Methodological Individualism

238 Economics: the individualist scienceand maybe impossible with present mathematical tools, he does not seem tobelieve that there are any principal problems involved (Koopmans 1949: 87).Vining, on the other hand, maintains that social wholes have structural and functionalproperties that may make the obstacles to aggregation insurmountable or,rather, that there is more to macroanalysis than aggregation (Vining 1949a:79ff). 11Hayek’s and Koopmans’s critique of macroeconomics and econometrics,then, concerns the so-called aggregation problem, or how to derive relations betweenaggregates from the (rational) behaviour of individuals or, at least, to establishsome kind of logical bridge between them. This problem beset Keynesianmacroeconomics from the very beginning and it is, of course, a manifestation ofthe individualistic quest for microfoundations (see Klein, 1946a: 93; Arrow[1951] 1968: 641f). 12The Keynesian theory has been severally attacked by some economistsbecause it is couched in terms of aggregate concepts like total consumption,employment, income, etc. These aggregative concepts, it is argued, get awayfrom the more fundamental economic concepts of the individual and arethus misleading. But the aggregative or macro approach is not only labeledas misleading; it is also labeled as incorrect. For example, economists askhow can there be a stable relationship between total community consumptionand total community income unless the distribution of income withinthe community is taken into account?(Klein, 1947: 56f)For most economists, it was a matter of course that Keynes’s general theoryhad to be provided with neoclassical microfoundations. Indeed, ‘[t]he fact thatone cannot understand macroeconomics without providing microfoundationsthus seems to have become one of the unspoken assumptions held byeconomists’ (Hartley, 1997: 124) and in most cases the choice of foundation wasWalrasian (Solow, 1989: 29). The result was a ‘neoclassical’, or ‘neo-Walrasian’synthesis, represented by economists such as John R. Hicks, Oscar Lange,Lawrence R. Klein, Paul A. Samuelson and Don Patinkin (Weintraub, 1979: ch.4; Feiwel, 1985: 7–16). The origin of this development was an article by Hicks,where he emphatically denied that there is a big difference between Keynes’system and the ‘classical’ theory. According to Hicks, whatever Keynes theory is,‘it is not the General Theory. We may call it if we like, Mr. Keynes’s special theory. TheGeneral Theory is something appreciably more orthodox’ (Hicks, 1937: 152). Itwas Hicks, who introduced the well-known IS-LM diagram, for purposes ofcomparison between ‘classical’ theory and Keynes’s theory. 13 According toHicks, Keynes’s ‘general theory’ is but a special case of a more general theory,which might be represented by two curves: IS (representing the relation betweenIncome and interest, which must be maintained in order to make saving equal toinvestment) and LM (representing the relation between Income and interestcorresponding to a given amount of money). The economic system is in equilib-