George Bailey's Road to Monetary Perdition

It happened to me again. I didn’t plan for it. I got hooked once again by It’s a Wonderful Life.

It wasn’t in my plan. In fact, it was specifically out of my plan. I tell myself every year, “I won’t watch it again.” But it seems like I always do. And so do millions of others.

I tuned in randomly at close to the beginning, when the screen had a fixed-frame image of Jimmy Stewart, arms wide apart, as if he were describing a huge fish that got away. In fact, he was describing a huge dream that would get away from him, again and again, until the very end of the movie, when he quit chasing it.

Why do we watch it? What is it about this movie that makes it prime-time fare every year, sometime between Thanksgiving and Christmas? For years, it was on cable TV and local TV almost every night, Thanksgiving to Christmas, until NBC bought exclusive rights in 1994. Everyone ran it because its copyright had lapsed in 1974, and only after a 1990 Supreme Court case involving Jimmy Stewart did the movie’s copyright come back into force. The movie was sold everywhere on videotape in the mid-1980s. You could buy it for under $10.

Why hadn’t the copyright been renewed? It had to be renewed 28 years after its release, which meant 1974. All it would have taken was a letter to the Copyright Office of the Library of Congress. The copyright’s holder forgot. Why? How?

Answer: because it was not a Christmas classic in 1974. Now it is.

Why?

THREE MOVIES, ONE THEME

Americans watch seasonal Christmas movies. We watch A Christmas Carol. I prefer the version I saw in my youth: Alastair Sim’s 1951 masterpiece.

We watch A Christmas Story. It is a compilation of Jean Shepherd stories, so it hooked me from the day I saw it 20 years ago. I have loved Jean Shepherd since 1963. My family even adopted the movie’s culminating practice: going to a Chinese restaurant on Christmas.

Despite the fact that Americans own these movies or can rent them, we watch them on TV, despite the ads.

Why? Because we know that millions of other people are watching. In the social cocoons of our living rooms, we share an experience with millions of others. We know we are sharing the experience, which somehow makes it more meaningful. What Passover is to Jews, so is watching a prime-time network Christmas TV movie for America’s gentiles. The advertisers love it.

Seasonal movies aside, two other movies serve as prime-time national celebrations: The Wizard of Oz (1939) and Gone With the Wind (1939). They always draw an audience.

I believe that It’s a Wonderful Life, The Wizard of Oz, and Gone With the Wind are united by one theme: “There’s no place like home.” Each tells a different version of the story. Each conveys this truth in a unique way. But it’s the same theme.

Dorothy runs away from home for the sake of her dog, Toto, and because nobody seems to appreciate her on the Kansas farm. A broken-down showman in a broken-down rig on the road convinces her to go home. She heads home. Then the tornado intervenes. The movie’s move from black & white to Technicolor shows the discontinuous nature of the movie. “We aren’t in Kansas any more, Toto.” She still wants to go home. All of the miracles and spells, and all of the Wizard’s theatrics, can’t get her home. But clicking the slippers three times does. Message: “Home is where your family is.”

For Scarlett, not being hungry again is her stated goal, but the lesson she learns is that there’s no place like home. Money, travel, and Rhett are temporary substitutes for home. She finally goes back to Tara when everything else turns sour. The movie’s theme song is “Tara’s Theme.” Message: “Home is where your land is.”

In It’s a Wonderful Life, George never leaves home. But he wants out. From the beginning to the end, the story is about a man who struggles with finding home. He wants to travel and do great things. He doesn’t travel, nor does he do great things. But at the end, he discovers that he did do a great thing. It is this discovery that is the heart of his redemption. He discovers a world of miracles at the margin. But he discovers it in his drafty home. The movie conveys a fundamental message: “Home is where your mortgage is.”

All three movies are wrong. Home is where your rest is — above all, your eternal rest. But this theme is rarely seen in Hollywood movies. A Man Called Peter (1955) is one of the few.

A CONFLICT OF VISIONS

It’s a Wonderful Life is about a conflict of visions: Potter’s vs. Bailey’s, the bank vs. the building & loan, rentals vs. mortgages. Ultimately, though never said, it’s about the FDIC vs. the FSLIC. (Federal Deposit Insurance Corporation vs. the Federal Savings and Loan Insurance Corporation.)

This same conflict is with us still. It is driving the price of housing to unsustainable levels in California, Boston, and other coastal centers. Rental income is not keeping pace with the rise in home prices: the classic sign of a housing bubble.

We have all bought homes in Bailey Park rather than renting in Pottersville. “Home is where your mortgage is.”

In 1946, this was the most important socially important issue facing America: “Would Americans rent or own their own homes?” The movie opened in December. Within months, Levittown went into operation. The suburbs were about to come into being, sustained by government-funded highways and mass-produced automobiles. The returning vets wanted to own their own homes, and if that meant moving away from small town life, so be it.

It’s a Wonderful Life is an exercise in nostalgia today because Levittown and the FSLIC guaranteed the replacement of small-town life, where there are few jobs and few new homes. The movie in 1946 identified the future: Bailey Park, a subdivision where the Martinis could buy a piece of America, and even bring their goat, as though zoning and restrictive covenants would not keep that world out.

The movie is amazingly subtle, despite its unsubtle script. It’s about a conflict of visions. It seems to be about Potter’s thwarted vision vs. George Bailey’s thwarted vision. But there is a third vision, which turns out to be the triumphant vision. The third vision is rarely discussed and barely perceived, yet it is the movie’s core vision. It is presented in a far more subtle way. It’s the vision that turned It’s a Wonderful Life into a classic, four decades after it was filmed.

Therein lies the secret of its popularity.

The third vision is Mary Bailey’s vision. She wishes for the old home in the rock-throwing sequence. She wants to build a home out of an abandoned, falling-down mansion with broken windows. She wants to buy a money pit and have George pay for it. George promises to lasso the moon for her. She lassos him instead. She does it with a phone cord.

Every man who sees the opening of that scene knows what’s going to happen. So does every woman. Mary’s mom, on the upstairs extension, who is mentally adding up the rival balance sheets, sees it coming and cannot stop it.

Mary wants that house. Sam Wainright can only offer riches out of town. That will not give her the chance to fulfill her vision: turning a sow’s ear into a silk purse.

In that movie, the only person I have ever personally identified with is Sam Wainright. Plastics, baby, plastics! Get in on the ground floor while you can. He stuck his thumbs in his ears, wiggled his fingers, and said “Hee, haw!” to the whole risk-aversive world. Thank God for the Sam Wainrights of the world. Thank Him also for the free market, which lets them get rich by making us more productive and our world better.

The movie’s symbolic key to the fundamental conflict of visions — Mary’s vs. George’s — is that loose knob on the bannister. It never gets fixed. There is always something else to fix, but never enough time to fix that knob. George keeps grabbing the knob and running up the stairs. Then he puts it back. He will not glue it.

The question I asked from the first time I ever saw the movie until the latest, is this: “Why doesn’t somebody glue that knob?”

I have finally figured it out. It took me 20 years. I’m sure other film reviewers have figured it out, but I’m a slow learner. That loose knob symbolizes the conflict of visions between the Baileys.

George wants out — out of Bedford falls, out of the lending business, out of that drafty house, and ultimately out of life. The movie never says it explicitly, but he wants out of his marriage — a decidedly non-Jimmy Stewart theme. He wants the freedom to get out. Glue that knob, and he’s trapped. The knob is the symbol of his moral battle. Will he finally settle down mentally? He has settled down economically and geographically, but he has not settled down mentally. Will that knob ever be glued?

Mary won’t fix it. She knows that George has to, as a symbol of his acceptance of his life. George won’t fix it for the same reason.

Will Mary Bailey win the battle of the conflicting visions?

It’s obvious from the final scene that she wins. George is at last locked in, grinning. He will not go to jail. Uncle Billy will not go to a mental institution. (Uncle Billy needed to join AA, and George should have fired him back in 1930.) The building & loan is saved. Bailey Park is saved. Potter is once again thwarted. Clarence gets his wings. All’s well that ends well.

Conclusion: let’s all go out and buy a home with a 30-year fixed-interest-rate mortgage. Let’s all move to Bailey Park.

And so we have.

BAD ECONOMICS

The movie seems to be about slums vs. new subdivisions. In the miracle sequence, Pottersville is a downtown jungle of bars, lewd stage shows, pawnshops, and prostitutes. It’s Potter’s vision in neon. Message: only mortgage money can save Bedford Falls from becoming Pottersville.

Economically, this is nonsense. Fractional reserve banking is the road to monetary perdition, but fractional reserve savings & loans are not the road to heaven. That both roads are today protected by the government-subsidized FDIC is symbolic.

The FSLIC went bust in the 1980s, and this event threatened to take the American economy with it. Borrowing short and lending long for mortgages was the heart of that crisis, and taxpayers’ money by the hundreds of billions was necessary to keep us from the path of redemption paved by George Bailey.

I have never seen a reviewer mention what should be obvious: the movie achieved classic status after 1974. This was an inflationary era in which housing prices soared, with three recessions (1974, 1981, 1982), with high interest rates in 1980—85, producing an outflow of funds from savings & loans to the newly invented money-market funds, which produced the savings & loan crisis, which were borrowed short and lent long. The collapsing S&L industry threatened to bring down the American dream — home ownership — by ending government-guaranteed mortgages. That would have meant the end of the wonderful life, circa 1985.

In 1946, the movie barely broke even.

ZU ZU’S GENERATION

Each generation gets trapped in its own house, which reflects its vision.

In 1946, the big old house, still drafty, was pictured as the American dream come true. A woman with a vision lassos a husband to fund her personal reclamation project. He sacrifices his vision for hers and every other wife’s in Bedford Falls. Even Violet gives up her vision of an escape to the big city.

The fact is, Zu Zu’s generation left Bedford Falls no later than 1960, returning for Thanksgiving and Christmas to visit the old folks. The FSLIC secured the subsidized funding for this move: the Levittowns of America, the suburbs. Almost nobody under 70 lives in Bedford Falls any more. We may dream of moving back in our old age, but it’s just a dream. We work in cities, and we commute to the suburbs. So do our children.

There are no more neighborhoods. There are only subdivisions. When the building & loans went bust in the mid-1980s, nobody collected a basket full of cash to bring to the founders’ sons. Instead, voters called on Congress to bail out the system, and Congress obliged. Zu Zu’s kids and grandkids will be paying for that bail-out.

Call the whole process “from Bailey to bailout.”

THE BAILOUT

A major crisis of the movie is the run on the building & loan. Why it could be solved in one day, Capra’s script did not say. How the newlywed Baileys scraped together $2,000 — worth almost $28,000 today (www.bls.gov) — for a honeymoon in 1932, the bottom of the depression, was never made clear. Some honeymoon!

It was that fear of depression and bank runs in 1946 that still paralyzed millions of members of the older generation. The head of Montgomery Ward, Sewell Avery, was convinced that another depression was imminent. He had the company hoard cash. He refused to go into debt to expand. Sears did, building stores in the newly invented shopping malls of the suburbs. Montgomery Ward never recovered.

The Full Employment Act of 1946 was signed into law, guaranteeing government intervention to insure full employment without inflation. The Federal Reserve System in turn guaranteed that law. That fact guaranteed inflation. Today, it takes almost $9,800 to match the purchasing power of $1,000 in 1946.

The federal government’s mortgage loan guarantees have now trapped generations of Americans in long-term mortgage debt to pay off the Bailey Park homes that we all believe is the fulfillment of the American dream. Pottersville is confined to central cities, where residents’ credit ratings are low. Only the down-and-outers live there — and Latinos, who move two or three families into a home to make the mortgage payments. They are the up-and-comers in the Southwest and Miami. They are making the American dream work for them, changing it as they do.

SOCIAL MIRACLES AT THE MARGIN

The movie’s surface theme is that miracles occur at the margin. George Bailey makes loans to borrowers who buy homes. One by one, the community changes. Old homes are restored. George lives in one. New homes go up. Potter’s rental income falls when families move to Bailey Park. Loan by loan, everyone with character can buy a piece of the American dream. This keeps Bedford Falls from turning into Pottersville.

This is a fairy tale for grown-ups. Potter would have had competition from other banks. If Bailey’s building & loan survived the Great Depression, it would have had imitators. But the basic theme of the movie is this: greed thwarts the good life, but self-sacrifice builds a decent place to live. This theme resonates with Americans. Indeed, it’s a fundamental theme of the Bible.

The problem is, we have all bought into the 1946 vision of the crucial arena of greed vs. self-sacrifice: the mortgage market. Anything that undermines cheap mortgage money is seen as Potterism. Cheap mortgage money is seen as the American’s birthright. It wasn’t in 1930, when people had to pay 40% down to buy a house, just as they do today in most European nations. In 1947, Levittown began to change all that, with help from the FSLIC: a new home in a suburb for $10,990, $67 a month.

“Buy now, pay later” is paralleled by “borrow short, lend long.” The first slogan governs the borrowers. The second governs the lenders. It’s a symbiotic system. It rests on fractional reserve banking and central banking, which insures the commercial banks by guaranteeing permanent monetary inflation.

The miracle of the free market is the idea of miracles at the margin. The West’s economy has grown at 2% to 3% per year, compounded, despite wars, for 250 years. We live more comfortably than kings lived in 1850. As P. J. O’Rourke says, when you think “good old days,” think “dentistry.” The miracle is the compounding process.

The fly in the ointment is fiat money and the expansion of debt that it subsidizes. Everywhere we turn, we are caught in a massive web of debt. This debt is denominated in currency units, mostly dollars. The web holds because central banks keeps buying government debt, which expands the monetary bases, which multiplies through the fractional reserve process. The purchasing power of money falls, marginally, year after year.

The terror of this system is the terror of It’s a Wonderful Life: the bank run. It’s the terror of banks’ being borrowed short and lent long. As voters, we are willing to accept anything defers this threat. Today, there are $140 trillion in unsecured, high-leverage debt/credit agreements, over 80% of which are tied to shifts in interest rates. This is the derivatives market. A few of us worry that the system is being managed by Uncle Billy. But most people don’t know about it.

The more I look at photos of Alan Greenspan, the more resemblance I see to Thomas Mitchell.

THE HOUSING BUBBLE

We are in the midst of a housing bubble in the cities, i.e., blue America. A housing bubble is easy to define: where the monthly mortgage payment for new buyers after taxes is higher than a rental payment for a comparable property. This is George Bailey’s legacy to America.

The bad guy in the movie is Potter. He is a slum lord. The hero is George Bailey. He lends depositors’ money to home buyers. So ingrained is this vision that, today, almost 70% of Americans are home owners, meaning mortgage signers. The younger ones are leveraged to the hilt. They expect the government to keep the boom going, so that they can pay off their debt. They want an appreciating asset — a home — despite the fact that the price of this appreciating asset is a depreciating dollar. The government turns to the Federal Reserve System to sustain the boom — and also to the central banks of Japan and China. Inflation is consuming the voters’ meager retirement portfolios’ purchasing power.

We love the movie’s message: “Home is where your mortgage is.” We still believe it. We still feel warm and bubbly when George gets that basket full of money, which seals his fate, and ours.

Clarence got his wings. So did the purchasing power of the dollar, which flew away.

I know exactly what happened the next day. George went to the tool chest, got out some glue, and fixed that knob. He was done. So was his dream of escaping Bedford Falls.

So is the dollar.

CONCLUSION

There is a conflict of visions in this life. There is a war between self-sacrifice and greed. The genius of the free market is that it converts greed into consumer-satisfying productivity.

As Adam Smith wrote in 1776:

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.

Potter vs. Bailey would have produced much the same outcome. This is because people finance their dreams in a competitive market. They don’t care whether Potter is a grasper or Bailey is generous. They deposit their money in the institution that gives them the best rate of return consistent with risk. They borrow money from the institution that offers them the best terms. It’s lenders vs. lenders and borrowers vs. borrowers. It’s not greed vs. generosity. This is the socially and ethically revolutionary aspect of free market capitalism.

Sam Walton was a nice man, but his heirs are not worth $100 billion today because he was nice. Sewell Avery was a vocal defender of the free market, but he lost out to Sears because he did not understand the economic implications of It’s a Wonderful Life: the FSLIC, in conjunction with the Federal Reserve System, was creating a new society with new institutions, the suburb and the shopping mall.

We now live in George Bailey’s world. We have substituted government loan guarantees for bank runs, fiat money for the gold standard, and 30-year fixed rate mortgages with 5% down for 5-year balloon payment loans with 40% down. We live in a world where most Americans are in debt all of their lives, dreaming of winning the lottery and having the government guarantee their pensions, their old age, and their health care expenses.

The buffalo gals have come out at night to vote by the light of the moon. We have become a nation of lunatics.

That’s why we watch It’s a Wonderful Life, year after year. It comforts us in our lunacy.

It’s a good-hearted movie. It’s about family values and hard work. I’ve written about it before.

But underlying the good is an assumption: “Home is where the mortgage is.” This assumption is false. It is more widely believed than it was in 1946.

December 2, 2004

Gary North [send him mail] is the author of Mises on Money. Visit http://www.freebooks.com.

Copyright © 2004 LewRockwell.com

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