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The Mises Review

Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.

Individuals, Institutions, Interpretations: Hermeneutics Applied to Economics

David Prychitko

1 1996
Volume 2, Number 1

A Strange Brew

Spring 1996

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 comments.

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" (pp. 2-3).

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 evidence.

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. 32-33).

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. 123).

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 school.

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.

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