Methodological Individualism

The new institutional economics 265somehow contradicts the basic requirements of methodological individualism.Indeed, since the household consists of several members, its behaviorshould be analyzed as the result of several individually rational decisions.That is to say, each member should be characterized by his (her) own utilityfunction; and the ‘collective’ household decisions should be analysed withina formal framework which would model the interactions between members.(Chiappori, 1988: 63)There is already a large literature around Chiappori’s individualistic model ofcollective labour supply in the household, but this is not my business. I notice,though, that many contributions to this literature make a point of its individualism.What I have not noticed, however, is any reference to power andpatriarchy. On the contrary, Chiappori assumes, like Becker, ‘that internal decisionprocesses are cooperative, in the sense that they systematically lead toPareto-efficient outcomes’ (Chiappori, 1992: 438). 10The firmSo too in private industries, the man in authority – bailiff or manager – whocan make the workers keen, industrious and persevering – he is the manwho gives a lift to business and swells the surplus.(Xenophon, 426–354 BC) 11According to Max Weber, modern rational capitalism is characterised, aboveall, by the ubiquity of the modern profit-making enterprise. 12 This type of enterprisefirst arose in the West, as did rational capitalism (Weber [1922] 1978: 165).Its most typical feature is that it engages in profit-making based on capitalaccounting ([1922] 1978: 71–4, 90f). Weber did not say that enterprisesmaximise profit, but he did observe that those enterprises that fail to make aprofit will go out of business (Weber, 1904–5: 54f). This is an echo of Marx’ssuggestion that capitalists are forced to accumulate in order to stay in business,but it also foreshadows the more recent idea of Alchian that market competitionselects those firms that are most rational in their pursuit of profit.Another important feature of the capitalist enterprise, according to Weber, isthat, like the state, it is organised as a bureaucracy. Unlike a market, a bureaucracyis made up of relations of authority (Weber [1922] 1978: 220ff). Webergoes even further and maintains that the model of the capitalist enterprise ismilitary discipline – a particularly effective form of authority ([1922] 1978:1155f). It should be mentioned here that Weber made the important distinctionbetween economic power and authority, as two forms of domination (Herrschaft)([1922] 1978: 941ff). Economic power is ‘domination by virtue of a constellationof interests’ and authority is ‘power to command and duty to obey’ (p. 943). Thefirst form of domination springs from ownership and control of resources, whichcan be used to affect the incentives of other people, who are excluded from the