The Review of Austrian Economics, 17:4, 371–386, 2004.
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
An Interpretive Approach to Meanings of Prices
OLAV VELTHUIS email@example.com
Visiting Scholar, Columbia University, Institute for Social & Economic Research and Policy,
Kuinderstraat 27-1, 1079 DJ Amsterdam, The Netherlands
Abstract. Austrian economists have repeatedly argued that the price mechanism is not just an allocative, but
also a communicative system: as a solution to the dispersed knowledge problem, prices convey meanings which
serve as guideposts to economic action. The analysis of these meanings has been restricted to economic meanings
such as proﬁt opportunities and incentives, however. In this paper I show that prices also convey social and
cultural meanings. This calls for an interpretive approach, which a younger generation of Austrian economists has
advocated. To illustrate, I provide a thick description of price setting on the market for contemporary art. I show
that collectors, art dealers, and artists communicate meaningfully via prices about issues such as the quality of
artworks or the status hierarchies which structure the art world.
KeyWords: Austrian economics, markets, meanings, art market, economic sociology
JEL classiﬁcation: A14, B52, B53, L11, Z11.
One of the characteristics of Austrian economics has been its concern with the meaning of
economic processes and entities (Hayek 1945, Lavoie 1990). Kirzner (1992) and Ebeling
(1990, 1995), among others, have addressed meanings of prices in particular, as well as the
role prices play on the market as vehicles for communication. Steven Horwitz has taken
their analysis one step further by drawing an analogy between the price mechanism and a
linguistic system (Horwitz 1995). In doing so, these Austrian economists have provided a
thorough critique of, as well as a valuable alternative to the limited conception of prices in
Meanings of prices are the central theme of this paper. In the ﬁrst section, I will brieﬂy
discuss how these meanings have been addressed in Austrian economics. In the second
section, I will argue that the Austrian perspective differs in three respects from a conventional
neoclassical perspective and from signaling theory, which emerged out of the economics
of information. The Austrian perspective is characterized by its attention for the ‘dispersed
knowledge problem’, by its view on the type of information that is communicated, and by
the interpretive approach which a younger generation of Austrian economists has advocated.
In the third section, I will argue however that the Austrian perspective does not provide a
truly interpretive approach to the price mechanism. The main shortcoming is that meanings
An earlier version of this paper has been presented at the Southern Economic Association Conference (New
Orleans, November 1999), where it was one of the winners of the Graduate Student Paper Competition of the
Society for the Development of Austrian Economics.