Economic calculation and instruments of interpretation

Originally published in The Review of Austrian Economics

Entrepreneurs must cope with uncertainty in attempting to mutually orient their expectations and plans with others in the market. Prices provide a useful means of orientation when used to calculate the expected and realized profitability of alternative courses of action. Although a functionalist account of rational calculation is useful for demonstrating the impossibility of rational calculation in the absence of several property, such accounts often ignore the importance of interpretation as entrepreneurs determine the meaning of cost estimates and market prices and calculate the expected and realized profitability of their actions. We offer an approach to understanding entrepreneurship that highlights the critical role that interpretation plays in economic calculation. Because economic signals, such as profits, do not unambiguously signify which course of action to take, their meanings must be interpreted. Entrepreneurs rely on instruments of interpretation to understand ambiguous signals.

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