Amartya Sen's capability approach to development considers individual agency as central in promoting human well-being. The paper argues that the capability approach would need to include more explicitly collective and historical dimensions in order to offer better insights for understanding the process of development. The paper begins by briefly discussing Amartya Sen's conception of development as freedom and the role it grants to individual agency. It then proposes a hermeneutical approach to development. This approach emphasizes that actions are to be interpreted in order to uncover the meaning for which they have been carried out. It suggests that a methodology for such interpretation can be found in a dialectic process between the socio-historical reality and the way individuals appropriate that reality. The Costa Rican case study illustrates that it is the outcome of that dialectic which sets the background against which people exercise their individual agency, and the extent to which this leads to the promotion of human well-being.