We Have a Coordination Problem

Stable prices are treated as the precondition for an investment cycle - get inflation predictable and long-range planning becomes viable. Predictable prices are necessary and they are not sufficient, and the gap between those two claims is where a capex revival is currently sitting.

What follows concerns what else an economy needs to coordinate plans, and what it implies for which firms can act before those conditions arrive.

Entrepreneurs Form Expectations About Each Other

Entrepreneurs and consumers continuously form expectations about the future, and specifically about their own plans succeeding. Entrepreneurs also form expectations about the likely actions of other entrepreneurs - which is the part a price-stability framing omits.

Research on managerial behaviour finds that apparently profitable opportunities go unexploited because each firm expects another to move first, leaving none to take the initial step. That is a coordination failure in the strict sense: every participant is behaving rationally given their beliefs about the others, and the collective outcome is worse than any of them wanted.

Ludwig Lachmann’s point about divergent expectations bears directly here. Prices carry information, as Hayek argued, but they do not by themselves synchronise beliefs about what other people will do next.

Coordination, Not Competition, Moves the Economy

Competition frameworks are templated classroom versions of markets. In practice entrepreneurs are concerned with their own plans reaching fruition, and that requires scaffolding the price level does not supply: predictable rules, impartial courts, enforceable contracts, low and non-retrospective taxation.

Each of those reduces the variance on what a counterparty will do, which is the actual input a long-horizon commitment needs. An investment decision is a bet on other people’s conduct over a decade, and no inflation print speaks to that.

A Positive NPV Is Not a Sufficient Condition

The industrial accountant can green-light a project on computable prices and a positive net present value. Successful coordination of plans requires more than that, and the capital markets weigh the probability of those conditions emerging separately from the arithmetic.

This is why a capex cycle can fail to start in an environment where every published metric looks supportive. The metrics describe the calculation. They do not describe whether the counterparties will behave as the calculation assumes.

What This Means for Allocators

Ask which firms can coordinate internally while the external environment is still forming. A group with the balance sheet and the internal supply chain to move without waiting on others faces a different problem from one that must wait for a peer to commit first.

Read institutional scaffolding as an investment input, not as background. Contract enforceability and tax predictability change the variance on long-horizon returns as directly as the discount rate does.

And do not read stable inflation as a signal that the cycle has started. It removes one obstacle. The coordination problem is a separate one, and it resolves on its own schedule.