Smith explains methodological individualism and its implications for the existence of institutions and other social phenomena.

George H. Smith was formerly Senior Research Fellow for the Institute for Humane Studies, a lecturer on American History for Cato Summer Seminars, and Executive Editor of Knowledge Products. Smith’s fourth and most recent book, The System of Liberty, was published by Cambridge University Press in 2013.

In Part 5 I quoted Ludwig von Mises as saying that it “is uncontested that in the sphere of human action social entities have real existence.” Here is the remainder of this passage from Human Action (3rd ed., Regnery, p. 42):

Nobody ventures to deny that nations, states, municipalities, parties, religious communities, are real factors determining the course of human events. Methodological individualism, far from contesting the significance of such collective wholes, considers it as one of its main tasks to describe and to analyze their becoming and their disappearing, their changing structures and their operation. And it chooses the only method fitted to solve this problem satisfactorily.

As indicated by this passage, Mises saw no conflict between methodological individualism, on the one hand, and conceding the reality of institutions and other “collective wholes,” on the other. This position is consistent with that taken by most major defenders of methodological individualism. As I explained in Part 5, for example, Herbert Spencer, while claiming that society is composed of nothing but individual human beings, also maintained that society is an “entity” with identifiable properties, and that the existence of society is not merely “verbal.”

Whether or not we should call social phenomena “entities” is problematic, in my judgment. Such usage will ultimately depend on one’s theory of knowledge; and since the “entity” nomenclature was consistent with Spencer’s epistemology, he was internally justified in using that term. But this verbal quibble is relatively unimportant, so long as we understand the distinction between social nominalism and methodological individualism. The methodological individualist need not, and should not, retreat into the nominalist claim that “society” is merely a name without any objective counterpart in the external world. As I wrote in a previous essay:

Methodological individualism does not mean that only the individual human being is real or that social phenomena do not exist. It says only that the individual is able to think, feel, and act. We can impute thoughts, purposes, and values only to the singular human being; when we apply such terms to “society” we enter the domain of metaphor. However, this does not mean that “society” is not “real” or cannot be said to “exist” in some fashion. Many things exist that cannot think, act, or feel.

A society, as I said, is more than an aggregate of individuals. A society of ten people is more than a mere group of ten people; a society consists of those people and their institutional relationships. If by “a society of ten” we mean those ten plus their patterned interactions, then the “society of ten” may be said to exist, not apart from the ten who comprise it, but in addition to those ten, separately considered.

The central tenet of methodological individualism, according to Mises, is that “all actions are performed by individuals.” Or, in the words of Karl Popper (The Open Society and Its Enemies, 5th ed., vol. 2, p. 98), social phenomena “should always be understood as resulting from the decisions, actions, attitudes, etc., of human individuals, and…we should never be satisfied by an explanation in terms of so‐​called ‘collectives’ (states, nations, races, etc.).”

Classical liberals have been criticized for their view that the individual is the ultimate unit of explanation in the social sciences, and that social institutions can be explained solely in terms of the beliefs and actions of individuals. Methodological individualism was taken for granted by most eighteenth‐​century social philosophers—especially Adam Ferguson, Adam Smith and other Scottish thinkers. It was not until the nineteenth century that various types of social holism challenged this view.

Social holism has been defended from various perspectives, but, generally speaking, it is the doctrine that social “wholes” cannot be solely and adequately explained in terms of the actions and beliefs of individuals. Holism, according to a popular if simplistic definition, is the doctrine that a social whole (e.g., an institution) is more than the sum of its individual parts—or, alternatively, that the whole is in some way prior to the individuals who comprise it.

Some holists, such as Emile Durkheim (whom I shall discuss in a subsequent essay), have compared social phenomena to the emergent properties produced by a chemical reaction. Under certain conditions two parts of hydrogen will combine with one part of oxygen to form water, thereby creating a new substance with emergent properties that are qualitatively different than those of its constituent elements. According to this argument from analogy, individual human beings are “atoms” which, when combined in a particular manner through interaction, produce social “molecules” with new and unique characteristics. John Stuart Mill (A System of Logic, 8th ed., 1882, Bk VI, Ch. VII) had this to say about the “chemical method” of reasoning in the social sciences:

The laws of the phenomena of society are and can be nothing but the laws of the actions and passions of human beings united together in the social state. Men, however, in a state of society are still men; their actions and passions are obedient to the laws of individual human nature. Men are not, when brought together, converted into another kind of substance with different properties, as hydrogen and oxygen are different from water….Human beings in society have no properties but those which are derived from, and may be resolved into, the laws of the nature of individual man.

Mill’s argument overlooks a major form of holism, which does not claim that individual human beings are qualitatively transformed by social interaction. Holists more often contend that human interaction generates social wholes, or institutions, which differ qualitatively from the individuals who comprise them.

Mill has been criticized by other methodological individualists for his supposed defense of psychologism. This is the label given by Karl Popper to the view that all social phenomena can be explained in terms of the intentions, purposes, and motives of individual human beings. Although psychologism rightly insists that we must reduce the “actions” and “behavior” of collective entities to the actions and behavior of individuals, it erroneously maintains that such explanations must be psychological, i.e., that they must ultimately refer to the conscious states and dispositions of acting agents. This is a serious error, because many social institutions were not consciously designed but emerged instead as the unintended consequences of human action.

Thus psychologism, though a species of individualism, should not be confused with methodological individualism per se. Psychologism is inadequate because it fails to take into account the many institutions, such as money and language, that have developed spontaneously, without conscious planning or foresight. To say that all institutions are the result of individual actions and beliefs is not to say that all such institutions are the product of deliberate planning or design. As Adam Ferguson (An Essay on the History of Civil Society) put it in 1767:

Mankind, in following the present state of their minds, in striving to remove inconveniences, or to gain apparent and contiguous advantages, arrive at ends which even their imagination could not anticipate, and pass on, like other animals, in the track of their nature, without perceiving its end….Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design.

We are deeply indebted to Adam Ferguson, David Hume, Adam Smith, John Millar and other luminaries of the Scottish Enlightenment for our understanding of unintended consequences and their role in the development of unplanned social institutions. And it is scarcely coincidental that those sociological pioneers were methodological individualists. None would have seriously entertained the notion that social phenomena are anything more than individuals and their recurring, patterned relationships.

If theories develop in response to unsolved problems, if they are attempts to answer difficult questions, then we may say that modern social theory arose with the desire to explain the origin and development of undesigned institutions. In 1882, Carl Menger (Investigation into the Method of the Social Sciences) phrased “the most noteworthy problem of the social sciences” as follows:

How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?

Karl Popper noted that an “action which proceeds precisely according to intention does not create a problem for social science.” In a similar vein, F.A. Hayek (The Counter‐​Revolution of Science) maintained that modern social theory, especially economics, grew from a desire to explain the origin and development of undesigned institutions.

The problems which [the social sciences] try to answer arise only insofar as the conscious actions of many men produce undesigned results, insofar as regularities are observed which are not the result of anybody’s design. If social phenomena showed no order except insofar as they were consciously designed, there would indeed be no room for theoretical sciences of society and there would be, as is often argued, only problems of psychology. It is only insofar as some sort of order arises as a result of individual action but without being designed by any individual that a problem is raised which demands a theoretical explanation.

The theory of spontaneous order has been taken up by many prominent sociologists (as we see, for example, in Robert Merton’s “empirical functionalism” and in Anthony Giddens’s theory of “structuration”). It was also explored extensively by three classical liberals over the past three centuries: Adam Smith in the eighteenth, Herbert Spencer in the nineteenth, and F.A. Hayek in the twentieth. The significance of spontaneous order theory for methodological individualism is that it offers an attractive third alternative to the extremes of psychologism and holism. The methodological individualist can readily admit that social institutions result from something more than individual actions—if by this we mean the intended outcomes of such actions. We may also speak of institutions as possessing emergent properties—if by this we mean properties that emerged spontaneously, quite apart from intentions of individual actors.