Methodological Individualism is the principle of explaining social phenomena through people’s actions and interactions. It does not claim that people exist outside society, institutions are unreal or individuals should pursue only their own benefit.
“The firm raised its price” can be useful shorthand. An explanation still needs to identify who had authority, what they knew and how the decision was implemented. This need not be every employee’s biography; it is a mechanism connecting people’s roles to the observed outcome. [Mises — Human Action, II.4]
Mises explicitly does not deny the significance of states, municipalities or other collectives. He explains their operation through people’s actions and the meanings attached to them. The same instruction may have different effects from an authorized official and a random passer-by; listing individuals without rules and roles is insufficient. [Mises — Human Action, II.4]
Language, learned customs, law and division of labour shape the setting of choice. The method need not assume someone historically prior to society or someone whose ends arose without others. It examines precisely how social relations operate in particular decisions and cooperation. [Mises — Human Action, II.4] [Mises — Human Action, VIII]
A person may act for family, an association or a stranger. An analytical emphasis on persons therefore commands neither selfishness nor a ban on collective decisions. Nor does it establish a particular political programme without further argument; explaining causes and judging desirable arrangements are different tasks. [Mises — Human Action, VIII]
Hayek’s price-system example shows how people adjust resource use without all knowing why the resource became scarce. The resulting pattern can emerge from interacting decisions. This proves neither that every market outcome is efficient nor that someone intended the precise aggregate consequence. [Hayek — The Use of Knowledge in Society]
An explanation must establish what participants could know and how they responded to new information. In Economics and Knowledge, Hayek separates the logic of an individual plan from mutual learning. A plausible-sounding motive is not evidence by itself; an actual causal interpretation needs support for its mechanism. [Hayek — Economics and Knowledge]
An average price, adoption rate or user count describes a pattern without automatically explaining its cause. Such data can be used with rules and group decision-making; everything need not become a list of names. Avoid assigning an average’s property to every person or generalizing one experience to an entire market. [Mises — Human Action, II.4] [Hayek — The Use of Knowledge in Society]
A user, wallet operator, miner and merchant need not share information or goals. Specify “the market wants” by identifying who changes supply, software or payment practice and under which constraints. Technical rules and aggregate statistics can support part of an explanation but do not alone reveal every participant’s motive. [Hayek — The Use of Knowledge in Society] [Hayek — Economics and Knowledge]
For the clearest picture, read this entry together with Praxeology, Human Action, Knowledge Problem, Spontaneous Order, Subjective Value Theory. The reverse links also lead from Praxeology, Human Action, Spontaneous Order.