A Strange Brew
INDIVIDUALS, INSTITUTIONS, INTERPRETATIONS: HERMENEUTICS APPLIED TO ECONOMICS
Edited by David L. Prychitko
Avebury, 1995, xi + 175 pp.
This book gets off to a bad start. The editor, David L.
Prychitko, ardently supports a particular sort of interpretation
theory, hermeneutics, particularly as developed by Hans-Georg
Gadamer and Paul Ricoeur. Use of this theory, Prychitko thinks,
can greatly contribute to the development of Austrian economics,
a thesis he and his collaborators endeavor to defend in the body
of the book.
The work is divided into three parts. Part One contains essays
on methodological individualism, a key principle of Austrian
economics. "Part Two explores the methodological problems of
interpreting individual action and the way peoples plans are
integrated into the socio-institutional order. . . . Part Three
applies interpretive economics to the nature of the market
order" (pp. 4-5).
Readers of The Mises Review may recall that
I do not completely share the editors enthusiasm for his beloved
new interpretation theory. But it is not because he advocates
hermeneutics that I said his book gets off to a bad start (though
this helped). Rather, the problem lies in the quite extraordinary
way Prychitko goes beyond the evidence in several of his
He states: "Mises established a phenomenological basis
for Austrian economics as early as the 1920s, which was carefully
addressed in his 1933 collection of essays, Epistemological
Problems of Economics, and further deployed in his 1949 magnum
opus, Human Action: A Treatise on Economics"
As Herbert Hoover would say, lets cite a powerful statistic.
Prychitko has mentioned two major works by Mises. The total
number of references in these two books to Edmund Husserl, the
founder and principal developer of phenomenology, is one.
Alfred Schutz, Misess student and a pioneer in the use of
phenomenology in the social sciences, is cited twice in Human
Action, once for the same point as Husserl.
I do not suggest that there are no interesting parallels
between Austrian economics and phenomenology. Misess use of the
phrase "method of free variation," also employed by
Husserl, certainly merits investigation in this context, as do
many other topics. But what concerns me is not the issue
of Mises and phenomenology. It is, rather, the irresponsibility
with which Prychitko asserts his claim in the absence of textual
Again, Prychitko remarks: "Mises drew support from
heavyweight interpretive philosophers, such as Henri Bergson,
R.G. Collingwood, Benedetto Croce, Wilhelm Dilthey, and Edmund
Husserl" (p. 3). Let us now look at Mises: "With regard
to praxeology the errors of the philosophers are due to their
complete ignorance of economics." Mises here appends a
footnote, which states: "Hardly any philosopher had a more
universal familiarity with various branches of contemporary
knowledge than Bergson. Yet a casual remark in his last great
book clearly proves that Bergson was completely ignorant of the
fundamental theorem of the modern theory of value and
exchange" (Human Action, New Haven, 1963, pp.
Once more, I do not regard this citation as settling the
question of influence. But when Mises goes out of his way to
stress the ignorance of philosophers about economics, it is the
height of ignorant fatuity to treat it as uncontroversial that
Mises was influenced by them when he worked out his views on the
foundations of that discipline.
Fortunately, much of the book is better than its introduction.
The first section, on methodological individualism, is well worth
reading. Peter Boettke convincingly shows that Geoffrey Hodgson
has a misleading, "atomistic," view of Austrian method.
Austrian economists do not assume that individuals have fixed
preferences, immune to mutual influence. On the contrary, the
Austrian approach stresses intersubjectivity, a point Prychitko
also ably deploys against Steven Lukes and Michael Simon.
"If our goal as social scientists is to understand human
action, then individual consciousness must be given primacy. And
perhaps the best defense is that it works" (p. 13).
But at one point the papers in this section seem to me
seriously incomplete. Boettke and Prychitko, and Gary Madison as
well in his interesting paper on Hayek, rightly stress
intersubjectivity in their accounts of the Austrian position. Yet
at least the former two authors seem to assume that this point
suffices to refute the claim of methodological collectivists, or
holists, that at least some social facts cannot be fully
accounted for by reference to individual action. Boettkes and
Prychitkos essays suffer from an insufficient diet of examples.
Philosophers such as Alan Garfinkel and Maurice Mandelbaum have
advanced much more sophisticated defenses of holism than the
crude fallacies our authors unmask. I venture to suggest that
they would find, in particular, Margaret Gilberts On Social
Facts a much tougher nut to crack.
In earlier reviews, I have from time to time had a few mild
words of rebuke for Don Lavoie. His essay in the present
collection, "The Market as a Procedure for the Discovery and
Conveyance of Inarticulate Knowledge" strikes me as much
better than his essays in the Elgar Companion and
The Market Process. His argument fails, but at least he does
not fall flat on his face.
Perhaps the key to his relative success lies in the fact that
much of his essay deals with economics, a subject which, in
contrast to philosophy, he knows something about. In his essay,
Lavoie considers an attempt by several market socialist
economists to circumvent the Mises-Hayek socialist calculation
argument. In response to the claim that a Central Planning Board
cannot gather the relevant information needed to guide a complex
economy, Leonid Hurwicz and others "have designed procedures
that assume that the knowledge available to each participant is
strictly localized" (p. 121).
In these schemes, plant managers tell the Central Planning
Board how much they would produce, and with what techniques, at
various prices. The CPB, using complex mathematical techniques,
can use the information it obtains from the firms to generate a
set of efficient prices.
I found Lavoies description of the market-socialist models
clear and informative. But once again resort to philosophy spoils
what could have been an excellent paper. In response to the
models just described, Lavoie appeals to tacit or inarticulate
knowledge. People often possess knowledge they cannot state in
words: they know how to drive a car, or for that matter how to
walk, without being in any way able to state the complicated
rules their actions follow.
Lavoie uses tacit knowledge to respond to the market
socialists in this way: "The plant manager must be able to
say which production technique, including specific quantities of
all the inputs needed, he will use for any of the configuration
of tentative prices suggested to him at each iteration of the
dialogue. I do not believe a plant manager can do this" (p.
Unfortunately, Lavoie offers no reason for this claim. Market
socialists will hardly be inclined to accept his view of the
abilities of plant managers on his mere say so. Surely Lavoie
would ordinarily have noticed so obvious a hole in his argument.
What I suggest has happened is that he has been so fascinated by
his pet philosophical idea, learned from Michael Polanyi and
Hayek, that he thinks merely to invoke it suffices to make good
his argument. Just say "tacit knowledge" three times,
as fast as you can, and you may bid socialism good-bye.
Whatever its failings, Professor Lavoies essay is a veritable
masterwork when compared with "Ludwig Lachmann and the
Interpretive Turn in Economics: A Critical Inquiry into the
Hermeneutics of the Plan," by our old friend David
Prychitko. This essay, the last in the book I shall consider, is
a model of how not to carry on a philosophical argument.
Prychitko praises Ludwig Lachmann as a pioneer in the
application of hermeneutics to economics. "Because economics
is (or should be) a science that seeks to render the social world
intelligible by reference to plan-guided actions, Lachmann claims
that economics is in a unique, perhaps even envious [sic]
position, compared to the natural sciences" (p. 95). In
attempting to understand individual plans, the economist should
act like a scholar interpreting a text. Just as a reader attempts
to discern what an author meant to say, so must the social
scientist attempt to understand human actions by discerning the
plans that underlie them.
Though appreciative of Lachmanns efforts, Prychitko finds them
lacking. Lachmann found it difficult to account for the
unintended consequences of action. How could he deal with the
unplanned results of action, when his method of interpretation
confined him to actors mental plans?
Lachmanns error stems from his resort to an outdated
hermeneutics. In contrast to the classical hermeneutics of
Dilthey, on which Lachmann relied, "the phenomenological
hermeneutics of Hans-Georg Gadamer and Paul Ricoeur argues that .
. . meaning does not reside in the original intention of the
author or actor. Meaning, for them, is a mutual relationship
between scholars and the historical actor under observation"
(p. 99). Since the new theory does not equate meaning with
original intention, it is much better equipped to handle
unintended consequences. Here lies salvation for the Austrian
Whether Gadamers account of interpretation is correct is a
matter I cannot now discuss. In my view it is not, but this is
neither here nor there. Rather, the difficulty for Prychitko is
that he has failed completely to give any reason why Gadamers
position ought to be accepted as an account of textual
interpretation. Lavoie assumed one controversial premise without
support. Prychitko asks us to accept an entire philosophical
system on faith.
Though I cannot realistically hope that so eminent a scholar
would take account of my remarks, I nevertheless wish he would
somewhere address this point: So what if Gadamer says a, b, and
c. Why is this a reason for anyone else to adopt a, b,
and c? Prychitko seems utterly lacking any conception of what a
philosophical argument consists of: he thinks a brief report of
someones views suffices to make a case for them. It does not.