What Miracle on 34th Street Teaches Us About the Virtues of Capitalism.
Earlier this week I found myself watching Miracle on 34th Street. I never before noticed what a fine job it does explaining the connection between the market economy and virtue. If I taught economics rather than history I might use a few clips from the movie in class.
As those who have seen the movie may recall, the conceit of the film is that Macy’s hires Santa Claus himself to be their store Santa. The guy who hires Santa gives him a list of toys that Macy’s has overbought and needs to move, asking Santa to suggest them to children who do not know what they want for Christmas. Santa, the very embodiment of the Christmas spirit, is horrified. He balls up the list and throws it away. A little while later, a child is on Santa’s lap and he wants a fire engine. Santa assures her that she can get one. His mother is furious. She has been all over Macy’s and other stores and has been unable to find a fire truck. Santa turns to her, out of her child’s earshot, and suggests she try the Acme Toy Company on West 46th Street. The mother is shocked. “Macy’s sending people to other stores?” “The important thing is to keep the children happy,” Santa replies. “Don’t you feel that way?” he asks. “Me, sure,” she replies, “but I didn’t think Macy’s did. I don’t get it.” The people who hired Santa are worried they might be in trouble. And the executives are, at first, angry. “Preposterous! Yet we cannot quarrel with success. Telephone calls, telegrams, over 500 parents expressing their undying gratitude to Macy’s.” Mr. Macy decides to make Santa’s policy the policy for the store in general. “This way Macy’s will be known as the store with a heart. The story that puts public service ahead of profits.” But R. H. Macy is no dummy: “Of course as a result we’ll make more profits.” He assures the people who hired Santa and instituted this policy (or so he assumes) will receive a generous Christmas bonus to thank them for their assistance to the company.
The lesson? What is the most profitable way to run the store? The way that is most helpful to the customers. That is an old lesson, but it bears repeating and re-repeating in our day, for, I fear, that is not how capitalism, or perhaps I should say the market economy is usually portrayed. More often when we hear a character in a movie saying “greed is good,” as in Wall Street we are looking at a villain. And if it is unenlightened greed, it’s merely petty selfishness. The “Occupy Wall Street” people no doubt see it this way. I fear that that is how the market economy is generally taught on out campuses. But the desire to make money can, in fact, be a spur to decent conduct. If a businessman wants repeat customers it is very much in his interest to do right by them. To be sure, many people will inevitably fail to understand their true interest. But in a free country we hold that most citizens, enough of the time, will do right either because it is right or because they recognize that it is wise to do so. With liberty comes responsibility, as Spider Man might say.
This “miracle” of the market is no such thing, in other words. Tocqueville probably gave it its most famous formulation when he called it “self-interest, rightly understood.”
American moralists do not claim that you must sacrifice yourself for your fellows because it is great to do so; but they say boldly that such sacrifices are as necessary to the person who imposes them on himself as to the person who profits from them. ⚓✪
They have noticed that, in their country and time, man was led back toward himself by an irresistible force and, losing hope of stopping him, they have thought only about guiding him. So they do not deny that each man may follow his interest, but they strive to prove that the interest of each man is to be honest.
Santa merely reminded R.H. Macy of his enlightened self-interest, a key idea in the American regime, in our economic system no less than in our politics.
Tocqueville contrasts how interest is usually understood in America with how it is usually understood in Europe: “In Europe the doctrine of interest is much cruder than in America, but at the same time, it is less widespread and above all less evident, and great devotions that are felt no more are still feigned among us every day.” Most of America’s intellectuals tend to follow European opinion, alas. But, as Tocqueville suggested, the American way gives more people a better deal than they would likely get anywhere else in the world. The trouble is that it frustrates elites and would be elites to no end. And there is a certain logic to the criticism that helping one’s neighbors because it is one’s interest to do so is rather more crude than doing so because it is the right thing to do. But it works.
As Glenn Reynolds notes, we are living in boom times, historically speaking: “less than 10% of the world’s population is living in what it calls poverty — an income of less than $1.90 per day. Twenty-five years ago, over a third of the global population was living on less.” The difference? The rise of the market—secure title to property and the rule of law. Deirdre McCloskey explains the change well in this video, emphasizing the rise of respect for entrepreneurs as the key change. Making money is no longer seen as bad, she notes, and that change has been a boon to us all. Reynolds also notes that human instinct, taken from our tribal ancestors, is to favor those we know and are related to over others. The market, as Miracle on 34th Street reminds us, teaches us to look past such narrow concerns. The more potential customers the better for the company. Why alienate any with tribal prejudice.
This idea of enlightened self-interest is not the same as virtue, Tocqueville notes, but it may point citizens in that direction. “The doctrine of interest well understood does not produce great devotions; but it suggests small sacrifices every day; by itself, it cannot make a man virtuous, but it forms a multitude of steady, temperate, moderate, farsighted citizens who have self-control; and, if it does not lead directly to virtue by will, it imperceptibly draws closer to virtue by habits.” After behaving well towards their fellow men because it is in their interest to do so, some will internalize the practice and think through to virtue, rightly understood. At the end of his Defence of the Constitutions, John Adams suggested that our system of checks and balances was designed to do some of the same work.
Happiness, whether in despotism or democracy, whether in slavery or liberty, can never be found without virtue. The best republics will be virtuous, and have been so; but we may hazard a conjecture, that the virtues have been the effect of the well ordered constitution, rather than the cause. And, perhaps, it would be impossible to prove that a republic cannot exist even among highwaymen, by setting one rogue to watch another; and the knaves themselves may in time be made honest men by the struggle.
If we are to have the opportunity to learn our true self-interest, and, beyond that, to be virtuous, we must be free. That means having the opportunity to be narrow-minded. But it also means having the opportunity to run one’s business in a new way—the bureaucrat’s and regulator’s nightmare. More often than not, selfishly run businesses will not prosper as much as those that treat customers better. There is much truth in the old business maxim that “hogs get slaughtered.”
Ultimately, this idea reflects a cosmic optimism—the world as it exists, despite all the evils we see around us is a good world, made by a beneficent Creator. As President Washington noted in his First Inaugural Address, “there is no truth more thoroughly established than that there exists in the economy and course of nature an indissoluble union between virtue and happiness; between duty and advantage; between the genuine maxims of an honest and magnanimous policy and the solid rewards of public prosperity and felicity.” As Miracle on 34thh Street reminds us, our system of economy freedom is built upon that profound truth. And that’s the miracle of the market.