Economist Don Boudreaux recently outlined ten foundational lessons that should be learned in every well-taught principles of economics course. Examples of nearly all of the ten lessons can be found in Capra’s Christmas classic, but for the sake of brevity I’ll merely highlight two of them.
Principle 1: The world is full of both desirable and undesirable unintended consequences – consequences that are largely invisible but that even a course in ‘mere’ principles of economics gives us great vision that enables us to “see”.
This holiday film may be attributed to Frank Capra, but it could have just as easily been called “Frederic Bastiat’s ‘It’s a Wonderful Life’.” The central theme of the film is a creative example of Bastiat’s “That Which is Seen, and That Which is Not Seen”—which is (as both Boudreaux and I claim) the most important essay in economics.
In the opening line of his essay, Bastiat writes,
In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.
The film, of course, shows the effect not of laws or policy, but of people. When Ma Bailey gave birth to George she also gave “birth not only to an effect, but to a series of effects.”
George was able to see the effect of his existence on his own life but he did not have the foresight to truly see the effect he had on others. That’s where Clarence comes in. He may be a guardian angel but he helped George by being a “good economist” and showing him the unseen effects of his life. “You’ve been given a great gift, George,” says Clarence. “A chance to see what the world would be like without you.”
Because of his life, George not only affected the people of Bedford Falls but affected the lives of people across the United States. As Clarence explains, if George wasn’t around to save his kid brother Harry, Harry wouldn’t have been around to save the hundreds of men who would have died on the troop transport in World War II.
The film teaches us that we often have an effect on the lives of others that are not seen. What we should also remember is that the effect people have can sometimes be mediated through laws and policies. That is why we need to constantly ask not only what unseen affect we are having on the lives of others, but what unseen effects the policies and laws we advocate for will have that we may not have considered.
Principle #2: Our world is unavoidably one of trade-offs and not “solutions.”
Whenever we make a decision about how we will spend our time, money, or other resources, we are making a trade-off, giving up one thing for another. This trade-off creates an opportunity cost, the cost of an alternative that must be forgone in order to pursue a certain action.
For example, George makes a trade-off in deciding to stay and work for the family business while his younger brother goes to college. He later makes a similar trade-off by agreeing to stay with the company so that his brother Harry can take a job in a more promising field. The opportunity cost for George is the college education he had to forgo and the jobs for adventurers (“Venezuela oil fields – wanted, man with construction experience. Here’s the Yukon, right here – wanted, man with engineering experience.”) he’ll never get to take by staying in Bedford Falls.
For most of the film, George is faced with nothing but trade-offs—ones he’d prefer not make. The opportunity costs he faces (such as turning down a job from Mr. Potter that would have paid $20,000 a year—$365,904 in 2015 dollars) are costly, both in terms of money and self-fulfillment. And yet he repeatedly make trade-offs that and benefit others more than him.
As I’ve written before, what makes George one of the most inspiring, emotionally complex characters in modern popular culture is that he continually chooses the needs of his family and community over his own self-interested ambitions and desires—and suffers immensely and repeatedly for his sacrifices.
Although sentimental, Capra’s movie is not a simplistic morality play. It’s true that the movie ends on a happy note late on Christmas Eve, when George is saved from ruin. But on Christmas Day he’ll wake to find that his life is not so different than it was when he wanted to commit suicide.
Nothing much will change because there are no perfect “solutions” to what George should do with his life. He may have avoided the current crisis but another will arise again in the future. He will continue to face trade-offs in the future, some which are likely to require great sacrifices from him. But by the end of the film he has realized that the trade-offs he has made to benefit others are worth the opportunity cost he had to pay. That lesson, one we often need to learn for ourselves, is a key reason “It’s a Wonderful Life” endures both as a holiday classic and an exemplar of economics in film.