Alternatives to Methodological Individualism

Alternative to Methodological Individualism

In this report, I shall attempt to identify, compare and contrast the comprehensive models of the economic systems focusing on the Methodological Individualism and the Classical Economists approaches. The objective will be to identifying how these two philosophies have basic assumptions about human nature, technology and social institutions. In addition, the report will point out that these philosophies may have some inherent problems. The assumptions made by the Methodological Individualism thinking and the Classical Economists will provide an excellent opportunity to distinguish if how our economy literally works and how it theoretically works and if those are technically one and the same.

Methodological Individualism is a philosophical system that privileges the Individual as sovereign." (Methodological Individualist) Methodological Individualism economists like Friedrich August von Hayek, feel that our economy can be explained by demonstrating that it is simply an outcome the society's combined individual's behaviors. The Methodological Individualist feels that people make certain decisions to ultimatley determine output and the entire economic system can be explained. This system has many critics with questions like, 'who's common sense' is the driving force. "Critics of Methodological Individualism have been philosophers and sociologists such as Karl Marx." (Methodological Individualist)

Classical Economists stem from the philosophies of Adam Smith. "Until the Keynesian revolution in the 1930s, most economists taught the sound principles of classical economics: free trade, balanced budgets, the gold standard, and laissez faire. Adam Smith (1723-1790), the founder of classical economics, has been lionized as the foremost exponent of these principles." (Classical Economists, Good or Bad?)

The world of free market economists have always felt that Adam Smith deserved a pat on the back for his 'profundity and wisdom' in his book 'The Wealth of Nations' which was published in 1776. Smith's philosophy completely revamped the economic theories of the world during his time. "In his monumental new book Capitalism, George Riesman carries on this tradition of extolling the virtues of Adam Smith and David Ricardo (1772-1823). In his judgment, there are four great economists, whom he ranks in the following order: Ludwig von Mises, Adam Smith, David Ricardo, and Eugen Bhm-Bawerk. Although he does not ignore their weaknesses, Riesman considers Smith and Ricardo great economists who have been much maligned." (Classical Economists, Good or Bad?)

In an attempt to compare the two economic philosophies, it might be best to start with how they have helped or hurt the overall economic view and if that was caused by likeness in thought. To begin, Classical Economists had some obvious holes in the overall plan, but they nonetheless helped the world rethink the subject of economics.

The staunch followers of Classical Economics were strong defenders of the laissez-faire capitalism approach to politics. They believed in immigration, saving and capital investment, lower taxes and a simpler tax codes, balanced budgets and opposed minimum-wage laws and felt war was bad for the overall economy. The words of Adam Smith are no longer how our economy operates. "His "invisible hand" doctrine declared that the voluntary self-interest of millions of individuals creates a stable, prosperous society (what Smith called "natural harmony") without the need for central direction by the state. (Classical Economists, Good or Bad?)

In comparison with Methodological Individualism, we can see that there are some similiarites. For one, there are holes in their theory just like the Classical Economists have holes in their theory. For example, Methodological Individualism means that all economic phenomena can be traced back to, and explained by, the actions of individuals just like Smith's natural harmony. An explanation of the overall philosophy goes something like this. Methodological Individualism says there is a factory. "A car factory may have thousands of employees, but none of them possess the complete knowledge to build an entire car. Each worker's knowledge and responsibility are specialized and limited, and can only build part of a car. Only the interdependent efforts of the entire group can roll a car off the assembly line." (A Critique of the Austrian School of Economics: METHODOLOGICAL INDIVIDUALISM)

This factory would usually have no central planning, government, taxes to name some short comings. But in a sense, this approach compares to the Classical Economists in the sense of laissez-faire capitalism. Holes abound in this demonstration. If the workers for example have no centralized planning who is to say that one group does not make Honda trunks when wall the others are making VW's.

The differences between the two systems are there as well. Unlike the Classical Economists approach to explaining economic society, the Methodological Individualism do not adequately account for culture, tradition, rules and other social habits. "Much of human behavior is to be explained on these grounds, not individual knowledge or choice. Hayek attempted to explain habits and other rules of social behavior on the grounds that they promoted order and efficiency within the group." (A Critique of the Austrian School of Economics: METHODOLOGICAL INDIVIDUALISM)

Although the theories developed by the classical economists may be flawed, they certainly gave more credence to the thinking of individuals in an economic model. For example, the classical economists provided insight into professions in their theory of labor. They provided individuals with specific jobs and clear individualistic thinking patterns such as the work of ministers, physicians, musicians, orators, actors, and other producers of services. Classical economists may have misunderstood the positions as nonproductive in the overall economic output, but they were at least more human.