F. A. Hayek (1899-1992) Ludwig von Mises Institute. Online, URL: <http://mises.org/about/3234> (accessed 10 January 2010). Steven Lukes (1968) Methodological Individualism Reconsidered The British Journal of Sociology 19(2): 119-129. Reprinted in Dorothy Emmet and Alasdair MacIntyre (1970) Sociological Theory and Philosophical Analysis London: Macmillan, 76-88. Thomas Robert Malthus (1958) [1803, 1806, 1807, 1817, 1826] An essay on the principle of population, in two vols, London: Dent/Everymans Library. Karl Marx (1937) [1852] The Eighteenth Brumaire of Louis Bonaparte Moscow: Progress Publishers. Available online from the Marxists Internet Archive, URL: <http://www.marxists.org/archive/marx/works/1852/18th-brumaire/ch07.htm>. Carl Menger (1985) Investigations Into the Method of the Social SciencesNew York and London: New York University Press for The Institute for Humane Studies. Mises Institute 2009 Edited by Louis Schneider, translated by Francis J Nock. Originally published (1883) as Untersuchungen ber die Methode der Socialwissenschaften und der Politischen Oekonomie insbesondere. Online edition, Mises Institute 2009, URL: http://mises.org/books/investigations.pdf (Accessed 26 June 2009). Ludwig von Mises (1962) The Ultimate Foundation of Economic Science Princeton: Van Nostrand. Available online from the Ludwig von Mises Institute, URL: <http://mises.org/books/ufofes/ch5~4.aspx> (accessed 23 May 2010). Ludwig von Mises (1996) [1949] Human Action: A treatise on economics Irvington: Foundation for Economic Education. Available online from the Ludwig von Mises Institute, URL: <http://www.mises.org/resources/3250> (accessed 12 June 2009). Ernest Nagel (1979) The Structure of Science. Problems in the logic of scientific explanation Indianapolis: Hackett Joseph Schumpeter (1909) On the Concept of Social Value The Quarterly Journal of Economics 23 (2): 213-232 (February). Page 37 of 39

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Joseph Schumpeter (1980) Methodological Individualism Brussels: Institutum Europum. English translation by Michiel van Notten of the corresponding chapter of Joseph Schumpeter (1908) Das Wesen und derHauptinhaltdertheoretischenNationalkonomie, with a preface by FA Hayek, and a Summary by Frank van Dun. URL: http://mises.org/books/schumpeter_individualism.pdf (Accessed 26 June 2009). The translation is questionable in places; the German text may be consulted online in the Google Internet Archive at http://www.archive.org/details/daswesenundderh00schugoog [unfortunately pp 98-99 are missing, however] (Accessed 26 June 2009). Joseph A Schumpeter (1986 [1954]) History of Economic Analysis London: Routledge. Lars Udehn (2001) Methodological Individualism: Background,History and Meaning London: Routledge. Chris Matthew Sciabarra (2000) Total freedom: toward a dialectical libertarianism University Park, PA: The Pennsylvania State University Press. Arnold Toynbee (1972) A Study of History Oxford: Oxford University Press Leon Trotsky (1973) Problems of everyday life New York: Pathfinder Press. Lars Udehn (2002) The Changing Face of Methodological individualism Annual Review of Sociology 28: 479-507. Philippe Van Parijs (nd) Analytical Marxism Available online, URL: <http://www.uclouvain.be/cps/ucl/doc/etes/documents/1994.Analytical_Marxism__final_1.pd f> (accessed 23 May 2010). (Published in Dutch as Analytisch marxisme in Vlaams Marxistisch Tijdschrift 21(1), maart 1987, pp. 4144 , and in German as Analytischer Marxismus in Kritisches Wrterbuch des Marxismus Band 1, Wolfgang Fritz Haug (ed.), Berlin: Das Argument, 1994, pp. 202-205.) Max Weber (1922) Gesammelte Aufstze zur Wissenschaftslehre (Tbingen, 1922). Cited in Gerth& Wright Mills (1970: 55). Max Weber (trans, ed: HH Gerth& C Wright Mills) (1970 [1948]) From Max Weber: Essays in Sociology London: Routledge.

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Methodological Individualism, (1909-2009), Part 1 Notes

Andy Denis

This section draws on the corresponding section of Denis (2006a: 11-14). Emphasis in citations follows the original exceptions are noted as such. 3 The term utility curve seems to refer to any one of total or marginal utility curves, or indeed constant utility (or indifference) curves. 4 Geoff Hodgson has responded (personal communication) to the points made here, but I have not yet reviewed and edited the section in the light of what he says. Mea culpa. 5 Prinzipielle is better translated as principled than principal AD. 6 Syntax is about the rules for manipulating words, semantics about their meaning. Dennetts discussion of what West Side Story and Romeo and Juliet have in common illustrates the point:what they share is not a string of English characters, not even a sequence of propositions What is in common, of course, is not a syntactic property or system of properties but a semantic property or system of properties: the story, not the text; the characters and their personalities, not their names and speeches So it is only at the level of intentional objects, once we have adopted the intentional stance, that we can describe these common properties (Dennett, 1995: 356).
2 7

Of interest is the final comment of Van Parijss brief paper, that Having started with a critical inventory of Marxs heritage, it [sc the September Group of analytical Marxists] gradually took a more prospective turn, with a growing emphasis on the explicit elaboration and thorough defence of a radically egalitarian conception of social justice and a detailed multidisciplinary discussion of specific reforms This development has arguably brought analytical Marxism considerably closer to left liberal social thought than to the bulk of explicitly Marxist thought (Van Parijs, nd: 3-4).

In previous papers I have explored the relationship between the ontological approaches of reductionism and holism and the policy prescriptions which they might underpin. The relationship between the reductionist methodological statements of this group and the policies, described here as radically egalitarian, which it espoused, is suggestive and warrants further attention.

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