Methodological Individualism

Economics: the individualist science 229By saying that neoclassical economics is based on psychologistic individualism,we are saying specifically that neoclassical theories or analyses mustpermit only two types of exogenous variables: natural constraints andpsychological states. Of particular concern is the psychologistic individualistrequirement that no social institution that appears in our explanations mustbe allowed to play the role of an exogenous given.(Boland, 1982: 49)In a later work, Boland (1992: 24f) makes the further distinction betweenthose exogenous variables, which are included in the model and those exogenouslygiven conditions which do, or may, influence the endogenous variables,but which are treated as fixed and included in the ceteris paribus. The differencebetween exogenous variables and exogenous conditions is of course relative to themodel used by the economist, or to the particular specification of that model.Exogenous conditions may be further divided into those, which are considered‘exogenously fixed by a prior maximization process’, e.g., institutions, and thosewhich are exogenously given, e.g., natural constraints. According to the pychologisticindividualism of neoclassical economics, only psychic states of individualsare permitted as exogenous variables. Social institutions may appear as exogenouslyfixed conditions, but it is part of the neoclassical programme to turn theminto endogenous variables in a more inclusive neoclassical model. 3Methodological individualism is closely associated with equilibrium analysisand is most clearly expressed in the theory of general equilibrium (see below),but Boland’s explication is in terms of the comparative static methodology ofMarshall, where the distinction between endogenous and exogenous variables ismost clearly visible. What is static, and treated as exogenously fixed, in the shortrun is variable in the long run. If, for instance, social institutions have to betreated as exogenously fixed in the short run, they may, nevertheless, be seen asendogenous in a long-run general equilibrium. Methodological individualism issaved (Boland, 1986: 43ff).I believe that Boland’s psychologistic individualism provides a good explicationof the individualist aspirations, if not always of the practice, of neoclassicaleconomists. 4 As he suggests, himself: ‘While almost all neoclassical theoristsopenly accept the requirements of methodological individualism, few seem fullyaware of the complexity of the requirement. Moreover, they are unaware of theconflicts between their tools of analysis and their commitment to methodologicalindividualism’ (Boland, 1986: 10). As we shall see, this quote from Boland is afair statement about economists. The recent development of economic theorygives us reason to believe that Boland is correct also to maintain that this versionof methodological individualism is too strong.But, according to Boland, there is another, weak version of methodologicalindividualism, called ‘institutional individualism’ (Boland, 1982: 32–7). As wehave seen in chapter 7, the roots of this version are in the methodology of KarlPopper, but it was his pupil Joseph Agassi, who stated it most clearly. LawrenceBoland, who was once a student of Joseph Agassi, picked it up and brought it to