Methodological Individualism

284 The new institutional economicsthat a reinterpretation of Hayek’s theory of cultural evolution along the lines ofthis truism – or tautology? – can make it consistent with his methodological individualism(p. 173), but I do not think so.Vromen goes on to suggest that the problem with Hayek’s evolutionism is notgroup selection, but his organicism (p. 174), as if the two were independent. Healso suggests that Hayek’s organicism derives from that of Menger, which was ofa holistic and functional type. As we have seen, this is, indeed, the case withHayek’s organicist evolutionism, and this is the reason it conflicts with hismethodological individualism, but Menger is much more critical of organicismand he does contrast it with the atomistic approach, which is the source ofHayek’s methodological individualism (Menger [1883] 1963: 122ff). The conclusionis that the conflict between Hayek’s cultural evolutionism and hismethodological individualism remains.It is arguable that the evolutionism of Carl Menger was more individualisticthan that of Hayek. At least, he did more to specify the mechanism at work inhis main example: the evolution of money. This example, I have suggested (pp.90f ), is a paradigm of an individualist (invisible-hand) explanation of the emergenceof a social institution. It is commonly agreed that money is a convention,in the sense of David Hume and David Lewis (1969), that is, a social institution,which is arbitrary, but in the interest of all. Contemporary social scientists havethe advantage, over Menger, of being able to use the tool of game theory toexplicate and explain social conventions, as games of co-ordination. Importantcontributions, to the game theoretic literature on the emergence of social institutionsinclude Ullmann-Margalit (1977), Schotter (1981), Axelrod (1984) andSugden (1986). The evolutionary use of game theory raises the same questionsabout methodological individualism, as does game theory, generally. Since I havediscussed game theory in the previous chapter, I leave the matter with repeatingmy conclusion: the explanatory use of game theory in social science will typicallyimply exogenously given social institutions. ‘For evolutionary game theory, socialstructure comes in the form of the organization or social environment that doesthe selecting of strategies’ (Kinkaid, 1997: 138).What about the Chicago branch of evolutionary economics? Does it obey thestrictures of (strict) methdological individualism? The answer is simple and short:it does not. The unit of selection is the firm, not the individual.In his classical article ‘Uncertainty, Evolution, and Economic Theory’ (1950),Armen A. Alchian argued that economics do not need the dubious assumptionthat firms are engaged in profit-maximisation. In a world of pervasive uncertaintyand incomplete information, it is really impossible to maximise. Instead,firms adapt, imitate and use trial and error, in order to survive. And those firmsthat succeed in making a profit are the survivors. Rationality is replaced by selection.This argument would prove to be of crucial importance for the emergenceof the new institutional economics. First of all, because it was eventually pickedup by its evolutionary branch, but also because it led to rethinking profitmaximisation.Most Chicago economists accepted Alchian’s critique of profit-maximisation