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Book ReviewsArjo Klamer aa Erasmus UniversityPublished online: 28 Jul 2006.

To cite this article: Arjo Klamer (1999) Book Reviews, Journal of EconomicMethodology, 6:1, 145-147, DOI: 10.1080/13501789900000010

To link to this article: http://dx.doi.org/10.1080/13501789900000010

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Book reviews 145

This seems right to me for reasons that follow directly from my earlier argument (so confirming, I hope, its value). Thus, in general, participatory institutions create a requirement where people must agree and this will typically involve elements of both coordination and bargaining games, whereas hierarchic decision-making structures typically do not because they substitute an individual decision-maker for that of the group. I would only add that while participation creates scope for discussion there are many more institutions in society, like those of the mass media and higher education, which have historically also promoted discussion and which public policy needs to address in this respect.

There is what seems to me a large and difficult issue with respect to public policy regarding such discursive institutions. It can perhaps be best expressed in terms of a tricky trade-off between institutional accountability and the scope that exists for discussion. In a sense this is the analogue at the level of institution design of the 'crowding-out' problem for the individual. The more discursive institutions are rendered accountable through performance indicators of one lund or another, the more likely is the discussion to be restricted to how best to achieve those indicators. Yet this must undermine their value. We need discursive institutions to supply a vocabulary for the evaluation of the indicators themselves and when those institutions are given over to performing according to the indicator's lights then the game is up. This will either be an obvious point or, if it is not, then all I can say in the space available is 'read Jonathan Coe's book'. I hope it will be obvious from what I have said that the same recommendation applies to Bruno Frey's latest work.

Shaun l? Hargreaves Heap University of East Anglia

OPPORTUNITIES IN HERMENEUTIC ECONOMICS A review of David L. Prychitko's Individuals, Institutions, Interpretations: Hermeneutics Applied to Economics, Brookfield: Avebury, 1995.

Hermeneutics is no doubt a most meaningful philosophical backdrop for the study of human action. Hermeneutics, after all, calls attention to the complexities of human action, and in particular the intricacies of meanings that human action generates. It asks us to read social realities as if they were texts. Until modernism came to dominate the mindset of economics, economists more or less followed hermeneutic guidelines, even if they did not use the term. Adam Smith, to name just one, reflected upon human actions in commercial society and gave them meanings by placing them in a historical and social setting. With the arrival of modernism economists began to think in terms of models, functions and exogenous variables. A modem economist needs to understand mathematics, not people. He needs to be able to 'read' equations and statistics, not texts.

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146 Book reviews

A foursome of economists and one philosopher are campaigning with this book for a re-evaluation of hermeneutics in economics. They want us to see people as intentional beings, not calculators, and want to bring homo economicus back to life by pointing at the multiple meanings that he generates in his actions. The point is, so they claim, to understand what humans do and why. They call upon oldies like Dilthey and Weber but obviously have also invested in contemporary philosophers like Charles Taylor and Hans-George Gadamer. Their heroes among economists are Ludwig von Mises, Friedrich Hayek and Ludwig Lachmann, but also Thorstein Veblen and Max Weber. The Austrian connection is obvious. This book is a sequel to Hermeneutics and Economics edited by Don Lavoie (1990). The editor is David L. Prychitko, a student of Lavoie.

These hermeneuticians clearly row against the stream. As Austrians they do not only have to deal with that overbearing monster of neoclassical economics but also with suspicions in their own, relatively small camp. Maybe that is the reason that much of the book aims at motivating a hermeneutic approach to economics. The focus is on what hermeneutics will do to economics as a science rather than on actual hermeneutic studies of economic realities such as, say, the housing market or the flows of international capital or the integration of Europe.

After a brief and useful introduction by Prychitko that answers the question 'Why hermeneutics?', three essays address the issue of methodological individualism. The main thrust of the argument is to distinguish Hayek's individualism from neoclassical individualism and to counter the critique that Hayek's individualism denies the importance of social entities. In an interesting essay the philosopher Madison reveals the hermeneutics in Hayek's work: Hayek's individuals turn out to be the interpretative and social beings that hermeneuticians imagine humans to be.

The second part addresses institutions. Very helpful is the essay by Peter Boettke. It first traces the decline of interpretative reasoning in economics and then explores human action as meaningful action. Again Hayek proves to be an important guide. According to Boettke the main question of interpretative economics is: 'How is economic coordination possible?' (The interpretative sociologist would rather ask, with George Simmel: 'How is society possible?') An essay by Ebeling explores in a hermeneutic way market processes. It is a first indication how the perspective of economists is to alter if they look at the world through hermeneutic glasses. His question deals with the question how people who trade with each other in anonymity, are able to interpret each other. Ebeling's answer is that market processes presume a common understanding, which usually is expressed in so-called typifications that every one of us uses when we are dealing with people we do not know. In the next essay Prychitko takes Lachmann to task for not having carried the hermeneutic programme through.

The final three essays focus on interpretations of market processes. Lavoie

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shows once more how crucial the role of knowledge is in the market and draws an interesting analogy with science. Ebeling pursues this theme further, stressing the interpretative abilities of economic agents. As may be expected he has little patience for rational expectations and other such constructs that have been introduced to salvage neoclassical economics. Finally, Steven Horwitz argues that a lot can be gained in monetary theory if we consider money as a language.

I can recommend this collection of essays to anyone interested in Austrian economics, hermeneutics and in general the methodology of economics. The hermeneutic approach that is presented here might prove to be a refreshing alternative to the usual fare. At the very least the reader will be introduced to a new literature. Yet, the volume tastes likes more. As far as I am concerned the authors have made a good philosophical case for the hermeneutic or interpretative approach (then again, I was sold already), but now the real work needs to start. To be really convincing interpretative economists need to turn their attention to actual markets and, possibly by means of a careful ethnographic type of research, show how those markets actually work.

Arjo Klarner Erasmus University

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