Economics and hermeneutics

Hermeneutics has become a major topic of debate throughout the scholarly community, in sociology and social theory, political and legal philosophy, the philosophy of art and literature, theology, the philosophy of history, anthropology, and the philosophy of science. What has been called the ‘interpretive turn’ has not only led to interesting new approaches in each of these disciplines, it has helped to forge an interdisciplinary language that is transforming the divided disciplines by bringing them closer together.

Yet one of the largest and most important social sciences, economics, has so far been almost completely left out of the transformation. A yawning gap continues to divide scholars in economics from the growing hermeneutics literature. Economics and Hermeneutics takes a significant step toward rectifying the situation, introducing scholars on both sides of the divide to ways that hermeneutics might help economists address some of their most important problems.

The essays are not philosophical commentaries from the outside of economics, but substantive contributions to economics. Among the topics addressed are entrepreneurship, price theory, rational expectations, monetary theory, welfare economics, and economic policy. The approaches to economics represented include the Austrian school, which has strong historical roots in continental philosophy, McCloskey’s ‘rhetoric’ approach, Marxian critical theory and institutionalism.

Don Lavoie is editor of the journal Market Process and a member of the editorial board of History of Political Economy. His publications include Rivalry

and Central Planning: The Socialist Calculation Debate Reconsidered (CUP 1985), and he is one of the leading contemporary contributors to the Austrian school of economics. His research interests include the history of Marxian and market-socialist theories of socialism and the methodology of economics.

Of related interest from Routledge:

The Philosophy of Economics Subroto Roy

The History and Philosophy of the Social Sciences Scott Gordon

The Methodology of Economic Model Building Lawrence Boland

Social Theory as Science Russell Keat and John Urry

The Idea of a Social Science and its Relation to Philosophy Peter Winch

Economics and hermeneutics

Edited by Don Lavoie

London and New York

First published 1990 by Routledge

11 New Fetter Lane, London EC4P 4EE

This edition published in the Taylor & Francis e-Library, 2005.

“To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”

Simultaneously published in the USA and Canada by Routledge

a division of Routledge, Chapman and Hall, Inc. 29 West 35th Street, New York, NY10001

© 1991 Don Lavoie

All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

British Library Cataloguing in Publication Data

Economics and hermeneutics.

1. Economics. Role of in hermeneutics I. Lavoie, Don 1951–

330i

ISBN 0-203-98313-0 Master e-book ISBN

ISBN 0-415-05950-X (Print Edition)

Library of Congress Cataloging in Publication Data

Economics and hermeneutics / edited by Don Lavoie. p. cm.

Includes bibliographical references and index. ISBN 0-415-05950-X (Print Edition)

1. Economics—Philosophy. 2. Hermeneutics. I. Lavoie, Don.

HB72.E268 1991 90–8818

330 .01— dc20 CIP

In memory of Ludwig M.Lachmann

1 February 1906–17 December 1990

Contents

	Acknowledgements	viii
	Notes on the contributors	x
1	Introduction	1
	Don Lavoie
Part I What is hermeneutics?
2	Towards the native’s point of view: the difficulty of	17
	changing the conversation
	Arjo Klamer
3	Getting beyond objectivism: the philosophical hermeneutics	32
	of Gadamer and Ricoeur
	G.B.Madison
Part II Alternative views of economics from a particular philosophical
	standpoint: hermeneutics ‘appropriated’ by neoclassicism,
	institutionalism, critical theory, and Austrian economics
4	Storytelling in economics	59
	Donald N.McCloskey
5	The philosophical bases of institutionalist economics	74
	Philip Mirowski
6	The scope and goals of economic science: a Habermasian	111
	perspective
	Jon D.Wisman
7	Austrian economics: a hermeneutic approach	132
	Ludwig M.Lachmann
Part III Alternative views of hermeneutics from a particular economic
	standpoint: the controversy in the Austrian school
8	Practical syllogism, entrepreneurship, and the invisible	146
	hand: a critique of the analytic hermeneutics of G.H.von
	Wright

Uskali Mäki

		vii
9	What is a price? Explanation and understanding (with	174
	apologies to Paul Ricoeur)
	Richard M.Ebeling
10	The economics of rationality and the rationality of	192
	economics

Ralph A.Rector

Part IV Hermeneutical reason: applications in macro, micro, and public policy

11	On the microfoundations of money: Walrasian and	235
	Mengerian approaches reconsidered in light of Richard
	Rorty’s critique of foundationalism
	Randall Kroszner
12	Self-interpretation, attention, and language: implications for	258
	economics of Charles Taylor’s hermeneutics
	Lawrence A.Berger
13	What a non-Paretian welfare economics would have to look	281
	like
	Tyler Cowen
14	The hermeneutical view of freedom: implications of	295
	Gadamerian understanding for economic policy
	Tom G.Palmer
	Index	316

Acknowledgements

On March 28, 1986 the Center for the Study of Market Processes, an Austrianschool oriented research and education centre in the George Mason University economics department, ran a conference at GMU on ‘Interpretation, Human Agency and Economics’. The idea for this book was conceived at the conference, and first drafts of three of its essays, those of Lachmann, Ebeling, and Madison, were written for it. On the momentum of that occasion, I commissioned most of the other essays to fit together into an overview of the sorts of issues the conference had raised. Although I was listed as the conference’s director, its success was as much due to a group of graduate’s students I worked with: Ralph Rector, Dave Prychitko, Pete Boettke, and Steve Horwitz. Together we had just formed a readings group which we called the Society for Interpretive Economics, and weekly meetings were held to discuss the possibilities of applying hermeneutical philosophy to economics. The group has continued to meet every week ever since, with a growing participation of graduate students, and over the past two years has been co-directed by Arjo Klamer and me. Throughout its existence, the group has shaped and inspired my own thinking about interpretive economics, and all of the participants should be thanked.

I am deeply grateful to the late Professor Lachmann, one of my teachers at New York University, who had the most to do with my own intellectual development in general, and who turned my thinking in a hermeneutical direction. Richard Ebeling alerted me to the literature of contemporary hermeneutics, for which I will be forever in his debt. I thank Jack High, director of the Center for the Study of Market Processes, for supporting me in this project. It is Jack, as well as Rich Fink, the founder of the Center, to whom I owe the most thanks for having created an intellectual home for me where extraordinary projects, such as the Society for Interpretive Economics, could be launched. The atmosphere of enthusiasm and openness that has been cultivated at the Center is rare in the scholarly world, and is extremely difficult to create and maintain.

All but three of the essays have not been previously published. Donald N.McCloskey’s contribution was published in a somewhat different form in Christopher Nash (ed.) (1989) Narrative in Culture, London: Routledge, pp. 5–

ix

22. Much of Philip Mirowski’s chapter was previously published in the Journal of Economic Issues 3 (Sept. 1987): 1001–38. Lawrence A. Berger’s chapter is a revised version of a paper entitled ‘Economics and Hermeneutics’ published in

Economics and Philosophy 5 (1989): 209–33.

The book’s publication has undergone an evolutionary history too complex to detail, but I should mention Thomas McCarthy and David Levin as having played a crucial role. Their support and encouragement for the project, as well as their specific advice on several aspects of its overall structure, made the final product possible. I also benefited greatly from comments on the manuscript from Donald McCloskey, Pete Boettke, Bob Coats, Greg Johnson, Dave Beers, and an anonymous reader. Dave Beers helped me with the final preparation of the manuscript, and prepared the index. I sincerely thank Alan Jarvis of Routledge for seeing the significance of this kind of work, and enabling it to see the light of day. Perhaps most of all I need to thank the contributors who put up with my urgent appeals to hurry with their drafts, and then were more patient with me than I had been with them.