Miracle on 34th Street

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Not everyone likes Miracle on 34th Street. However, as we review the demise of Andersen, and as the lessons of Enron and WorldCom sink in, there are worse ways to end the year than by revisiting the maudlin but incisive economic analysis of one of the most loved Christmas films.

Miracle on 34th Street is among the most loved and most repeated of Christmas films. Edmund Gwenn won an Oscar in 1947 for his performance as Santa Claus. He wanders Manhattan, upset by commercialisation of the Christmas Spirit. Macy’s, the department store, fires its in-house Santa when Maureen O’Hara, who plays Mrs Walker, his supervisor, finds him drunk. The real Father Christmas steps in.

He is quickly introduced to the store’s commercial approach: told to encourage youngsters to bully their parents into buying slow-moving lines of stock. But Santa interprets his duties differently: “The only important thing is to make children happy.” When Macy’s sells out of a toy, he tells the distraught mother about a shop where she can find it. And when a child asks for a pair of skates, Santa says the best model is available at Gimbel’s, Macy’s arch-rival.

This indifference to the bottom line causes such consternation that Mrs Walker and the company psychologist, the film’s villain, conclude their employee is insane. Santa is committed to an institution. But his honest approach has customers flocking in.

“We’ll make Gimbel’s look like profiteers”, says R.H. Macy, the proprietor, ordering all employees to adopt Santa’s approach. But Gimbel’s follows suit, launching a strategy of honest dealing across the US. A dashing young lawyer, working pro bono, secures Santa’s release. The sceptical Mrs Walker succumbs to his charms and finds both Santa Claus and Prince Charming in a joyful if sentimental 90 minutes.

Not everyone likes Miracle on 34th Street. Certainly not the Ludwig von Mises Institute, a conservative economic think-tank. In a commentary in 1995, the institute excoriates Christmas films, particularly Miracle on 34th Street, as “unfriendly to free enterprise”. It is especially critical of Santa’s readiness to put children’s happiness before his employer’s interests. “By selling as hard as it can, Macy’s gives children more of what they want.” Not quite: more of what Macy’s cynically hopes they want.

The von Mises Institute may be off-beam. But there are indeed some dubious economics in the plot. Handsome lawyers battling with large corporations are more common in films than in the real world. More fundamentally, the principle that Santa Claus does not exist is as central to economics as the Second Law of Thermodynamics to physics. The competitive marketplace of toy manufacturers and retailers fills Christmas stockings, not a Lapland-based monopoly controlled by a benevolent old man with a beard.

Yet, despite these minor points, Miracle on 34th Street is a resolutely pro-capitalist film and only someone with a distorted view of markets could think it unfriendly to free enterprise. “Take a buck” is Macy’s ethos before Santa exercises his influence. But “take a buck” is ultimately an unsuccessful policy, since it undermines the relationships with customers on which prosperity depends. “You can’t argue with success,” Mr Macy says of the policy so well received in Santa’s grotto.

The competitive marketplace ultimately imposes integrity. Gimbel’s changes course because it is losing business. Mr Macy spells out the paradox: “The store that places public service before profit makes more profit than ever before.” George Merck said almost the same thing: “We try never to forget medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.”* But many people, including the von Mises Institute, forgot that in the 1990s. The trader unloading securities on unsuspecting clients is analogous to the Santa Claus recommending toys to children because the stock room is full of them. As we turn the page on corrupt mutual funds and review the demise of Andersen, as the lessons of Enron and WorldCom sink in, there are worse ways to end the year than by revisiting the maudlin but incisive economic analysis of Miracle on 34th Street.

* George Merck, speech to Medical College of Virginia, December 1 1950

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