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Ann Mayhew: 
 
>The limits of methodological individualism upon which the broad 
neoclassical synthesis rested, became apparent even as neoclassicism became 
dominant. Advertisers and business executives never fell for the notion 
that tastes were somehow individually inherent, and beyond examination and 
manipulation, and even in the more rarified reaches of Economics there were 
intrusions of the concept of historically-determined institutional patterns 
such as property rights and expectations.  (This is where Coase came in.)> 
 
Ann, I picked out this statement from your post because I think it raises 
two crucial issues. Let me begin by recalling that Coase's theory of the 
firm (1937) was based on the idea that in order to reduce certain "costs" 
of making market exchanges involving work, individuals might agree to enter 
into what they expected to be long term employment compacts. In the 
simplest case, one person would become an employer and the other an 
employee. One of the "costs" that Coase mentioned was the costs of finding 
the relevant prices, which in layman's terms means finding out a 
prospective worker's willingness to do a particular type of work and a 
prospective employer's willingness to pay for the work. 
 
Correctly understood, Coase's approach to this simple exchange problem was 
methodologically individualistic. However, it did not take tastes as given. 
It assumed that traders had to discover the tastes. In other words, it 
assumed the people have tastes but not that these tastes are given or 
widely known. This, in my view, is also true of good neoclassical 
economists generally. They do not take given tastes as axiomatic either. 
Given tastes are often assumed in order to facilitate model-building. But 
only a poorly-trained neoclassical economist would neglect the problem of 
defining them in the first place and the fact of their changeability. This 
is the first issue. ( Incidentally, the assumption of given tastes was the 
subject of a Stigler-Becker article in the AER. -- Stigler, George J. and 
Gary S. Becker (1977) "De Gustibus Non Est Disputandum." American Economic 
Review 67(2): 76-90. I also recall that it stirred some debate. Perhaps 
someone on the list knows this debate.) 
 
The second issue is the relationship between an individual and an 
institution. I think that you treat this too lightly. An individual is a 
thinking human being who possesses the characteristics of inventiveness and 
creativity, among other things. An institution is either or both a creation 
of individuals or a legacy of pre-human existence. When you use the phrase 
"historically-determined institutional patterns," it confuses me. History 
cannot create or determine things. History refers to the past behavior of 
individuals. What you apparently mean is that the individuals for whom the 
patterns are significant did not themselves produce them. You do not mean 
that the patterns were not produced by individuals. (We should also 
recognize in this context that some institutions are deliberately produced 
while others appear to be "unintended" consequences of actions.) 
 
However, if this is all that you mean, your criticism of methodological 
individualism is not so convincing. Return to Coase. While he provided a 
model of the individualistic creation of the long term employment compact, 
he did not assert that all such compacts are formed according to this 
model. Once a precedent is set and a number of prospective employers 
recognize the "cost" savings of the employment compact, they will offer pay 
for long-term work. In this case, the prospective employee faces a pattern 
of price offers from "institutions" that already exist. Even a new employer 
may not think about transaction costs. She may merely identify the 
prospective profits of doing what others have done. But the fact that a 
person copies another does not make his behavior less individualistic. It 
does, however, imply that in interpreting historical events, one should 
account not only for today's individual behavior but also for the 
individual behavior of the past. 
 
Now one might argue that the tastes of individuals and even their abilities 
are mostly determined by the institutional patterns produced in the past. 
Fair enough. But why is this important? The fact that human beings have the 
capacity to look back and understand this very fact is evidence of their 
power to imagine institutional patterns that are not "historically 
determined." And under the right circumstances, they can produce such 
patterns themselves. 
 
The same type of argument applies to private property rights. In his 1960s 
paper on Social Cost. As one might recall, Coase described several ways in 
which individuals dealt with externalities, including the creation of 
private property rights. The private property rights thus created could 
become part of the institutional structure faced by actors later in 
history. 
 
I think that a great deal of the complaints that evolutionary economists 
and institutional economists express about methodological individualism are 
either (1) correct only for those methodological individualists who do not 
know how to properly use this approach to interpreting historical facts or 
(2) misconceived because they do not appreciate that history itself is 
about beings that we ordinarily attribute with having the capacity to 
choose individually and to be creative and inventive in doing so. 
 
I am referring here to a problem faced by all historians of economics. How 
do we select the best representative of this subject? 
 
Pat Gunning 
 
 
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