Since nobody seems willing to consider the existing literature on  
methodological individualism (MI), let me make the main point about MI  
that is central to neoclassical economics: MI simply says that things do  
not decide only individuals do. So, if one is to explain any social  
event, one must show that the event is the result of decisions made by  
individuals. The question is whether or not this precludes consideration  
of institutions. That is, do institutions play a role in any  
individual's decisions? If one requires any involved institution to also  
be explained as the result of individual decisions, this would amount to  
a reductionist version of MI. Such a version is not necessary but many  
neoclassical economists think that it is. The question is why. As  
Anthony suggests, it could be simply a matter of ideology (so-called  
ontological individualism). Is there any other reason?  
  
My humble suggestion is that if you are interested in MI you should  
follow Arrow's 1994 suggestion and read Chapter 2 in my 1982 book  
(Foundations of Economic Method [available free on my web page]) or if  
you are rich, read Chapter 2 in the second edition (not on my web page).  
  
Lawrence A. Boland