Methodological individualism, economic behaviour and economic policy

Abstract

This paper examines Hayek’s version of methodological individualism in relation to individual economic actions and economic effectiveness (social actions). According to this approach, economic and social order is determined by the myriad atomistic actions that are the result of individual planning taking into consideration the idiosyncratic nature of knowledge. Economic policy is a form of social planning which is not only ineffective but also has cataclysmic long‐lasting effects, creating a disorder in the market system. Two arguments are made in this study. First, methodological individualism should be considered and be accepted as a serous attempt to explain atomistic (economic) behaviour as purposeful actions constrained by scarce resources and limited knowledge. Second, Hayek’s strong version of methodological individualism is very simplistic as it is applied to economic policy issues, contradicting his argument in support of a methodological dualism.