Methodological Individualism

Austrian methodological individualism 95economic action, aimed at the satisfaction of needs by means of economic goods(Dietzel, 1883: 59ff; 1884: 17ff). Social phenomena are caused and constitutedby the actions of individuals, which are caused by the motives of action, whichare caused by the needs of individuals (Dietzel, 1895: 18). Dropping needs as theultimate causes of social phenomena, we get something close to Max Weber’sview in a nutshell.Max WeberThe Austrians of the first generation were aware and admitted that marginalisteconomics relies on an assumption of purposeful and rational behaviour on thepart of economic agents, but this assumption was never the focus of their attention.It is my conjecture that the work of Max Weber contributed significantly tomake rationality a central assumption of Austrian Economics – it was arguablythe central concern of Max Weber’s own work in history and sociology. As iswell known, Max Weber saw history, or at least the history of the West, assubject to a tendency of increasing rationalisation. Not only economic life, butalso politics, social life and culture, are subject to the irresistible force of humanreason. In economic life, we see a culmination of instrumental rationality withthe development of modern capitalism and the market. For this reason,economics, in particular, must be based on the assumption of instrumental rationalityon the part of agents. (Udehn, 1991: 134–6).The first source of Weber’s view of the role of rationality in economics is insome notes he made to a course on theoretical economics in 1898 (Weber [1898]1990: 29ff). Weber here conceives of economising as means-ends rationality, butdoes not yet make the distinction between economic and technical rationality.He is careful to point out that economics is not about real human beings, butabout a constructed economic subject with certain ideal characteristics. Amongthe most important features of this ideal figure are those that define her/hisrationality: perfect knowledge of the situation (the alternatives) and perfectunderstanding of the most adequate means to realise the various alternatives.Weber returns to the ideal typical assumption of rationality in his earlymethodological essays on “‘Objectivity” in Social Science and Social Policy’(1904) and on the German economist of the Historical School Karl Knies(Weber, 1903–6). In the first essay, Weber arrives at the common interpretationof economics as bound up with the fundamental fact of scarcity (1949: 64f). Thisarticle also contains Weber’s first extensive discussion of ideal types, illustratedby abstract economic theory: ‘It offers us an ideal picture of events on thecommodity-market under conditions of a society organized on the principles ofan exchange economy, free competition and rigorously rational conduct’ (pp.89f). In the second article, Weber’s starting-point is Knies’s argument thatfreedom of will is somehow irrational and, therefore, escapes social scientifictreatment ([1903–6] 1975: 95–101). Against this argument, Weber correctlymaintains that freedom is related to rationality rather than to irrationality, andalso that free and rational actions are most eminently suited to social scientific