The Spirit of Christmas Presents Meets the Spirit of Capitalism

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.

Reader Discussion

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on December 24, 2015 at 11:45:39 am

In other words, "The sale is not complete until the customers second order is received."

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on December 26, 2015 at 01:16:14 am

I share much of Samuelson’s conclusions about capitalism. I’m less enamored of using Miracle on 34th Street to illustrate the point.

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.”

I’d say the moral of this quote is that capitalism often conflicts with sentimentality.

So what moral should we draw about a movie in which one of the dominant department store chains begins operating its own Consumer Reports division, advising customers where they could find better deals – and in so doing, gains more business? Does this illustrate something about capitalism, or about sentimentality?

Well, first we’d want to observe how dominant department stores in the post-war years actually behaved. Assuming they did not adopt the proposed strategy, what conclusion should we draw? That Hollywood elitists know better than actual capitalists about how to run dominant department store chains? Or that businessmen know more about running their businesses than Samuelson would give them credit for – and sometimes that means doing things that conflict with sentiment?

Second, we might actual observe the film. In it, Gimbel’s – a dominant chain of stores rivaling Macy’s – adopts the same practice as Macy’s. As a result (but for first-mover advantage), Macy’s and Gimbel’s gain no advantage over each other, but end up sending a certain amount of business to other stores that will not reciprocate. So it becomes even less clear that the strategy would work. Indeed, this is the conclusion we would draw from studying industrial organization: Dominant firms may find it unproductive to compete rigorously with other dominant firms because it is foreseeable that their rivals would simply retaliate. Instead, dominant firms often find it more profitable to collude in refraining from rigorous competition.

Third, we might consider the nature dominant department store chains in post-war America. These are firms that, relative to other retailers, spend heavily on advertising their brand and occupying prime locations. Thus, these dominant firms tend to have higher costs than their rivals, which will tend to be reflected in price. While it may make sense for warehouse-style stores to encourage people to price compare, it seems unlikely that this would have been a winning strategy for dominant retailers in post-war America.

True, today on the web we can observe firms such as Amazon and Progressive Insurance that advertise the prices of their rivals, even when the rivals have lower prices – in essence, Santa’s strategy. Does this vindicate Samuelson’s thesis?

Kinda. But I’ll offer some caveats:

1) Relative to 1947, acquiring and revising this information is now cheaper than ever before, for both merchants and customers. In short, implementing this strategy just isn’t as big a deal as it was back in 1947.

2) I was an Amazon customer long before they started this practice. So at least in my case, it’s not at all clear that this new strategy has altered my buying behavior.

3) In fairness, much about Amazon defies my understanding. Last I’d heard, the place still didn’t make any money. So I’m going to refrain from drawing big conclusions about Amazon’s business practices until I actually understand them.

Bottom line: The lesson of capitalism is that there are no easy lessons. Sometimes it may be profitable to be your customer’s best friend; sometimes not.

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on December 26, 2015 at 01:44:19 am

If anything, Miracle on 34th Street provides a laughable illustration of Adam Smith’s “invisible hand” of self-interest. Throughout the movie, everyone other than Santa and his sidekick Alfred regularly put self-interest ahead of their duties – and magically it all works out for the best!

It begins with Doris hiring Santa without any background checks just to get her out of a jam when the man she had hired to play Santa turned up drunk. He proves so popular with the public that she then hires him to play Santa in the store – again without a background check. Advised that Santa might be dangerous, she subordinates the public's safety and tries to keep Santa employed. The attorney develops a relationship with a little girl and exploits it to strike up a relationship with her mother, going so far as to persuade the girl to help manipulate her mother. Sawyer, the store psychiatrist, frames Santa to keep him from disclosing Sawyer’s abusive practices and lack of credentials. The judge alters and hedges his rulings to avoid having to rule in a way that would hurt his chances for reelection. The prosecutor concedes the existence of Santa in order to avoid telling his son a painful truth. The post office delivers mail to Santa at the courthouse as a convenient way to unload undeliverable mail, even if this violates their duties and postal officers.

On and on, the movie identifies people who have been delegated authority to act in some broader interest, and shows them treating the broader interest as their own private property to be disposed of as they like.

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on December 26, 2015 at 10:39:32 am

"The lesson of capitalism is that there are no easy lessons. Sometimes it may be profitable to be your customer’s best friend; sometimes not."

Interesting! Sentence #1 is clearly true.
Sentence #2 (in its entirety) is only sometimes true.

The aphorism I offered in my initial response was, in fact, based upon some number of years experience.
Consider not just the advantage(s) to be derived from fair treatment of a customer but also consider that the realistic expectations (goals?) of any corporate enterprise is not to garner ALL SALES but rather a proportion of market share to remain profitable AND also to not attract the attention of anti-monopoly "police." Does anyone know of any business that actually believes / desires to control ALL SALES?
So what does this mean and how is it that such laudable business conduct as "making the second sale" benefit (or is profitable to) a corporation.
If one takes to heart the notion of fair treatment coupled with a) quality products that b) the customer actually needs (may be more true in my technology industry than retail) then it (ought) follows that this mindset may permeate all the organizations within a company and will be the driving spirit for design, manufacturing, sales and marketing (forget about the bean-counters as they are a class unto themselves). In effect, you drive a company (as me and my cohorts did) to ever higher levels (World Class as we used to say) of quality in multiple areas. Customers, not only the initial beneficiary of one's "largess", respond favorably. As a general proposition, it is profitable to be your customers "best friend" - so long as the "regulators don't think you are too friendly!!!

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on December 26, 2015 at 10:40:28 am

Humorous - with an undercurrent of "Grinch-iness."

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on December 26, 2015 at 18:25:14 pm

The structure of this article is particularly instructive. After all, it is an instructor’s essay. It pulls the reader (to the extent a “thinker”) into considering the “connections” of interests and virtues. Missing is a reference to Alasdair MacIntyre; but that might have given the ploy away. The reference to McCloskey avoids “Bourgeois Virtues” [2006], but if followed would probably take you there.

These (interests and virtues) are difficult grounds to plow, particularly for us mules, urged on by intellectual Plowmen who have made their choices from the plowrights’ arts of the tools of thought which may not conform fully to the demands of the tasks.

But, back to interests and virtues and their connections:
This may sound redundant, but “interests” are the expressions of motivations. Interests are formed from objectives; objectives derive from motivations. How do Virtues differ from motivations? Is it simply an issue of how individuals (prefer, choose, or are indoctrinated) to perceive particular motivations; in actions or in inactions by themselves and others?

So, the flag fluttering over this essay may not be its “real” point. That point may be recognizing that the “winds” of interests and virtues holding the flag aloft; that is the relationships and circumstances which result in the condition of capitalism involve interests and virtues; both of which determine how we perceive ourselves, perceive others, and attempt to create others perceptions of ourselves.

Happy Boxing Day !

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R Richard Schweitzer

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.