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Heidegger, who fathered phenomenological hermeneutics, had already insisted that ‘if we posit an “I” or subject as that which is proximally given, we shall completely miss the phenomenal content of Dasein [human existence]’ (Heidegger 1962, p. 72).

Mises was clearly being overly sanguine when he said that: ‘The endeavors of psychology to dissolve the Ego and to unmask it as an illusion are idle’ (Mises 1963, p. 44). Anti-humanism, the ‘demise of subjectivity’, and the ‘death of man’ are themes which have never been so alive and flourishing as they are today on the postmodern, poststructuralist, deconstructive philosophical scene.17

EXPLANATION/UNDERSTANDING

If economics is to make an effective move beyond objectivism, it must abandon subjectivism as well, taking this term in its phenomenological sense. One of Gadamer’s contributions to hermeneutics in this connection is the way he has called into question Dilthey’s dichotomy between the Naturwissenschaften and the Getsteswissenschaften. To Gadamer’s mind, Dilthey’s dichotomizing distinction is simply a relic of Cartesian dichotomous dualism (mind/matter, man/ nature, subjective/objective) which has infected all of modern thought and which needs to be overcome.18 Thus, from the point of view of phenomenological hermeneutics, one would not want to say, with Dilthey, that while the natural sciences aim at universal patterns and adopt a view ‘from the outside’ (‘explanation’, in Dilthey’s terminology), the social sciences seek to understand individual events, ‘from the inside’ (‘understanding’), as if the goal here were merely to penetrate empathetically into the minds of individual human actors. There are undoubtedly implications in this for economics. I wonder for instance if there is not perhaps an element of Diltheyian methodological dualism in some neoclassical thinking (reflected in the very adoption of the contrary term to ‘objectivism’—namely, ‘subjectivism’) which economics might do well to divest itself of.

Economics has long been looked upon as one of, if not the most, ‘exact’ of the human sciences. This is because the phenomena it deals with readily lend themselves to treatment by means of explanatory, ‘objective’ techniques— statistical, arithmetic calculation. While some schools such as the PostKeynesian, Institutionalist, Marxist, and Austrian have shunned the mathematical approach, this has not prevented others from making the utmost use of it—and from being rewarded with Nobel prizes for their efforts. And yet the ‘explanatory’ approach—the Natural Science Ideal— would seem to be inappropriate if economics, by reason of its subject matter, is not a natural but a human science. We seem to be confronted with a dilemma here: either economics is an ‘objective’, ‘positive’ science dealing with quantitative magnitudes by means of statistical techniques which give rise to testable hypotheses (in which case there is no need for ‘interpretation’); or, economics, dealing as it does with meaningful action on the part of human beings, is a

WHAT IS HERMENEUTICS? 43

hermeneutical, interpretive discipline and should thus renounce the use of formal, quantitative models and the attempt to construct ‘objective’, causal explanations. Is there anything to be found in philosophical hermeneutics which might suggest a way out of this dilemma? I believe there is.

The explanation-versus-understanding debate has been going on for numerous decades. It is an issue which Ricoeur has greatly concerned himself with, and what he has sought to do is to overcome the dichotomy by situating ‘explanation’ within the wider compass of ‘understanding’. This, it seems to me, is the tactic that must be followed if, on the one hand, one wishes to allow for the legitimacy of purely objective, explanatory techniques in the human sciences (and there is every reason to do so, since they do enable us to make social phenomena somewhat more intelligible— though nothing to the degree that some of their more outspoken advocates would have us believe) but if one also, on the other hand, wishes to safeguard the specificity of what is human and resist the reductionistic, dehumanizing results which invariably ensue when the explanatory approach is accorded either a methodological monopoly or a methodological priority.

In the case of textual interpretation—the paradigmatic instance of hermeneutical understanding—the ultimate goal is understanding, appropriating for ourselves the meaning of the text, explicating the understanding of what it means to be in the world that is unfolded in and through the text. Purely explanatory techniques do have their legitimate place in the overall interpretive process; they form one segment of what Ricoeur calls the hermeneutical arc (see Ricoeur 1981b). For instance, in the initial stage of textual interpretation one may find it very useful to analyse the text in terms of its formal organization, its internal relations, its structure. Structural and semiological analyses as well as computer analysis of word distribution here play a role analogous to that of statistics and algorithmic procedures in economics. Explanatory techniques are a hindrance to an understanding of the ‘deep meaning’ of a text—its existential significance—only if we allow ourselves to believe that they are an adequate substitute for ‘interpretation’. (In addition, it must not be forgotten that explanatory, ‘empirical’ data are not neutral and ‘value-free’; they are themselves products of interpretation. For example, one must first program the computer to ask the ‘right’ questions—a crucial phase in the interpretiveunderstanding process which is usually never explicitly thematized as to its hermeneutical significance by the practitioners of objectivistic explanation.)

If, to speak like Ricoeur, we were to view meaningful action on the model of the text,19 it seems to me that there might well be significant implications in the explanation/interpretation problematic for economics. As this problematic applies to economics, one might be tempted to adopt the following position: saying that the usual mechanistic models are sufficient for dealing with most of the classic economic issues and that they need simply to be supplemented by a more ‘interpretive’ approach in other areas, such as entrepreneurship, where their limitations are painfully obvious. One might say, for instance, that an interpretive

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economics does not oblige us to reconsider traditional, orthodox, quantitative economics; that the important things it has to say about, for instance, entrepreneurship can simply be incorporated into the general body of existing economic ‘knowledge’. I think that one of the implications of hermeneutics for economics is that this would not be a satisfactory tactic to adopt.

If, as I have argued, the important thing from a hermeneutical point of view is to situate purely explanatory techniques within the wider compass of interpretive understanding (so as to avoid unacceptable methodological dualism), then we should not view the limits of the explanatory approach as merely, somehow, external but rather as essentially internal. In other words, we need to recognize that, even in regard to those phenomena to which purely explanatory techniques can be legitimately applied, and in regard to which they have a certain explanatory usefulness, the intelligibility that they provide is none the less essentially partial and one-sided. The phenomena themselves cannot properly be understood, in the last analysis, until the results of the explanatory approach are integrated into a wider, interpretive understanding.

A suitable example could perhaps be found in monetary theory. Milton Friedman has criticized the monetary policy of the US government and the Federal Reserve for its ‘erratic’ approach to the control and manipulation of the money supply. The solution to the problem of inflation, he has argued, would be to mandate a fixed rate for monetary growth, one which would be implemented automatically and which could not be altered arbitrarily by government or by the Federal Reserve Board. The logical implication would seem to be that we should dismiss those human beings who constitute the Board of Governors of the Federal Reserve and install in their place a pre-programmed computer.20 From what I have said above, it follows that a purely objectivist approach such as this is open to criticism. The criticism of Friedman’s position that has in fact been voiced by Henry Hazlitt is of a properly hermeneutical sort. In answer to the question, ‘Why don’t you consider the type of monetarism espoused by Friedman and Meltzer to be an adequate response to Keynesianism?’ Hazlitt replied:

The monetarist outlook, as proposed by Milton Friedman is, in fact, a mechanical quantity theory of money. He assumes that ‘the’ price level that is to say, an average of prices—will rise proportionately to the amount of paper money that is issued. That can happen for a certain period, but the value of money is not determined mechanically and proportionately with the amount issued. It is determined by public psychological forces. A panic can break out when people suddenly expect the value of money to collapse. That was illustrated by the German inflation of 1920 to 1923. Prices rose for a time roughly proportional with the amount of money issued. But suddenly prices soared far faster than the money supply because the public got panicky. It is psychologic forces that determine the

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value of money as of other commodities, although influenced, of course, by quantitative considerations.

(Hazlitt 1984, p. 4)

Money seems to be one of the most concrete, ‘objective’, mundane of things— the ideal object for an exact, quantitative science on the Natural Science Model— and yet it is one of the most specific and irreducible of human things. Only man engages in economic activity, and only man makes use of that thing called ‘money’. The epitome of money, gold (whose sole use as an ‘objective’ measure or ‘standard’ of value some economists advocate today as the solution to all our problems), has absolutely no objective value in itself (except within strictly delimited areas—such as for the maker of large-scale, glittering church icons who wants to depict symbolically the radiant glory and splendour of the divine; or for the engineer designing a new computer who finds gold to be a superb conductor of electricity). As a measure of value, however, gold is not natural but ‘artefactual’, purely human and ‘subjective’. From an economic point of view, there is no ‘objective’ difference whatsoever between gold and glass beads, where both are used as general media of exchange. Money is not an ‘objective’ entity and cannot be controlled in a merely ‘objective’ fashion.

I have said that human phenomena cannot properly be understood until the results of the explanatory approach are integrated into a wider, interpretive understanding. In his latest work culminating in his three-volume study, Temps et récit, Ricoeur has argued that the attempt to understand what is specifically human (and economics, let us not forget, is nothing if it is not a study of what is specifically and irreducibly human) necessarily assumes, in the final analysis, the form of a narrative account, a récit (Ricoeur 1984 and 1985). ‘Objective data’ (that is, the data that are produced as a result of the application of objective measuring techniques) achieve their maximum intelligibility not when, as is the goal of the natural sciences, they have been subsumed under (supposedly) universally binding and timeless ‘covering laws’ (whose putative purpose is that of ‘explanation’ and ‘prediction’) but when—only when—as in history or psychotherapy, they have been interrelated and integrated into a narrative account, one which, precisely, confers meaning on them through narrative emplotment. The most primordial of all forms of understanding is indeed that of storytelling. Ricoeur writes:

to follow a story is to understand the successive actions, thoughts and feelings as displaying a particular directedness. By this I mean that we are pushed along by the development and that we respond to this thrust with expectations concerning the outcome and culmination of the process. In this sense, the ‘conclusion’ of the story is the pole of attraction of the whole process. But a narrative conclusion can be neither deduced nor predicted. There is no story unless our attention is held in suspense by a thousand contingencies. Hence we must follow the story to its conclusion.

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So rather than being predictable, a conclusion must be acceptable. Looking back from the conclusion towards the episodes which led up to it, we must be able to say that this end required those events and that chain of action. But this retrospective glance is made possible by the teleologically guided movement of our expectations when we follow the story. Such is the paradox of the contingency, ‘acceptable after all’, which characterises the understanding of any story.

(Ricoeur 1981a, p. 277)

All of this has direct and important implications for economic ‘explanation’ (i.e., understanding). The interpretive economist Don Lavoie has taken note of some of these implications. After remarking that:

History is in this view not an attempt to find quantitative covering laws that fully determine a sequence of events, but an attempt to supply a qualitative interpretation of some part of mankind’s ‘story’. The whole purpose of the theoretical social sciences (including economics and accounting research) is to equip people with the capacity better to distinguish acceptable from unacceptable historical narratives.

Lavoie goes on to say:

What we find ourselves doing in the social sciences is not so much the testing of ex ante predictions but is more of the nature of what the Austrian economist F.A.Hayek calls an ex post explanation of principles. The only ‘test’ any theory can receive is in the form of a qualitative judgment of the plausibility of the sequence of events that has been strung together by narrative. Theoretical sciences can supply the principles of explanation but only the historical narrative can put these principles to work and establish their applicability and significance in the specific concrete circumstances under investigation.

(Lavoie 1987, pp. 595–6)

It is interesting to note as well that the ‘method of methodological individualism’, as Lachmann describes it, displays the characteristic form of storytelling Ricoeur describes. The method, Lachmann says, has two aspects to it, a ‘forward-looking’ one and a ‘backward-looking’ one. On the forwardlooking side, which is what Hayek called the ‘Compositive Method’, one seeks to show how a ‘general equilibrium’ (Lachmann himself is careful to place this term within quotation marks) results from the interaction of the plans and purposes of many individuals—or fails to so result. Here one seeks to determine what are the implications of a number of plans simultaneously carried out. It is important to note, however, that although one appeals to principles here and seeks to determine what is the likely outcome of a course of action, the compositive method most definitely eschews any attempt at making predictions in the usual