I got asked over email by a reader what I thought about hermeneutics and how it applies to economics. Personally, I have not read too much on the subject, but I think I know enough about it to generally comment on it. I have read some articles on it but the one book, actually a collection of articles, that I have read that provides a good amount of information on the subject is Economics and Hermeneutics edited by Don Lavoie, which the book is dedicated to Ludwig Lachmann. It also contains one of Lachmann’s last essays (maybe the last?) “Austrian Economics: A Hermeneutic Approach.”
I really have mixed feeling about this. If I was to come up with an example it would be that of a Post Keynesian (PK) viewing MMT. MMTers, for example, don’t consider themselves radicals of the PK school but PKs that don’t fully agree with MMT think otherwise and thus, feel it is necessary to make a distinction between PK and MMT.
In a similar fashion, hermeneutians claim that they are not too far off what Austrian framework is all about. Many would claim that the Austrian framework is indeed a hermeneutic framework, given its strong appeal to Max Weber. Lavoie even claims that Mises’ aprioriism should reinterpreted to appeal to a hermeneutic perspective. Lachmann even makes the claim that there are many who do not know they follow the hermeneutic philosophy, such as Shackle, Knight, and Keynes, given passages:
Ultimate unifying simplicity is the aim or the dream of natural science in a sense which is not permissible for the study of human affairs. For the disciplines which envisage human conduct, policy, history and institutions, or art in all its forms, are directly and essentially concerned with the manifestations themselves, the manifoldness, the richness and the detailed particular variants and individual facts of these facets of humanity, rather than with dismissing them as the contingent outcomes of some original, general and essential principle which it is the real purpose of science to identify. The science of Nature and the science of Man stand in some sense back to back, the one looking inward at the Origin and the other outward at the Manifestation – Shackle
The whole subject matter of conduct—interests and motivation— constitutes a different realm of reality from the external world, and this fact gives to its problems a different order of subtlety and complexity than those of the sciences of (unconscious) nature. The first fact to be recorded is that this realm of reality exists or ‘is there’. This fact cannot be proved or argued or ‘tested’. If anyone denies that men have interest or that ‘we’ have a considerable amount of valid knowledge about them, economics and all its works will simply be to such a person what the world of color is to the blind man. But there would still be one difference: a man who is physically, ocularly blind may still be rated of normal intelligence and in his right mind. Second, as to the manner of our knowing or the source of knowledge; it is obvious that while our knowledge (‘correct’ observation) of physical human behavior and of correlated changes in the physical objects of nonhuman nature plays a necessary part in our knowledge of men’s interests, the main source, far more important than in our knowledge of physical reality, is the same general process of intercommunication in social intercourse—and especially in that ‘causal’ intercourse, which has no important direct relation to any ‘problem’, either of knowledge or of action—which has been found to play a major role in our knowing of the physical world. – Knight
It is, I think, a further illustration of the appalling Scholasticism into which the minds of so many economists have got which allows them to take leave of their intuitions altogether. Yet in writing economics one is not writing a mathematical proof or a legal document. One is trying to arouse and appeal to the reader’s intuitions; and if he has worked himself into a state where he has none, one is helpless.
I also want to emphasize strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values. I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it was worthwhile falling to the ground, on whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the center of the earth – Keynes
Indeed, these are passages that demonstrate their subjectivist side. There is indeed room for subjectivity to be talked about in economics, this is not metaphysical jargon as some critics might claim. It is an empirical observation of the real world. Human action implies a means-ends framework, thus implying choices (cost and decisions) that can only be explained subjectively. We cannot measure these costs and the decisions made by these actors. The way we can make human action intelligible is strictly by the means-end framework, and our interpretation of the action, which of course, may be highly likely that there will be different interpretations of the same action.
If this is what hermeneutians mean by applying this philosophy to economics, then I guess I am one. But what makes this different than looking at economics through a subjectivist lens?
It’s different in the sense that hermeneuticians stress that when authors write a text, that they should be analyzed separately. As David Prychitko states*, the ideas of the text should be analyzed, given what knowledge we have today. he uses the example of the invisible hand, famous by Adam Smith, and suggests that the meaning of the invisible hand may indeed be different than what the author intended its meaning to be. But what is the purpose of this? To justify, for example, that the invisible had may be an example of unfettered markets? I am, for one, against the claim that we should analyze the text minus the author. Indeed, the invisible hand example quite needs to be under the context of what the author intended it to mean. Considering the author with the text is important.
Hermeneutics originated in trying to interpret the bible. This philosophy might be a reason to why there are so many different interpretations of the bible. Should we look at its meaning literally, symbolically, a text in favor of science, a text completely rejecting science, etc. Indeed, one can find a Christian to defend each one of these categories. Also each one of these positions can be justified by using the hermeneutic method, by separating the author from the text. But what good does this do? We end up with more problems than we started. now this problem isn’t necessarily bad but the point is is that they give us unnecessary problems. For example, a rejection of rational expectations may gives us more problems than we started with, given that a lot of mainstream models use rational expectations. But if rational expectations weren’t introduced to begin with, it would have saved us some trouble with the nonexistence of models that depend on rational expectations
Indeed, hermeneutics is a far more radical framework than the basic Austrian framework, and thus, I think, there does need to be a distinction between subjectivists and hermeneuticians
* The Prychitko article is titled “Toward an Interpretive Economics”