The current crisis demonstrates more than almost anything in recent memory what I call "Horwitz's First Law of Political Economy": namely that "no one hates capitalism more than capitalists." Aside from the fact, much discussed here, that the crisis itself was largely brought on by easy money policies and government interventions supported by and benefiting capitalists even as they were undermining capitalism as a system and the well-being of the citizenry, the debate over the bailouts also illustrates the principle quite well.



"The Market" (which, as Heyne, Boettke, and Prychitko note, is a particularly bad metaphor for millions of individual decisions) rallied late last week as the bailout plan was conceived and publicized. Today, as the plan has got some pushback (though not always for the right reasons), "The Market" has taken another dive. The explanation, I think, is that capitalists prefer the stability and predictability of the known over anything unknown, especially when it promises to socialize their losses on the rest of us. Capitalists have long despised the uncertainty and unpredictability of a truly free market and have frequently succeeded at using the state to reduce that uncertainty (see also Gabriel Kolko and other historians of the Progressive Era). Of course this has benefited them, but it has harmed the economy and the citizenry in the process.



One of the things market capitalism does best is enable us to peer through the fog of uncertainty that surrounds human action. Prices provide signals for capitalists to interpret to try to provide the goods and services people will want in the future. Profits tell them they've done well at it, losses tell them they haven't. The competitive process is how we learn what it is people want and how best to produce it - and who is best at doing so. Competition is, in Hayek's words, a "discovery procedure." Competition sucks if you're one of the competitors. It makes you have to constantly be on your toes, watching for new entrants, new innovations, and changes in the relevant variables. How much easier life would be in a more stable and predictable world where capitalists didn't have to serve the fickle consumer! If we cut short this discovery process, and especially the mechanism of profit and loss, the benefits to the capitalists will not come from behaving in ways that benefit the rest of us.



This is precisely why those of us concerned with preserving whatever bits of capitalism we have left should be largely ignoring "The Market's" response to the various bailout plans. What's good for GM or the financial sector is not necessarily what's good for America. In fact what's good for America, might be very, very bad for the financial sector.



The desire for stability and predictability has been the calling card of dirigisme regimes since the dawn of capitalism, whether they called themselves "socialist", "fascist", or just plain "interventionist." It is but a thinly disguised power grab by those who own the means of production, and who will profit at our expense, rather than profiting by serving us better. "Stability" is a siren song that we must do our best to ignore, lest we enable them to make an even bigger mess than they already have.