Capital Ain't Homogenous Like the Shmoo

Not all capital is created equal:

Suppose all capital were what Robert Solow called “Shmoo” (after a Lil’ Abner cartoon; check this for some Shmoo info), that is, a homogenous substance. In such a world, the (intertemporal) coordination problem deals only with selecting the intensity of the input services that must be supplied over time to match consumer preferences. All capital assets are substitutes, so there is no path-dependence. Asset prices are presumably instantaneously equilibrated.

In such a world, there are no coordination problems and no Misesian “calculation” problems. Many decision problems disappear as there are no costs of inspecting, measuring, and monitoring the attributes of capital assets. Decision makers do not reach the bounds of their rationality. In sum, a world of homogeneous capital is a world where there nothing (or very little) for entrepreneurs to do.

However, as Ludwig Lachmann stated in Capital and Its Structure (1956: 16): “We are living in a world of unexpected change; hence capital combinations . . . will be ever changing, will be dissolved and reformed. In this activity, we find the real function of the entrepreneur.” However, for the notion of “capital combinations” to be non-trivial, it must involve capital heterogeneity. In other words, entrepreneurship and capital heterogeneity are closely connected.

See this paper by Nicolai Foss and Peter Klein entitled “Entrepreneurship and Heterogenous Capital,” for more.