DRI-248 for week of 1-26-14: Economics as Movie ‘Spoiler’: Some Famous Cases

An Access Advertising EconBrief:

Economics as Movie ‘Spoiler’: Some Famous Cases

Motion pictures evolved into the great popular art form of the 20th century. In the 21st century, many popular cultural references derive from movies. One of these is the “spoiler” – prematurely revealing the ending of a book, play, movie or presentation of any kind.

Economists sometimes experience a slightly different sort of “spoiler.” Their specialized understanding often defeats the internal logic of a presentation, completely spoiling the author’s intended effect. Movies are especially vulnerable to this effect.

The casual perception is that our attitude toward movies is distorted by the high quotient of improbably beautiful and talented people who populate them. While it is true that physical beauty has always been highly prized by Hollywood, it is also true that plain or even ugly people like Wallace Beery, Marie Dressler, Jean Gabin and Rodney Dangerfield have become champions of the movie box office. The locus of unreality in movies has actually been the stories told.

Movies are best regarded as fairy tales for adults. They over-emphasize dramatic conflict and exaggerate the moral divide between protagonist and antagonist. It is difficult to find a real-world referent to the “happy ending” that resolves the typical movie. Protagonists are all too often “heroes” whose actions exceed the normal bounds of human conduct. In recent years, this tendency has escalated; veteran screenwriter William Goldman has complained that movie protagonists are now not heroes but “gods” whose actions exceed the bounds of physics and other natural laws.

In this context, it is hardly surprising that movie plots have sometimes ignored the laws of economics in order to achieve the stylized dramatic effects demanded by the medium. Since public knowledge of economics is, if anything, less well developed than knowledge of natural science, these transgressions have generally gone unremarked. Indeed, the offending movies are often praised for their realism and power. Thus, it is worthwhile to correct the mistaken economic impressions left by the movies, some of which have found their way into popular folklore.

In each of the following movies, the major plot point – the movie’s resolution – rests on an obvious fallacy or failure to apply economic logic.

Scrooge (U.S. title: A Christmas Carol) (1951)

We know the plot of this most classic of all Christmas tales by heart. Victorian businessman Ebenezer Scrooge, famed miser and misanthrope, abhors the spirit of Christmas. He is visited by three ghosts, emblematic of his youthful past, his empty present life and the lonely, friendless end that awaits him in the future. Their guidance awakens him to the waste of his single-minded pursuit of material gain and rejection of personal affection and warmth. He realizes the cruelty he has visited upon his clerk, the good-hearted family man, Bob Cratchit. Most of all, he keenly regrets the fate of Cratchit’s crippled son, Tiny Tim, who seems doomed by Cratchit’s poverty.

Having witnessed Scrooge’s emotional reformation, the audience is now primed for the crowning culmination. On the day after Christmas, Bob Cratchit shows up at Scrooge’s office, a bit late and encumbered by holiday festivities. Fearfully, he tiptoes to his desk, only to be brought up short by Scrooge’s thunderous greeting. Expecting a verbal pink slip, Cratchit receives instead the news that Scrooge is doubling his wage – and that their working relationship will be hereafter cordial. Tiny Tim’s future is redeemed, and the audience has experienced one of the most cathartic moments on film.

Unless, that is, the viewer happens to be an economist – in which case, the reaction will be a double take accompanied by an involuntary blurt like “I beg your pardon?” For this is a resolution that just simply makes no sense. In order to understand why, the first thing to realize is that the scriptwriter (translating Charles Dickens’ timeless story to the screen) is asking us to believe that Bob Cratchit has heretofore been working for half of what Scrooge is now proposing to pay him.

In the 17th and 18th centuries, historical novelists like Charles Dickens played the role played by filmmakers in the 20th century. They brought history alive to their audiences. Ideally, they stimulated further study of their subject matter – indeed, many famous historians have confessed that their initial stimulus came from great storytellers such as Dickens and Dumas. But many readers searched no further than the stories told by these authors for explanations to the course taken by events. Dickens was an exponent of what the great black economist Thomas Sowell called “volitional economics.” In this case, for example, the wage paid by Scrooge and received by Cratchit ostensibly depended on Scrooge’s will or volition, and nothing else. No role existed for a labor market. Cratchit was not a partisan in his own cause, but rather a passive pawn of fate.

This is not a theory likely to commend itself to an economist. Scrooge and Cratchit are working to produce services purchased by their customers. Who are these? Well might you ask, for neither Dickens nor the filmmakers chose to clutter up the narrative with such extraneous considerations. Yet it is this consumer demand that governs the demand for Scrooge’s output, which in turn values the productivity of Cratchit’s work. In a competitive labor market, the market wage will gravitate toward the marginal value product of labor; e.g., the value of Cratchit’s product at the margin translated into money with the aid of the market price for Scrooge’s services. And in crowded London, there is no doubt about the competitive demand for the low-skilled labor provided by Bob Cratchit. That is what attracted the Bob Cratchits of the world to London in the first place during the Industrial Revolution.

Two possibilities suggest themselves. Either Bob Cratchit was working for half of his marginal value product previously and is only now being elevated to that level, or Scrooge is now proposing to pay Cratchit a wage equal to twice Cratchit’s marginal value product. The first possibility requires us to believe not only that Cratchit was and is a complete idiot, but that henot Scrooge as Dickens clearly implies – is responsible for Tiny Tim’s tenuous medical situation. After all, all Cratchit had to do was step outside Scrooge’s firm and wander off a block or two in order to better his circumstances dramatically and pay Tiny Tim’s medical tab without having to bank on Scrooge’s miraculous reformation. Cratchit was guaranteed a job at slightly less than double his then-current wage by simply underbidding the market wage slightly. But he inexplicably continued to work for Scrooge at half the wage his own productivity commanded.

Alternatively, consider possibility number two. Scrooge is now going to pay Cratchit a wage equal to twice his (Cratchit’s) marginal value product. If Scrooge insists on raising his price commensurate with this wage hike, he will go out of business. If he keeps his price the same, he will now be working for much less net income than all the other business owners in his position. (See below for the implications of this.)

There is no third possibility here. Either Cratchit was (is) crazy or Scrooge is. And either way, it completely upsets Dickens’ cozy suggestions that all’s right with the world, Scrooge has restored the natural order of things and everybody lived happily ever after.

Of course, Scrooge may have accumulated considerable assets over the course of his life and business career. He may choose to make an ongoing gift to Cratchit in the form of a wage increase, as opposed to a bonus or an outright transfer of cash. But it is important to note that this is not what Dickens or the filmmakers imply. The tone and tenor of Dickens’ original story and subsequent films adapted from it unambiguously suggest that Scrooge has righted a wrong. He has not committed a random act of generosity. In other words, Dickens implies – absurd as it now clearly seems – that possibility number one above was his intention.

It is clear to an economist that Dickens has not provided a general solution to the problem of poverty in 19th century England. What if Scrooge were the one with the sick child – would his acquisitive ways then be excusable? Dickens makes it clear that Scrooge’s wealth flows directly from his miserliness. But if miserliness produces wealth and good-heartedness promotes poverty, economic growth and happiness are simply mutually exclusive. After all, the message of the movie is that Scrooge promises to reform year-round, not just one day per year. Henceforward, when approached by collectors for charity, he will refuse not out of meanness but out of genuine poverty, his transformation having stripped him of the earning power necessary to contribute to charity.

In actual fact, of course, Scrooge never existed. Neither did Cratchit. And they are not reasonable approximations of actual 19th-century employers or workers, either. But these figments of Dickens’ imagination have been tragically influential in shaping opinions about the economic history of Victorian England.

The Man in the White Suit (1951)

This comedy from England’s famed Ealing Studios (the world’s oldest movie studio) is justly famous, but for the wrong reasons. It highlights the inefficiency of British socialism and the growing welfare state, but its fame derives from its plot highlight. Inventor Alec Guinness worms his way into the R&D division of a local textile business, where he develops a fabric so durable that it will never wear out. Instead of gaining him the wealth and immortality he craves, it gains the opprobrium of the textile owners, who fear that the fabric will ruin them by cutting replacement sales to zero. They block his efforts at production and the film ends when his formula is revealed to contain a flaw – which he may or may not ever get the chance to de-bug, since he is now a pariahin the industry.

The film is often cited as an example of how big business prevents new technology from empowering consumers – that is, it is cited as if it were a factual case study rather than a fictional movie. Actually, it is a classic example of the failure to deploy economic logic.

Would a textile firm find it profitable to produce an “indestructible” fabric of the sort depicted in the film? Certainly. The firm would achieve a monopoly in the supply of fabric and could obtain finance to expand its operations as necessary to meet the immediate demand. In practice, of course, such a fabric would not really be indestructible in the same sense as, say, Superman’s costume. It would be impervious to normal wear but would suffer damage from tearing, fire, water and other extreme sources. Changes in fashion would also necessitate replacement production. Nevertheless, we can safely grant the premise that the invention would drastically reduce the replacement demand for fabric. But that would not deter an individual firm from developing the invention – far from it.

The film depicts textile firms striving in combination to buy out the inventor. Perhaps overtures of that kind might be made in reality. They would be doomed to failure, though, because in order to afford to pay the inventor’s price the firms would have to compensate the inventor for the discounted present value of the monopoly profits available in prospect. But in order to raise an amount of money equal to those monopoly profits, the firms would themselves have to be monopolists willing to mortgage their future monopoly profits. Textile companies may enjoy legislative protection from foreign competition in the form of tariffs and/or quotas, but they will still not possess the kind of market power enabling them to do this, even if they were so predisposed. Thus, both of the movie’s key plot points are undermined by economic logic.

This reasoning explains why there is so little proof for longstanding allegations that large corporations buy off innovators. While it will often be profitable to acquire competitors, it will normally be prohibitively expensive to buy and suppress revolutionary inventions. The value of a competitive firm reflects its competitive rate of return. The value of a revolutionary innovation reflects the value of a (temporary) monopoly, heavily weighted toward the relatively near future.

The Formula (1980)

The Formula was one of the most eagerly awaited movies of its day because it starred two of the most legendary stage and screen actors of all time, Marlon Brando and George C. Scott. It also boasted a topical plot describing a conspiracy to suppress a secret formula for producing synthetic gasoline. Who was behind the conspiracy? None other than “the big oil companies” – in the 1970s and 80s, as today, the oil companies were periodically trotted out as public whipping boys for the adverse effects of public policies on energy prices.

The film begins during World War II with the escape into Switzerland of a German military officer carrying secret documents. In the present day, Scott plays a homicide policeman investigating the grisly murder of his former supervisor. The decedent was working abroad for a large oil company at the time of his death, and his boss (Brando) reveals that his duties included making payoffs to Middle Eastern officials. Scott’s character also learns about the existence of a formula for conversion of coal into petroleum, supposedly developed secretly by German scientists during World War II and used by the Nazis to fuel their war machine.

Scott’s character seeks the killer and the formula for the remainder of the film. Each successive information source is murdered mysteriously after speaking with him. Eventually he learns the formula from its originator, who tells him that the oil companies plan to suppress it until its value is enormously enhanced by the extinction of remaining petroleum reserves. Brando’s character blackmails Scott’s character into relinquishing the formula and the film ends with the understanding that it will be suppressed indefinitely. The world is denied its chance at plentiful oil and the oil companies enforce an artificial oil shortage.

Novelist Steve Shagan also wrote the screenplay, but it should be noted that the version of the film released to theaters was the result of a conflict with director John G. Avildsen. Although no claim was advanced about the veracity of events depicted or information presented, the audience is clearly invited to take the film’s thesis seriously. Alas, history and economics preclude this.

The film makes much of the fact that Germany was able to conduct military operations around the world for a decade despite having no internal source of petroleum and only tenuous external sources. Germany must have had the ability to manufacture synthetic fuels, we think; otherwise, how could she have waged war so long and effectively?

The premise is sound enough. Germany’s oil refineries in the Ruhr Valley were perhaps the leading military target of Allied bombings; both crude and refined oil were in critically short supply throughout the 1940s. And there really was a “formula” for synthetic fuel – or, more precisely, a chemical process. But the film’s conclusion is all wrong, almost banally so.

The Fischer-Tropsch process was invented by two German scientists – not in World War II, but in 1925. It was not secret, but rather a matter of public knowledge. German companies used it openly in the 1930s. During World War II, when Germany had little or no petroleum or refining capability, the process provided about 25% of the country’s auto fuels and a significant share of other fuels as well. After the war, the process traveled to the U.S. and several plants experimented with it. In fact, it is still used sparsely today. Possible feedstocks for conversion into petroleum are coal, natural gas and biomass.

The reason that few people know about it is that it is too expensive for widespread use. Biomass plants using it have gone broke. Natural gas is too valuable for direct use by consumers to waste on indirect conversion into petroleum. And coal conversion wavers on the edge of commercial practicality; just about the time it begins to seem feasible, something changes unfavorably.

In real life – as opposed to reel life – the problem is not that secret formulas for synthetic fuels are being hidden by the all-powerful oil cartel. It is that the open and above-board chemical processes for conversion to synthetic fuel are just too darned expensive to be economically feasible under current conditions.

Erin Brockovich (2000)

Erin Brockovich is the film that sealed the motion-picture stardom of Julia Roberts by earning her an Academy Award for Best Actress. It was based on events in the life of its title character. Erin Brockovich was an unemployed single mother of three who met liability attorney Ed Masry when he unsuccessfully represented her in her suit for damages in a traffic accident. She took a job with his firm interviewing plaintiffs in a real-estate settlement against Pacific Gas & Electric.

In the course of her interviews, Brockovich claimed (and the film portrayed) that she unearthed a laundry list of diseases and ailments suffered by the 634 plaintiffs, who were residents of Hinkley, CA. These included at least five different forms of cancer, asthma and various other complaints. Brockovich was surprised to learn that PG&E had paid the medical expenses of these residents because of the presence of chromium in the drinking water, despite having assured the residents that the water was safe to drink. Eventually, Brockovich interviewed a company employee who claimed that corporate officials at PG&E were aware of the presence of “hexavalent chromium” (e.g.; chromium from multiple sources) in the drinking water and told employees in Hinkley to hide this information from residents. The whistleblower had been told to destroy incriminating documents but kept them instead and supplied them to Brockovich.

The film does everything but accuse the company of murder in so many words. It reports the jury verdict that awarded the Hinkley residents $333 million in damages. (The standard contingency fee to the law firm is 33%.) Brockovich received a $2 million bonus from her delighted boss. The film received a flock of award nominations in addition to Roberts’s Oscar, made a pile of money and got excellent reviews.

However, a few dissenting voices were raised in the scientific community. Scathing op-eds were published in The Wall Street Journal and The New York Times by scientists who pointed out that little or no science backed up the movie’s claims – or, for that matter, the legal case on which the movie was based.

It seems that the only scientific black mark against hexavalent chromium was lung cancer suffered by industrial workers who inhaled the stuff in large quantities. In contrast, the hexavalent chromium in Hinkley was ingested in trace amounts in drinking water. The first law of toxicology (the science of toxicity) is “the dose makes the poison.” Ingestion allows a substance to be attacked by digestive acids and eliminated via excretion; inhalation would permit it to be absorbed by organs like the lungs. Ironically, lung cancer wasn’t among the varieties identified by Brockovich.

What about the lengthy list of cancers grimly recited in the movie? Doesn’t that constitute a prima facie case of wrongdoing by somebody? No – just the reverse. As the scientists pointed out, biological or industrial agents are normally targeted in their effects; after all, they were usually created for some very specific purpose in the first place. So the likelihood of one agent, like hexavelent chromium, being the proximate cause of various diverse cancers is very remote. In any town or city, a medical census covering a reasonable time span will produce a laundry list of diseases like the one Brockovich compiled.

Economics provides equal grounds for skepticism of the movie’s conclusions. The movie imputes both wrongdoing and evil motives to a company. Somewhere within that company, human beings must have harbored the motives and committed the wrongs. But why? The standard motivation behind corporate wrongdoing is always money. The monetary category involved is normally profit. Presumably the imputed rationale would run somewhere along these lines: “Corporate executives feared that admitting the truth would result in adverse publicity and judgments against the company, costing the company profits and costing them their jobs.” But that motivation can’t possibly have applied to this particular case, because PG&E was a profit-regulated public utility.

Public-utility profits are determined by public-utility commissions in hearings. If a utility earns too much profit, its rates are adjusted downward. If it earns too little, its rates are adjusted upward. For over a century, economists have tried but failed to think up ways to get utility managers to behave efficiently by cutting costs. Economists have even argued in favor of allowing utilities to keep profits earned in between rate hearings, hoping that managers will have an incentive to cut costs if the company could actually keep profits in that scenario.

But here, according to the filmmakers, PG&E executives were so fanatically dedicated to safeguarding profits that the company couldn’t keep anyway that they were willing to knowingly poison their customers. They were willing to risk losing their jobs and going to jail (if their deception was uncovered) to guard against losing their jobs for loss of profits that were never going to be gained or lost in the first place. No economist will swallow this.

If the filmmakers had an explanation for this otherwise insane behavior, they didn’t offer in the movie. And without a scientific case or an economic motive, it is impossible to accept the film’s scenario of corporate conspiracy at face value. Instead, the likely motivational scenario is that PG&E executives didn’t confess their crimes and beg forgiveness because they had absolutely no scientific reason to think they had committed any crimes. They didn’t warn Hinkley residents about “known dangers” because they didn’t know about any dangers. They didn’t need to admit the presence of chromium in the drinking water because everybody already knew there were trace amounts of chromium in the drinking water. But they certainly weren’t going to advertise the presence of non-existent dangers for fear that somebody would seize the opportunity to make a legal case where none really existed.

Movies are Fairy Tales for Adults

The moral to these cases is that movies are fairy tales for adults. Given that, the absence of economic logic in the movies is not hard to fathom. How much economic logic did we learn from the fairy tales we heard in childhood?

This is not to indict movies – or fairy tales, either. We need them for the emotional sustenance they provide. Fairy tales help cushion our childhood introduction to reality. Movies help us cope with the wear and tear of daily life by recharging our emotional batteries.

But we must never confuse the fairy tale world of movies with the rational world in which we live. Our ultimate progress as a species depends on our reliance on markets, rational choice and free institutions. Of necessity, movies operate according to the visual logic of dramatic action. We expect reel life to liberate us from the conventions of real life and this is why movies seldom make economic sense.

DRI-219 for week of 12-16-12: The Economics of Dickens’ ‘A Christmas Carol’

An Access Advertising EconBrief:

The Economics of Dickens’ ‘A Christmas Carol’

Charles Dickens’ “A Christmas Carol in Prose,” written in 1843, is one of the hardiest of all Christmas perennials and a seminal example of the Christmas story. Dickens’ gift for evoking emotion and vivid ingredients like ghosts, sickly children and hearty Christmas celebrations made the tale a natural for the movies. Memorable versions came out of Hollywood in 1938 and Great Britain in 1951, while television gave us a distinctive reprise in 1984. (Herein, we follow the example of the movies, which typically shorten the title by omitting the last two words.)

As he did with many of his novels, Dickens used his authorial prerogative to criticize elements of Victorian English society. His protagonist, Ebenezer Scrooge, is a businessman whose lack of Christmas spirit, parsimonious habits and eye for the bottom line have made his name a byword for misanthropy. Scrooge’s relationship with his clerk, Bob Cratchit, would attract unfavorable comment by the EEOC, the NLRB, OSHA and the rest of today’s regulatory alphabet soup.

Over the decades, various commentators have suggested that Dickens’ motives were not purely literary and commercial – that he sought to censure capitalism or, at the very least, its perceived excesses. This story has moved and inspired countless millions through many incarnations over a century and a half, so it is well worth inquiring into its economic significance.

The Carol

Dickens introduces us to Ebenezer Scrooge the aging miser and misanthrope. Scrooge’s life is devoted entirely to his business, formerly a partnership but now a sole proprietorship employing a clerk named Bob Cratchit. It is Christmas Eve, but in Scrooge there dwells none of the Christmas spirit. “Christmas? Bah! Humbug!” is his reaction to the holiday. He refuses a Christmas-dinner invitation from his nephew and niece-in-law. Grudgingly, Scrooge gives Cratchit the day off on Christmas Day. Approached to donate to the poor, Scrooge is indifferent to their misery. “Are there no prisons?” he demands. “Are there no work houses?” Apprised that some might die from starvation and exposure, he snaps that “they had better do it and decrease the surplus population.”

Alone at home on Christmas Eve, Scrooge is visited by the ghost of his former partner, Jacob Marley. Marley’s ghost endures eternal torment for mistakes he made in life; namely, avarice and lack of generosity and compassion for other human beings. The ghost warns Scrooge to mend his ways or suffer a similar fate. Scrooge will be visited by three more ghosts, each with a life lesson designed (so to speak) to scare him straight.

The Ghost of Christmas Past transports Scrooge back to his forgotten youth. He revisits his lost love – his longing to provide for her produced the steely resolve to accumulate wealth. The sight of her moves him deeply. We begin to glimpse a – heretofore unsuspected – sympathetic side to Scrooge.

The Ghost of Christmas Present allows Scrooge to see himself as his contemporaries see him; notably, as he is seen by his nephew and the nephew’s wife. The scathing picture they present sobers him, but he is touched by his nephew’s stubborn belief that goodness lies buried underneath Scrooge’s flinty exterior. Scrooge is taken aback by his visit to Bob Cratchit’s home, where Cratchit’s ailing son, Tiny Tim, bolsters the family’s spirits with his pluck. The lesson is driven home to Scrooge by the sight of two poor, hungry children in the streets of London, each sporting a sign. One sign reads “Ignorance;” the other “Want.” Scrooge recalls his earlier dismissive rejection of the poor and hungry with bitter remorse. Once more we sympathize with Scrooge.

The Ghost of Christmas Future brings Scrooge face to face with his fate. It is a terrifying experience. Scrooge enters dilapidated quarters in which scavengers pick the figurative testamentary bones of a shroud-covered corpse. Their conversation leads Scrooge to suspect the worst. This is confirmed when the Ghost leads him to a cemetery and points with empty sleeve to a tombstone on which the horrified Scrooge sees his own name carved.

Now desperate and bereft of emotional resource, Scrooge begs for reprieve. Is the future irrevocably writ or is there still hope? He receives no answer but is instead transported back to his own time and quarters just as Christmas Day dawns. Intuitively, he recognizes that he has been given a second chance to rectify his mistakes and remake his life.

Scrooge is miraculously revitalized. He purchases a huge fowl for delivery to the Cratchit family for Christmas dinner, tipping the messenger boy extravagantly. He buttonholes the charity solicitors and reverses his previous stance by donating generously to their cause. He makes a surprise – and surprisingly welcome – appearance at his nephew’s Christmas Day celebration. And the following day, Scrooge reproves Cratchit for arriving late to work by … raising his wage and inviting him to imbibe some holiday cheer.

Speaking in narrative voice, Dickens ends by informing us that Scrooge followed through on his reformation by financing successful medical treatment for Cratchit’s son, Tiny Tim. Tiny Tim’s valediction may be history’s most beloved bit of literary Christmas lore: “God bless us – every one!”

The Carol at Face Value

Most people react to “The Christmas Carol” viscerally. Consequently, evaluations of its economic content – and intent – have followed parallel lines. Scrooge is a businessman. Scrooge is a miser. Therefore, Dickens is saying that businessmen – or at least, successful businessmen, which Scrooge was – are misers. Scrooge is single-mindedly devoted to wealth accumulation. Scrooge is unhappy and makes others unhappy. Therefore, Dickens is saying that the pursuit of wealth will end badly and is a bad thing. Since businessmen and wealth accumulation are portrayed unfavorably, it is only a small step to the conclusion that Dickens was excoriating capitalism in general in “A Christmas Carol.”

There is indirect support for this conclusion both inside and outside the story. The plight of the poor is stressed and Scrooge – in his pre-reformation, presumptively-pro-capitalist persona – is indifferent to that plight. In life, Dickens was a noted philanthropist and promoter of causes intended to benefit the poor. In particular, Dickens was bitterly opposed to child labor and relentlessly publicized what he saw as unsafe and unconscionable living and working conditions for poor children. He placed most of the blame for these conditions on wealthy businessmen.

These considerations have been ample to persuade most interested parties of Dickens’ anti-capitalist bent.

The Carol Reconsidered

Not surprisingly, economists view “A Christmas Carol” in a different light. A recent blog by Jacqueline Otto serves up stimulating insights. “I would go so far as to say,” she avers, “that ‘A Christmas Carol’ is a story about capitalism.” Ms. Otto offers three arguments in defense of this thesis.

First, she spotlights what Dickens does not say. “Dickens never condemns capitalism [or] business owners [or] trading… the only criticism Dickens makes is that Scrooge… and Marley… were not generous.”

Second, she points out that business success plays a central role in the tale. “There would never have been a story if Scrooge and Marley were not successful businessmen (e.g., if they had been unhappy poor men instead of unhappy rich men).”

Third, she makes the telling point that when Scrooge reforms, “he does not then become poor,” but instead “uses his wealth to help those around him” by saving Tiny Tim’s life with medical treatment, buying food for local families, donating to charity and raising Bob Cratchit’s salary.

Economist and editor David Henderson observes that today it is political liberals who play the role of Scrooge. Research done by Arthur Brooks (now president of American Enterprise Institute) and compiled for his book, Who Really Cares? strongly shows that contemporary donors to charitable causes are predominantly conservatives or inhabitants of the political right wing. Left-wing poll respondents indicate that they consider their tax payments supporting government programs as sufficient unto their causes.

In other words, Henderson declares, the left wing is reacting much as Scrooge did to pleas for charity for the poor: “Is there no Medicaid? Are there no food stamps?” In effect, their position is that they gave at the office via their withheld payroll taxes. Henderson’s point is that Dickens’ tale supports the conservative position that charity must be voluntary in order to be morally defensible.

Otto’s and Henderson’s parsing of Dickens follows in the footsteps of pioneering work by one of Ronald Reagan’s chief aides, Edwin Meese. In 1983, Meese seized the occasion of a news conference to comment extensively on the relationship between Scrooge and Bob Cratchit. Scrooge, claimed Meese, didn’t “exploit” Cratchit. Unlike many workers of his day, Cratchit lived in a house rather than a tenement. He could afford a Christmas dinner with goose and plum pudding. He was paid 10 shillings a week [actually, 15 shillings], a good wage for that day. The free market, Meese judged, would not permit Scrooge to exploit Cratchit, for it would allow Cratchit to escape an intolerable employment for a better one. For his pains, Meese was stigmatized by the news media of that day as “Edwineezer” Meese.

Readers of Dickens will recall that Cratchit’s inability to afford a full-blown Christmas dinner elicited the sympathy of Scrooge and motivated the (anonymous) donation of a Christmas fowl. An aide to a conservative President resolves to brave the scorn of the liberal news media by using a contrarian interpretation of a beloved Christmas classic to make points about economics – shouldn’t he at least take the time and trouble to get the details right? Still, Meese’s economic logic and history were eminently correct even if his recollection of the source material was shaky. He opened the door to our deeper understanding of the meaning of Dickens and “A Christmas Carol.”

In subsequent years, one point has often been made in passing reference to Dickens and “A Christmas Carol.” Scrooge’s triumphant redemptive gesture is to raise Cratchit’s salary. (In a few of the dozens of movie, television or stage versions, he doubles it.) This is perhaps the surest indicator of Dickens intentions and his view of the economic system of Victorian England. It reveals a mindset best described by economist Thomas Sowell as “volitional economics.” Economic outcomes are determined not by the impersonal forces of markets but rather by the will (volition) of powerful market participants – in this case, employers. Employers are the prime movers; employees are not actors but rather are the passive, helpless recipients of employers’ actions.

Modern economic theory utterly rejects this primitive conception of volitional economics. In the strictest sense, an employer doing what Scrooge did in a competitive market – arbitrarily raising the salary of a key employee – would go broke. In practice, various frictions and modifications to theory might lessen that penalty, but economists nonetheless view Scrooge’s capricious behavior with amusement. In Victorian England, pay policies of employers were constrained by the markets for labor and goods, not by personal whims. Neither personal generosity nor parsimony came into it.

The Carol as a Classic Case of Unintended Consequences

“A Christmas Carol” is one of the most emotionally compelling fictional works ever penned. “The story…has become so well known,” conclude John Tibbets and James Welsh in Novels Into Film, “that it has transcended its origin as a work of fiction and has entered the public consciousness with the life-changing power of scripture. Even those who have never read [the] story, or seen…the movie adaptations…know… what a ‘scrooge’ is and what ‘Bah! Humbug!’ means.”

Dickens himself, in common with other great novelists such as Dumas, was overcome by the force of his own writing. By his own account, he “wept and laughed, and wept again” during the six weeks it took him to complete his work.

Thus, it is not shocking that even economists, hardcore rationalists though they are, should bend over backwards to judge that work favorably. A clear-eyed appraisal suggests that Otto, Henderson, et al have been caught up by the same extravagant spirit of generosity that captured Dickens himself as well as subsequent generations of readers.

Calling “A Christmas Carol” a story about capitalism is overdone for at least two reasons. The first is that the term “capitalism” has not been coined yet. Karl Mark published Das Kapital in three volumes nearly thirty years apart, in 1867, 1885 and 1894 – long after Dickens wrote “A Christmas Carol.” Devotees of free markets eventually appropriated Marx’s pejorative descriptor to characterize the system he abhorred. But Dickens could hardly have intended to defend a system that had not yet been characterized as such.

To be sure, this cuts both ways. Dickens also could not have been criticizing capitalism per se. But he did criticize the institutions and practices that comprise it. Somehow, it is easier to criticize piecemeal than to defend, perhaps because the defense usually invokes the systemic role played by the piece as part of the defense.

Then there is the equally obvious point that the way an author deliberately goes about praising a social system is by…well, praising it outright – not by failing to condemn it.

As economists like Carl Menger and F. A. Hayek have pointed out, a major task of economics is to point out the unintended consequences of human action. Here, Otto and Henderson have demonstrated that – without in any way intending to – Charles Dickens mounted a significant defense of Victorian capitalism in “A Christmas Carol.”

Dickens as 20th Century Liberal

In Playback, Raymond Chandler’s legendary detective protagonist, Philip Marlowe, responds to a woman’s expression of surprise at his amatory gentleness by philosophizing: “If I wasn’t hard, I wouldn’t be alive. If I couldn’t ever be gentle, I wouldn’t deserve to be alive.” Toughness and rationality are the qualities needed to preserve and extend human life. Tenderness and empathy are qualities necessary to make life enjoyable as well as long. In our modern age of specialization, it is common to find toughness and tenderness distributed in a skewed manner rather than in equal measure.

Dickens certainly did not intend to praise or even defend capitalism as such in “A Christmas Carol,” but that does not devalue his work as literature or even as unwitting exercise in economic pedagogy. Like many on the political left, Dickens did not possess highly developed rational skills. His powers to stir and move his readers were prodigious, however. The emotional resonance of “A Christmas Carol” is its principal gift.

Dickens was ahead of his time in several ways. Although he inhabited the 19th century, he was a 20th-century liberal in his lack of ironic self-awareness. “A Christmas Carol” was a straightforward story of personal avarice and excessive preoccupation with wealth and pecuniary aggrandizement. But Tibbets and Welsh note that Dickens “did not necessarily intend to create a deathless and beloved work of literature. His aim was far more prosaic: to earn some much-needed money.” Dickens was mired deeply in debt in 1843 and his current project, the novel Martin Chuzzlewit, was not proving successful in its initial serial form. “A Christmas Carol” succeeded beyond Dickens’ dreams; it has not been out of print since it first appeared.

Thus we have the industrial-strength irony that the world’s greatest cautionary warning against love of wealth and avarice was written to make money and ended up earning a fortune for its author. Even since, leftists have set out to do good and ended up doing right well in bookstores, art galleries, theaters, cinemas and on university campuses. They followed Dickens’ example by remaining unaware or at least untroubled by the glaring contradiction.

In his books and in his private life, Dickens stridently criticized the conditions of life for English children of poor or modest means. Ever since, conventional thinking has blamed the Industrial Revolution for making life in Victorian England hellish for children. Meanwhile, painstaking research begun by men like Ronald Hartwell and continuing on down to present-day quantitative economic historians like Deirdre McCloskey has refuted this portrayal, showing that technological progress and free markets midwived economic growth and gains in longevity and hygiene among the poor. But because Dickens creates more excitement than economic statistics, the conventional view continues to overshadow the facts. In his contribution to economic myth-making, Dickens also foreshadowed his 20th-century counterparts.

Unlike modern liberals, though, Dickens should not be called to account for his failure to square perception with reality. By 1843, among the great economists only Adam Smith, David Ricardo and James Mill had made much impact on the public. It is certainly not clear that Dickens knew or understood much of their works. We do know that Scrooge’s biting comment that the poor had better “[die] and decrease the surplus population” was a veiled reference to the over-population theories of the economist Thomas Malthus, whom Dickens disliked. Although Malthus is recognized today for having done pioneering work in certain areas, he was then known and is still best remembered for his errors in population growth (failing to take technology into account) and consumption theory (supporting a theory of chronic underconsumption). It is hardly fair to blame Dickens for failure to apprehend an economics that was still lingering in its formative stages. For example, Dickens’ enslavement to the concept of “volitional economics” (as outlined above) could have been ended only by exposure to a systematic theory of labor and product markets that did not develop until after Dickens’ death.

“A Christmas Carol” Properly Appreciated

Works of art must be evaluated in temporal and historical context. Dickens’ “A Christmas Carol” is a memorable work whose beauty and tenderness rightfully continues to warm us all. Properly appreciated, it does not condemn capitalism but in fact bolsters free markets and free trade. The fact that Dickens himself was unaware of the full moral of his story may be ironic, but it does not detract from that moral. It shows that even when seeking in a primitive way to overturn the basis for capitalism, even one of the world’s greatest authors ended up doing just the opposite.