The Economics of Frank Capra's “It's a Wonderful Life”

James Stewart and Donna Reed in It's a Wonderful Life

The sentiment and spirituality of Frank Capra’s 1945 classic It’s a Wonderful Life has made it a Christmas season classic. Audiences love seeing James Stewart's transition from bleak, snowbound despair, to joyous Christmas exuberance, because most of us have endured such extremes in our lives, too. Less widely considered, though, is the economic philosophy supporting the story. And it provides a hopeful blueprint for America’s future.

George Bailey (James Stewart) has many conflicts in this movie. Urban dreams versus small-town realities; goals for the future versus obligations to the past; individual autonomy versus marriage and family. But for our purposes, the most important conflict pits the Bailey Building and Loan against Henry Potter (Lionel Barrymore), who personally controls the bank, apparently making major decisions from his oaken desk.

The difference between Bailey and Potter couldn't be more stark. The Building and Loan gives applicants money enough to build their own homes, which they can own freely and build equity on. As Peruvian economist Hernando de Soto observes, in the United States, the most common source of funds to launch a new business comes from the mortgage on the owner’s home. So a house admits its owner into the ranks of economic mobility.

Mr. Potter, by contrast, keeps a tight hand on money. He gives loans out sparsely, lecturing young George Bailey on the moralistic importance of cultivating a strong work ethic. If we make access to credit as difficult and laborious as possible, people will, it follows, work harder and with greater diligence for everything they have. If, while they're building credit, they have to live in Potter’s dilapidated rental properties, that’s surely an ancillary issue.

Lionel Barrymore in It's a Wonderful Life

If we see this entirely in Cold War terms, it’s easy to mistake Capra's economic ideals. Someone, name blocked out in released documents, used It’s a Wonderful Life to prove that Frank Capra was a secret Communist. If he pitches Potter, the primal libertarian capitalist, as the film’s villain, then clearly Capra must be a dirty pinko. Since the world clearly only exists in black and white.

Except that in mocking the villainous capitalist, Capra doesn't reassign authority to the state. The Communist takes power from citizens, and concentrates it in the hands of the state, or an organization that operates with state-like power. G.K. Chesterton noted, nearly a century ago, that for most people, the difference between capitalist and communist society is vanishingly small. The choice between living under state-controlled or privately managed bureaucracy is no choice whatsoever.

Given the Cold War dichotomy between The Market and The State, it’s easy to mistake It’s a Wonderful Life for Communist propaganda. Except George Bailey doesn’t arrogate power into the state; he distributes power into the people’s hands. Not that famous socialist canard, The People, but the ordinary people, who have jobs and will use house-building money to improve their situation and join the upwardly mobile ranks.

“I feel that in a small way we are doing something important,” says Pa Bailey in the movie. (James W. Rodgers’ stage adaptation, a community theatre staple in which your humble commentator recently performed, reassigns this speech to Uncle Billy.) “Satisfying a fundamental urge. It's deep in the race for a man to want his own roof and walls and fireplace, and we're helping him get those things in our shabby little office.”

In other words, owning one’s own house, knowing one has freedom to improve or trash or mark up and sell one’s nest, gives one power. Mr. Potter, in attempting to own everything in town (he’s specified as owning the bank, department stores, and bus line), wants to concentrate power over the entire distribution chain in his own hands. The Bailey Building and Loan distributes that power onto those most immediately affected by relevant decisions.

Jeff Ensz, left, as George Bailey, and your author, Kevin L Nenstiel, right, as Clarence
Odbody, in the 2017 Kearney Community theatre production of It's a Wonderful Life

This system isn’t perfect. Recent economic changes have seen populations engage in flocking behavior, making access to simple resources like houses, harder to come by. The house Giuseppi Martini purchases in the film, an austere cottage in Flintridge, California, last sold in 2003 for $745,000; Zillow estimates it’s now worth twice that. Even George Bailey’s distributed system needs offsetting influences.

But a decentralized economy provides that. The system we have now, which concentrates wealth into fewer and fewer hands, while crippling citizens’ ability to organize countervailing influence, rewards Potter-like behavior. Claiming Potter is okay because he isn’t the state is fatuous. Concentrated wealth, public or private, almost always precipitates abuse. George Bailey simply provides citizens the ability to join the system.