The Economics of Scrooge

Charles Dickens' A Christmas Carol is among my favorite stories. This year, I've been reading it aloud to the family for the first time. (I started off reading it to the girls, but MrsDarwin has proved a more apt audience. Dickens' prose remains a bit beyond 5 and 6-year-old tastes.)

I'm far from being alone in my affection for A Christmas Carol, and so there are any number of movie adaptations available as well. This particular year, it happens that I saw two versions, the George C. Scott adaptation which is an absolutely superb film, and also The Muppet Christmas Carol with Michael Caine.

A number of comparisons might spring to mind when watching two such different treatments a few days apart, but in this case what struck me immediately was the way in which each movie attempted to convey the heartlessness of Scrooge's business methods.

Dickens himself is rather sketchy about what exactly Scrooge's business is, other than that it consumes all his attention. Scrooge sits in a counting house through the day, and in the outer office Bob Cratchit is seen copying letters -- a clerical task generic enough it could pertain to any business. It's also mentioned that Scrooge makes short term loans or securities on the Exchange. Or at least, that is how I take the line:
This was a great relief, because ``three days after sight of this First of Exchange pay to Mr. Ebenezer Scrooge or his order,'' and so forth, would have become a mere United States' security if there were no days to count by.

Doubtless merchant financing and options trading seemed far too complex for a children's movie, so in the Muppet Christmas Carol, Scrooge has been turned into a writer of mortgages -- or a landlord of rental properties, the scriptwriter can't quite seem to make up his mind. In the opening scene Scrooge gleefully tells Cratchit (Kermit the frog) and a small army of small clerks (the rats) to write up the next day's foreclosures to be delivered on Christmas. Gleefully rubbing his hands together, he declares that this is the best season of the year for mortgage lenders.

Later, however, when Marley's ghost (in the Muppet version transformed into the Marley Brothers, played by the hectoring old men from the Muppet Show) appears, they reminisce about the good old days when they evicted people from houses they couldn't afford the rent on. "Remember the year we evicted the whole orphanage? There they were, shivering in the street with their frosted teddy bears!"

Clearly, the point here is to portray Scrooge as being in the very worst possible sort of business, but what the screen writer seems to have been unclear on is that if you hold a mortgage as a lender the very worst thing that can happen to you is having to foreclose on it. If the homeowner had enough equity in the house to cover the balance owed, the homeowner would obviously sell the house, pay off the loan, and keep the balance. So foreclosures are only going to happen when the house is worth less than the balance on the loan. The lien holder sells the house to make back as much as possible of the lost money, but it'll invariably be a loss for him. If Scrooge is writing our reams and reams of foreclosures, he's probably about to go out of business. (After all, if foreclosures made lenders rich, our financial industry wouldn't be in such trouble now.)

Similarly, although a landlord stands to start making money again if he evicts renters who can't pay and replaces them with ones who can, he obviously loses rent in the mean time, and has to go through extra work getting rid of the old renters and finding new ones. A landlord would make much more money by finding good renters who can afford his rents in the first place.

So while the Muppet Christmas Carol seeks to make Scrooge out as the ultimate in greedy businessmen, they mostly only succeed in making him look deeply incompetent. How he could get rich by such means is totally unclear.

The George C. Scott adaption has a rather more historically and economically literate approach to Scrooge's business dealings. In an early scene, Scrooge goes down to the exchange where he meets with three men seeking to buy a warehouse full of grain which Scrooge owns. They ask him if he has reconsidered his price since the day before. Scrooge replies that he has: the price has gone up 5%. That's outrageous, they reply. No, says the imperturbable Scrooge, it's business. But if grain prices rise, the poor will suffer. That's their look out, says Scrooge. You'll end up with a warehouse stuffed with grain, they warn him. Surely, he replies, that's his own lookout. He then warns them that the price will increase another 5% if they wait until the next day -- on which threat he succeeds in closing the deal.

From what I've read about the mid 19th century British economy what Scrooge is probably doing here is using his considerable capital to buy up futures on the harvest for the year. Because it was a period of instability for many British farmers, it was often possible for a money lender to buy up the harvest in advance at vastly reduced prices. This relieved the farmer of the risk of a bad harvest, but lost him most of the benefit that would otherwise have come from a good year -- with the profits from a bountiful harvest instead going to lenders and traders like Scrooge. With sufficient dominance in such a market (and enough capital to be able to wait for scarcity to set in) Scrooge could also attempt to corner a market and wait for times of scarcity in order to sell his grain.

If one feels the need to imagine a business model that fits with Scrooge as presented in the story, this seems like a fairly reasonable way to go.