Abstract

A common perception is that economic theory is based on a methodological individualism, while political economy adopts normative individualism as the standard of judgment. Kenneth Arrow voices this perception in asserting “it is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals [and] not of other social categories”. While agreeing with Arrow’s diagnosis that in their actual practice economists do not generally adhere faithfully to the principle of methodological individualism, I shall argue that this is not due to inherent limitations of this principle but to economists’ failure to consistently apply it. And, while Arrow quite obviously considers James Buchanan’s methodological and normative individualism ill-founded, I shall argue that Buchanan’s contractarian-constitutionalist approach is solidly based on a consistent methodological individualism.