something that struck me one day while i was listening to sikth and playing solitaire on my piece of shit ipod loaded with fucking dope music was that there are incredibly illustrative analogies to be made between said simple card game and the incredibly complex idea of permanent, though perhaps only knowably partial (partial in the sense of marshall), disequilibrium in the capital structure. i subsequently mention that the equilibriating function of useful entrepreneurs in capital markets (as explicated by kirzner) is completely compatible with the subjective-expectations view of the capital structure as espoused by that insanely creepy sounding, yet totally-cool acid tripper known as lachmann.
now obviously anyone that likes lachmann has at least a cursory understanding of menger’s, bohm-bawerk’s, and mises’ formulations of the underpinnings of the capital structure (i exclude von wieser for a reason, though his work is pretty insightful as well, but not for the purposes here). hopefully anyone reading this has at least a mediocre modicum of knowledge of said constructions, though i optimistically suspect that some post-keynesians semi-versed in austrian and friedmanite-chicagoan literature may find a cozy theme in such metaphors for subjective-expectations with which i am about to ascribe to capital accumulation and preservation; as would chicagoan-monetarists find interesting the capital theory here that fits neatly with their conception of macroeconomics (as a fuller substitute for the typical stock-flow model).
to me, the core idea of lachmann’s subjective view of expectations lies within the inherent randomness of the structure of relative prices produced by individual valuations of economic goods, themselves ever-shifting and thus inherently “kaleidic,” organically borne out by markets through the simple but insanely useful laws of supply and demand. i hope that sufficiently explains the true randomness shown that is postulated for the sake of this whack article, but of course in opposition to axiomatically calculated (and thus only *modeled* in an anti-misesian manner) from consumer preferences.
here is where i start drawing the analogies to solitaire, that beautiful game that plainly shows the banality of predicting markets (Socialism by Mises already took a shit on such simpleton aggregation). so, let us continue, despite my drunken-yet-unintended obfuscation.
solitaire. let’s dive into it; no need to muzzle barracudas.
you start with 0/1/2/3/4/5/6 cards facedown, each covered by a single card face-up. these face-up cards can be easily said to represent readily-available capital, yet to be combined with other capital goods in the structure.
just as cards may only be placed on the next-highest card with the opposite color, so too can only certain capital be combined, and at certain stages of production, though you might have a black queen/red jack/black ten/red nine, or a red jack/black ten/red nine/ black eight/red seven, or a black three/red two/black ace, and so on; just like capital, certain groups may lead to other capital goods; others may lead to consumption goods; such as a stack that goes all the way down to an ace, which may subsequently be placed in what is called the “foundations,” where the cards are piled up by suit, starting with ace, going all the way up to king, is ultimately the core essence of capital accumulation.
now, of course, the point of the game of solitaire is to successfully rearrange all the cards to have all of them facing up, arranged by suit on the foundations, with king cards on top of all four, indicating completion of the game. for our purposes we will neglect the concept of “winning” the game of solitaire, as of course, there is no final “victory” endpoint in the process of successfully combining capital goods in the constant, kaleidic process of the morphology of the capital structure. put more simply, there is no point in which the capital structure is complete (nor permanent), so we will rather just use the foundations as a symbolic representation of successful capital combination, just as we would the stacking of opposing colored cards yet to be placed in the foundations; these are just profitable combinations of capital like those aforementioned.
so let us return to the tableau, where the cards are taken, if desired, from the stock (face-down deck); and if not, placed in the waste. what is the significance of moving a card from the stock to the tableau? the implications here are threefold:
1. the card, representing a capital good, has been found to have a subjectively useful, but objectively possible, combination with the card (capital) it has been placed on top of. this is essentially the concept of capital accumulation and combination.
2. the card is foreseen, though the player’s subjective expectations, to be a useful piece of capital to combine with the card it is placed on top of; the player thinks this will get the structure eventually more integrated into the foundations. the player, keep in mind, is playing as if he or she can “win,” this is where kirzner’s equilibrating tendencies of entrepeuneurship will later to be explained to be compatible with lachmann’s kaleidism.
3. the card is foreseen, or expected, again subjectively, to not disrupt the successful combinations of capital in the future, as there exists a myriad of combinations that may lead the game astray from ultimately fulfilling the purpose of moving all cards to the foundations and leading to what will require capital restructuring.
now here we can see that the solitaire-player, the capitalist, and the entrepreneur, are all fulfilling the same function: trying to recombine capital to its most profitable (and sustainable) formulation. now, let us explain the converse of the three-item list we constructed, this time for cards that are placed in the waste, rather than placed into the “structure” (the tableau and the foundations).
1. the card is foreseen to disrupt future capital combinations; for example, placing a card from the stock onto a pile where such combinations are already possible using cards within the tableau that lead to another card in the tableau being revealed. another example might be placing too high of a card in the foundations, say piling up an ace/two/three/four of spades, while there are only aces and twos otherwise: solitaire players know this can easily spell disaster because it makes the future combinations of cards less likely to “mesh” and lead to successful building of the “foundations” (ironically so-named because this is our end-point in this pseudo-equilibrium analysis).
2. the card is foreseen to perhaps not disrupt, but rather not be useful, in future card combinations.
3. the peculiar case where a card, though perhaps useful/profitable, is stuck under one or two other cards; three cards are drawn from the stock at any time but only the top one may be used, then the next, then the next, et cetera.
this third example is incredibly important. by this point it may be apparent that using a card from the stock can be used as a loose metaphor for purchasing a piece of capital. suppose that there is a card on top that may or may not be useful, which is perhaps even not yet guessed at, but there is also one under it, which the player-entrepreneur subjectively thinks will be very useful in the structure. the player might take a risk and clog up another line of discovering/producing capital by using the three of hearts atop the ace of diamonds instead of using the three of diamonds, face-up atop other face-down cards, already in the tableau, because they believe that they can get rid of the three of diamonds by placing it in the foundations, once they place the three of hearts atop a four of spades in the tableau, then place the ace of diamonds in the foundations, then somehow attain a two of diamonds (if not already owned) to place on top of said ace, then get rid of the three of diamonds they had foregone just moments ago.
conversely, the player may find it too great of a risk, and flip three new cards. supposing the player placed one card earlier, for whatever reasons, the capital introduced to him in the future will change as a result of his actions (and in the real world, others’ actions); as solitaire players know, taking cards out of the stock will, in varying ways and at varying times, present different options in the future. this itself is something that the player must judge the profitability of as well. “the future is unknowable, but not unimaginable.”
this is a crystal-clear example of capital recombination in the face of subjective expectations. the entrepreneur is taking a risk by introducing new capital, in tandem with shuffling other capital around, in hopes of producing a more-profitable (less-wasteful) structure of production. the only difference we need to remind ourselves of is that the foundations serve as a time-oriented benchmark; a static equilibrium conception of “winning” the game, when in reality it is of course just a representative of capital combinations sought that are expected to be more profitable, just as are the cards in the tableau, but as shorter-term goals.
as we can see at this point, there are many, many ways to “win” the game, by moving closer and closer to a “complete” foundations, a la kirzner’s entrepreneurial equilibration, and many ways to “lose,” to paint oneself into a corner by improper, yet difficult-to-foresee, combinations of capital that lead to gridlock stemming from improper use of cards, or even merely a poor choice of capital originally at the player-entrepreneur’s disposal.
as has been iterated many times, there is a way to win solitaire, but there is no “final” or “victory” situation wherein capital combinations are complete. what we are really trying to observe is what allows the structure of the kaleidoscope to progress, rather than to have to degenerate to a prior structure and begin again, which itself is not always possible. the entrepreneur provides the equilibriating function of properly placing the little beams of light in order to allow further, more substantial building of the beams of light, all of which are valued subjectively, but progress of which, if one believes capital to be useful, can be said to be somewhat objectively valuable; was humanity not better off in the early industrial ages than in hunter-gatherer society in terms of capital accumulation, which lead to material wealth? but this value-judgment, though seemingly objective, is really subjective anyway and thus is not in the scope of this metaphorical analysis of the market-kaleidoscope.
just for clarity, a few more examples of the complementarity and substitutability of capital goods (card) in the capital structure (the tableau and foundations) and capital markets (the stock) will be illustrated.
suppose i am running a barber shop. i am the owner and sole barber. one day there might be for sale a bench for customers to sit on while waiting, another day a barber for hire, another day there might be a barber chair. do i forgo the bench for waiting customers for a barber’s chair? do i forgo the chair for hiring a new employee that will split the time using the barber’s chair with myself? keep in mind that i myself am a piece of capital represented by, say, an ace of spaces in the foundations. do i temporarily hire a new barber to save the time to go find more supplies? do i hire an accountant to make sure i keep my books straight? do i get a new bench to allow more customers to wait for haircuts? how long are they willing to wait? these are all considerations that seem quite simply illustrated by solitaire. do i place that ten of spades on top of a jack of hearts in the tableau? what if i decide to buy a roomba to sweep up all the nasty hair off of the ground? will that yield both more customers and the freeing up of human capital, or just more customers due to roomba maintenance, or just more time for my employees and myself to work, or neither? will using the queen of clubs atop a pile of four unrevealed cards reveal a two of hearts i’ve been wanting, or merely a complementary but currently unuseful queen of spades? the only tools i have here are my hopefully-accurate subjective expectations… hopefully accurate, in that they will hopefully help me achieve my subjectively-valued goals.
do i place a king of clubs in that empty spot in the tableau? this could be imagined as whether i should add a warehouse suited for cars, or save the land for another venture. should i add a king of diamonds instead, adding a parking lot? whatever the capital inputs are now determines what combinations of capital can be used in the future, even if i decide to scrap one project, disassemble it (as is often possible in solitaire), and move on to building another piece of the kaleidic puzzle.
this article is to be continued in part two. hope you enjoyed it.