Lord Keynes — Hodgson on Methodological Individualism

The “broad” version of methodological individualism simply reduces to the “proposition that explanations of social phenomena should be in terms of both individuals and social structures” (Hodgson 2007: 223). Such an approach does not even deserve the label “methodological individualism,” since it has obviously abandoned the very essence of such a method.
And it is most curious indeed to read in theHandbook on Contemporary Austrian Economics(2010) that (supposedly) Austrian economics can now have a clarified version of methodological individualism that “allows for the causal role of social customs” (Evans 2010: 9) and that recognises that “social phenomena are not strictly reducible to [sc. individuals]” (Evans 2010: 11). At one point this method seems to get the name “institutional individualism” (Evans 2010: 11). If so, this is just an admission that the strict “methodological individualist” approach is now so broad that the question is raised why it should have that name at all.

Social Democracy for the 21st Century
Hodgson on Methodological Individualism
Lord Keynes

This is really key for understanding fundamental differences between, on one hand, Austrian and neoclassical economics, and on the other, Marxism, Old Keynesianism, Post Keynesianism, and MMT, all of which are institutionalist.

The view of Austrian and neoclassical economics is that economics is chiefly concerned with individual agents acting rationally in pursuit of utility through individual choice through market exchange that reveals changing preferences, thereby sending signals to producers wrt price and quantity in accordance with the "law" of supply and demand.

The view of the heterodox economists that are institutionalists is that individual behavior in society and therefore in an economy takes place not only through rational choice based on subjective utility, that is, preferences and indifference level, but also through a complex web of social rules and rule-following, where these rules are embedded in cultural rituals and codified in institutional arrangements and rule following strongly influences behavior.

Most individuals have little if anything say in the construction of rules, even though they are constrained by the obligation, need, or persuasion to follow them. The result is a web of social relationships that affect virtually all aspects of individual life from the meso level of societal subsystems or macro level of the society as a whole — a complex adaptable system capable of emergence, which is comprised of individuals and subsystems arranged in relationships that are characterized by rules and rule-following with consequences for rule breaking. As opposed to methodological individualism, this might be better characterized as methodological holism.

Methodological holism is different from ontological holism. A human being is an ontological whole that we model as an organsim comprised of subsystems — organs — and individual cells in precise relationships. But there is no such "thing" as society. What we call "society" is what we assume is described by the complex adaptive system that we construct as a conceptual model. However, there is no entity corresponding to society. Society can be modeled as an organism, for example, but society is not an organism. The idea that society is a thing would be ontological holism, but I am unaware of anyone in the life or social sciences that holds this position.