1 Introduction

Don Lavoie

This book is an attempt to introduce to the reader two intellectual traditions which are at this time almost complete strangers: economics and hermeneutical philosophy. Indeed, it is probably fair to say that very few hermeneutical writers have more than a passing familiarity with economics, and that most economists have never even heard of hermeneutics.

Hermeneutics, or interpretive philosophy, is essentially a philosophy of understanding, which elucidates how it is that one person comes to understand the actions or words, or any other meaningful product, of another.1 It takes the case of reading a text as paradigmatic of all forms of interpretation, throughout the arts and sciences, and in everyday life. It would treat a painting, for example, or a price, as a ‘text’ which needs to be ‘read’.

The central point of hermeneutics might be summed up by clarifying the approach to understanding that it challenges, which might be called the ‘copy’ view. According to this view, when you read these words you are trying to reproduce as accurately as possible the original meaning I intended when I wrote them, you are trying to get an exact copy of my meaning. Human communication is implicitly treated as fundamentally similar to telecommunications. But if this was what actually happened when human beings tried to communicate with one another, then whenever there was a communication failure, our only recourse would be to send another copy, or otherwise build in some redundancy, as in computer communications. Instead, when we are misunderstood, we say it differently the next time, we explicate hidden assumptions, anticipate possible objections, deploy different examples. Our communicative process is not that of a fax machine sending a stream of bits in one direction only. Communicative partners engage with one another to discover a common understanding of a subject matter through a bidirectional, give-and-take process.

Against the copy approach, hermeneutics discusses the ‘dialogical’ process of interpretation, through which a meaning is developed out of a text by the reader’s interaction with it. Especially in the version that has been developed by Hans-Georg Gadamer, it takes the process of spontaneous interplay which occurs in a good conversation to exemplify successful interpretation. The reader of a text reads it well when he both permits the author to speak and permits himself to listen. He allows the text to speak, in the sense that he does not merely subject it

2 INTRODUCTION

to his own examination but strives to be genuinely open to the challenges it may raise against him. He also actively listens, in the sense that he does not passively receive the text’s message but needs to appropriate it for himself, relate it to what he already knows, see what it means to him.

The world is not understood by passive reception of sense data or by immediate access to objective reality in itself. It is only understood through the active participation of interpreters, who necessarily bring questions and ‘prejudices’ to the text that could not have pertained to its original context. We ‘see’ the world through our prejudices and questions, but these are best not considered distortions of an otherwise immediate reception of ‘the world as it is in itself’. Our prejudices and questions are the only means by which we can understand, they are what Michael Polanyi called ‘spectacles’ through which we can come to see the world.2 A better reading is not one that tries to reproduce the original, it is one that mediates between the horizons of the reader and the text, and integrates the text’s message with the reader’s own concerns. As Gadamer put the point, we understand differently when we understand at all.3

Hermeneutics would seem to apply to economics on two different levels: our understanding of the texts of economics; and our understanding of ‘texts’ of the economy—that is, the price movements, or monetary institutions, or industrial organization of economies, each of which is the meaningful product of human minds. We can ask how hermeneutics helps us to understand what economists are doing, and we can ask how it helps us to understand what economic agents are doing. Some of the earlier essays, in addressing the basic question of what hermeneutics is, pertain to the first level, but this book is primarily interested in the second.4 The crucial question here, then, is how hermeneutical philosophy might help us to understand the economy.

For present purposes ‘hermeneutics’ may be understood in both a narrower and a wider sense. The narrower sense refers to the specific school of German philosophy, often called ‘philosophical hermeneutics’, with which the names of Gadamer and Paul Ricoeur are associated.5 It can be traced back to the work of the German philosopher Wilhelm Dilthey, the father of twentieth-century hermeneutics, and was reshaped by the phenomenological tradition of Edmund Husserl and Martin Heidegger. In the narrower sense, hermeneutics stands for a radical philosophic position— challenging, and challenged by, the mainstream of the philosophical community.

In a wider sense, hermeneutics may be understood to refer to the many strands of ‘interpretive’ philosophy which share common ground with philosophical hermeneutics in their opposition to positivist-oriented philosophies. Such diverse writers as Thomas Kuhn, Charles Peirce, G.H. von Wright, Max Weber, E.D.Hirsch, Jacques Derrida, Charles Taylor, and Richard Rorty could all be intelligibly labelled ‘interpretive’, and, like philosophical hermeneutics, they raise radical philosophic challenges to mainstream philosophy, as well as to one another.6 Although I happen to have a strong preference for hermeneutics in the narrower sense, I have deliberately tried to include in this book a broad sampling

INTRODUCTION 3

of essays that are hermeneutical in the wider sense. While the broader notion of interpretive philosophy admittedly ignores some important differences, it underscores the elements these philosophies share with one another, and do not share with most economists.

In this wider sense, all the contributors would support a more ‘interpretive’ approach to economics than is typically permitted in the profession. Most of them are in this sense radicals, challenging the way economics is done today. The interpretive approaches are as open to non-quantitative as they are to quantitative evidence, as open to verbal modes of expression as to mathematical ones, as open to ‘close-up’ empirical research in the form of individual case studies as to statistical and econometric research involving large sample sizes.

Interest in hermeneutics has grown over the past decade—in both the wider and narrower sense—among English-speaking scholars, in a wide variety of disciplines.7 The rise of hermeneutics represents a shift of AngloAmerican philosophy towards that of Europe. Translations from the German of Husserl’s and Gadamer’s works, and from the French of Ricoeur’s, are having an impact on American philosophers. Phenomenology and hermeneutics are becoming an integral part of English-language philosophical curricula, and are not merely topics for European specialists. The ‘interpretive turn’—as Richard Rorty dubs this transformation of philosophy—has already affected many of the human sciences such as sociology, anthropology, history, linguistics, and psychology. Much of the literature considers implications for the methodology of the human sciences in general, in a way that would seem to apply to economics. So far, however, very little of it has taken up economics explicitly. In its turn, contemporary economics has for the most part simply ignored the ‘interpretive turn’.

It is important to realize that economics and hermeneutics have not always been such strangers. Most of the contributors to this volume would cite approvingly such interpretive sociologists as Max Weber and Georg Simmel, who were widely read in both the hermeneutical and economic literature of their day.8 Only a few decades ago, two of the economics profession’s leading figures were Fritz Machlup (a follower and friend of Weberian sociologist and phenomenologist Alfred Schütz and Frank Knight (who translated one of Weber’s books), both of whom were familiar with the German philosophical literature and argued forcefully for an interpretive economics. Indeed, many economists can still be found who are interpretive in their overall orientations.9 However, the rank and file of the profession—and most of its most respected leaders—are quite distant from the kind of economics which people like Machlup and Knight were engaged in. The technical training of modern economists leaves them more able than their teachers to talk to mathematicians, statisticians, and engineers, but less able to talk to interpretive historians, sociologists, anthropologists, or philosophers. Those economists who can talk to such people, and who have made explicit efforts to nudge economists in an

4 INTRODUCTION

interpretive direction, have often provoked a hostile reaction from their fellow economists.

Since economics and hermeneutics have by now grown so far apart, the questions each has about the other, at this stage, are apt to be fundamental. Each is still beginning to figure out what the other is all about, so that it is understandable that there have been few efforts yet to go very far into the details of the other’s subject matter. For this reason, the essays in this book have a certain introductory flavour, but they also aspire to getting past the introductions, and moving on to the details of the economics and the philosophy.

It is often remarked by specialists in the philosophy of economics that most practising economists retain positivistic methodological beliefs which philosophers have long ago rejected. Recently there has been a resurgence of interest by economists in the philosophy of science, but so far most of this work has involved attacks on the profession’s complacent espousal of outmoded positivistic ideas. It seems nowadays that few economists are willing to make a philosophical defence of their research on the basis of positivism (or for that matter, on any other basis), so that little is gained from another devastating critique of positivism. The case for tolerance of anti-positivistic methodological perspectives has already been made persuasively.10 What we need now is a more constructive effort in alternative directions.

The interpretive turn in philosophy does not merely replace positivistic rules of ‘proper method’ with anti-positivistic ones. Rather, it questions the role of philosophical prescription in the practices of scientists. On the other hand, most interpretive philosophers certainly do not want to refrain altogether from making informed comment on scientific practices. Implications of these philosophical ideas may ultimately require economists to substantially alter the way they do their research. Such implications for economics are best revealed not by abstract reflection on the nature of knowledge in general but in the details of actual economic research. Thus, the essays in this volume address specific problems of interest to economists in the light of ideas that come from hermeneutical philosophy. Most of the contributors are professional economists, not philosophers, and all of them have a deep respect for the human sciences in general, and economics in particular. The essays are not prescriptions from outside of economics by philosophers who see themselves as distant experts in knowledge. On the contrary, they strive to be genuinely interdisciplinary efforts to re-examine economic questions from the standpoint of hermeneutics. The case for the usefulness of hermeneutics has already been made in other disciplines with respect to their own substantive issues. It needs to be made within the discourse of economists.

WHAT IS HERMENEUTICS?

The essays in Part I represent preliminary efforts to introduce hermeneutics to economists. The paper by Arjo Klamer starts the discussion off by reflecting on

INTRODUCTION 5

the current status of economic discourse. It is no easy task to start up a discussion among economists about philosophical topics. It is useful to begin by examining this very difficulty. What is it about economics as a discipline which makes its practitioners so reluctant to examine themselves philosophically? Klamer’s paper reflects on the difficulty, suggesting that the economist’s view of rational choice is a big part of the problem. His strategy for changing the economists’ conversation about the economy is to reflect first on what economists are doing, and to observe that the rationalchoice model provides at most only a very incomplete account of what is going on in the practices of economists.11

Klamer then turns to the study of the economy itself, and argues that we have let our professional attention drift away from what Clifford Geertz calls ‘the native’s point of view’. We pay little attention to the meaning which economic phenomena have for everyday people whose actions, after all, constitute the economy. We need to come to terms with the meaning which economic processes have for everyday businessmen, civil servants, consumers, and so forth. We can also learn, of course, from exercises in the pure logic of choice, but it seems reasonable to try once in a while to actually talk to economic agents.12

The essay by Gary B. Madison suggests some specific ways in which adopting the themes of hermeneutics could improve economics. Madison first describes hermeneutics in terms of Gadamer’s work, as a matter of getting away from ‘objectivistic’ prejudices about the nature of science, and proceeds to find elements of commonality here with what the economists call the ‘subjective’ theory of value and ‘methodological individualism’. He then uses Ricoeur’s work on the hermeneutics of the subject to restate what it is economists should mean when they somewhat misleadingly call themselves subjectivists or individualists. Critics of hermeneutics often charge that it is only capable of helping our understanding of intended purposes, and cannot help us to explain unintended causal processes. Madison responds to this charge by deploying Ricoeur’s work on narrative to show how hermeneutics has its own way of dealing with causal explanation and unintended consequences.

ALTERNATIVE VIEWS OF ECONOMICS FROM A

PARTICULAR PHILOSOPHICAL STANDPOINT

Part II surveys some of the encouraging possibilities that the ‘interpretive turn’ suggests to economists from four diverse economic perspectives: neoclassicism; institutionalism; critical theory; and Austrian economics. Each supports the interpretive turn in the broad sense, though each reads its significance for economics quite differently in some respects. Despite their disagreements, these writers would all like to see their field take its own interpretive turn, to liberate this important (if dismal) social science from the inhibitions of positivism.

One of the main themes of philosophical hermeneutics is that there is, in general, more than one correct way to read a text. To understand something is to apply it to what one already knows, to make it one’s own, to appropriate it.

6 INTRODUCTION

When an economist asks the question ‘what is hermeneutics?’, then the question has already become ‘what is it to an economist?’. Understanding is a ‘fusion of horizons’ between the author and his or her reader, where what is understood is not simply copied but is integrated with what the reader already knows, and in the process changed. Moreover, the interpreter who truly wants to understand leaves himself open to being changed by his confrontation with what he is interpreting. Each of the four essays in Part II is an attempt to apply the meaning of hermeneutics to the writer’s own understanding of the economy.

Of course, each of the four schools of economics here represented is itself capable of a variety of different readings. The authors make no claim of dogmatic allegiance to the schools, but neither do they make the pretence of being purely ‘school-less’, and unconnected to any particular perspective on the world. It is one of the central points of hermeneutics to stress that we are always shaped by the intellectual traditions we come from, and that such ‘prejudices’ are not a contamination of an otherwise pure and objective view. Our prejudices need not imprison us or distort, and in fact they are what enable us to see anything at all. All that we mortals have is a variety of perspectives on the world; none of us has access to some kind of God’s-eye, objective view of the world.

Donald N.McCloskey, one of the leading contributors to the ‘Chicago’ branch of neoclassicism, elaborates on one of the central themes of hermeneutics which Madison had sketched—that is, its idea of ‘narrative’. McCloskey sees hermeneutics as helping us to recognize that most of what modern economists are already doing—despite what most of them seem to think—is fundamentally a hermeneutical exercise. In spite of the official methodological rhetoric of neoclassicism, economists are really telling stories. Drawing on the work of such hermeneutical writers as Wolfgang Iser and Hayden White, McCloskey shows the extent to which the practices of contemporary economics are already implicated in the hermeneutical act of emplotment, of interpreting economic processes as meaningful stories.13

In contrast to McCloskey’s effort to re-interpret what modern neoclassical economists are already doing as hermeneutical, Philip Mirowski emphasizes the extent to which such economists fail to be sufficiently hermeneutical—a point, by the way, with which McCloskey generally agrees. Economists, Mirowski argues, need to change not only their philosophical self-image, but many of their basic scholarly practices as well. He suggests that in the rich tradition of American institutionalism—which had been systematically squeezed out of the profession in the heyday of neoclassical positivism—can be found a far more hermeneutical approach to economics than is possible within the neoclassical mainstream. Based on hermeneutically-oriented American pragmatist philosophers, such as Charles Peirce, the institutionalists present a bold challenge to the mainstream, a challenge which the profession cannot afford to ignore. Especially in the work of John R. Commons, Mirowski shows, one can find an

INTRODUCTION 7

approach that is exemplary of the hermeneutical spirit lacking in modern economics.

Like institutionalism, the intellectual tradition of Marxian economics went into serious decline with the rise of positivism, and is now undergoing resurgency with positivism’s decline. Although orthodox Marxism is at least as far from the spirit of hermeneutical thinking as positivistic neoclassicism is, several strands of western Marxism—especially the so-called Frankfurt school—have had important ties to the hermeneutics tradition for many years. Marx himself emerges out of the same general milieu of German philosophy from which hermeneutics arises, and Georg Lukács, often called the founder of western Marxism, was significantly influenced by Wilhelm Dilthey. The work of the Frankfurt school’s leading contemporary social theorist, Jürgen Habermas, has been particularly concerned to address the issues of hermeneutics, and his classic debate from the 1960s with HansGeorg Gadamer remains among the most interesting intellectual encounters of our time.14 Unfortunately, although Habermas’s work touches on economic issues in a number of different ways, it has not specifically discussed the issue of the nature of economics as a science, nor have economists for their part dealt with Habermas’s social theory. Jon D. Wisman’s essay opens up the discussion of such issues, and shows how economics looks from a Habermasian perspective. Here one of the central themes of hermeneutics, the critique of a narrowly ‘instrumental’ view of reason, is used to introduce economics and hermeneutics to each other. Wisman shows how hermeneutics could help economists to better understand the processes of human interaction and communication taking place in the economy.

Ludwig M.Lachmann offers a view of yet another school of thought which has found important common ground with hermeneutics, the Austrians. Like western Marxism, the Austrians came out of a continental, philosophical environment which had already been influenced by traditional hermeneutics. In particular, Ludwig von Mises was substantially influenced by Dilthey as well as the interpretive sociologists Weber and Schütz. Like the institutionalists and Marxists, the Austrians were crushed by the rise of a positivistic version of neoclassicism. Lachmann elaborates on Madison’s point that the kind of ‘subjectivist’ economics which the Austrians have been trying to defend finds powerful support in hermeneutical philosophy.15

The purpose of identifying the authors by school is not to reinforce but ultimately to undermine the traditional separations among them. They obviously come from a wide variety of economic perspectives, but it is my belief that where they are going to is a largely shared destination. Standard Chicago-school economics is far distant from standard Austrian-school economics on the topic of methodology, and from standard institutionalism and western Marxism in nearly every respect, but the four essays in Part II that came from these four schools make them sound close. Here we find what Clifford Geertz (1983) calls a ‘blurring of genres’, as when Lachmann the Austrian endorses both Keynes of Cambridge and Knight of Chicago. Undoubtedly, important divisions exist in the