The Invisible Hand on 34th Street

‘Tis the season for mirth, merriment, and movies of a holiday nature. One Christmas classic I’d never seen up until recently is the original 1947 Miracle on 34th Street. I absolutely LOVE this movie. I love the characters, I love the humor, but most importantly, I love the message: that, through individuals acting solely in their own self-interest, the common good is achieved. Yes, dear readers, Miracle on 34th Street is – to my complete surprise – the greatest demonstration of Adam Smith’s economic theory of the invisible hand ever created.

You’ve probably heard the term “invisible hand” thrown around when watching business or financial news. It comes from the famed Scottish economist Adam Smith (1723-1790), whose Wealth of Nations is required reading in Econ 101. Basically, Smith proposes that individuals act in their own self interest and not in the interest of others. However, the consequences of their selfish actions end up benefiting society anyway (your mileage may vary). As Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Adam Smith, “The Father of Capitalism,” was a famous economist but also a Scottsman and probably threw one heck of a Christmas party.

In Miracle on 34th Street, Santa Claus is on trial in an insanity case (wow, that was weird to write), and in this movie nearly every person is, if we’re being honest, awful. The judge is corrupt and only interested in reelection, big business is out to squeeze money from the populace, the postal service is looking to unload their problems on someone else, and even our hero is only really doing this to impress a girl.

What results from these individual selfish acts? The Judge, fearing public backlash and a lost election, sets in motion events that lead to the State of New York conceding the existence of Santa Claus. Macy’s department store and other large retailers, in their thirst for profits, end up inadvertently creating the most pro-consumer policies in history and footing the bill for a hospital’s new x-ray machine. The postal service, seeking to make the mountains of letters to Santa into “someone else’s problem,” ends up being the linchpin in Santa’s defense strategy. And our hero the defense attorney takes the case to impress a girl – I mean, its Maureen O’Hara, nobody blames him – and saves Christmas. It’s enough to make an economist weep. So this holiday season, when gathered with kith and kin, relax with a Christmas classic that’s the best economic allegory I’ve seen since Mary Poppins Returns (spoiler: while the eponymous fourth-dimensional nanny does her best, in the end, the real magical hero is compound interest).


Banner photo: Rithika Gopalakrishnan


Posted: December 19, 2019

Tags: Christmas, Economics, Invisible Hand, Miracle, Miracle On 34th Street

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