Writing Contest: First Place

Essay Title: O'Henry's "The Gift of the Magi": Thee Ultimate Tale of Opportunity Cost

Clark Myers Chapman, The Columbus Academy, Gahanna, OH, Teacher: John B. Exline

O'Henry describes his characters in The Gift of the Magi as "two foolish children in a flat who most unwisely sacrificed for each other the two greatest treasures of their house" (Porter 6). This is a tale of Della and Jim, a young married couple living on the edge of poverty, who find themselves with few resources as Christmas approaches. The deep love they share for each other, is their major asset. A gold watch, passed down from his grandfather, is the only thing that Jim possesses of material value. Della's prized possession is her beautiful hair which falls below her knee like a "cascade of brown waters" (Porter 3).

On the eve of Christmas, with only one dollar and eighty-seven cents in her purse, Della thinks only of Jim and the pleasure he derives from his gold watch. After shedding a tear or two, she pulls herself together and visits a dealer in hair goods. In exchange for twenty dollars, Della gives up the one thing she treasures most - her beautiful hair. She then takes the twenty dollars and purchases a platinum fob chain to replace the worn leather strap currently holding Jim's gold watch.

Della returns home and anxiously awaits Jim's arrival. Anguishing over Jim's possible reactions, she whispers to herself, "please God, make him think I am still pretty" (Porter 4). As Jim walks through the door, his eyes fix upon Della and he falls into a mumbling stupor. In the midst of Della's emotional explanation and plea for approval, Jim comes out of his haze and gives Della a package. She opens it to find a set of combs that she had coveted from afar. Della is overjoyed and excitedly repays his kindness by showing him the elegant platinum fob and asking him to place his watch on the it. Only then does Jim confess that in order to raise the money to buy the combs, he sold the watch.

The Gift of the Magi is a sad and poignant story of human devotion and sacrifice. It is representative of the romance and irony found in everyday life woven into a tapestry of human intrigue by a master American storyteller. But in this tale, the great storyteller was also, perhaps unwittingly, weaving a tale of economics. The Gift of the Magi serves as a perfect example of opportunity cost, possibly the ultimate example of opportunity cost.

Opportunity cost has been defined as, "That which we forgo, or give up, when we make a choice or decision" (Case 4). The concept was spawned by the Austrian led "neoclassical" economic revolution. Carl Menger (1840-1921), in his analysis of marginal utility, developed an inherent principle of "opportunity cost," incorporating the idea that every activity or product has an alternative use" (Skousen 183). Menger's pupil, Friedrich von Wieser (1851-1914), is credited with inventing the term "opportunity cost" (Skousen 184).

The reason that opportunity costs arise is that resources are scarce. In the face of scarcity people are forced to make choices (Case 5). The real cost of using scarce resources to produce a product or result is the value of other things that cannot be produced when those resources are used to produce the desired product or result. By this logic, everything has a cost, even leisure time (Lee 164). Every choice has an opportunity cost and there are some who even define economics as, "the study of how people choose among the alternatives available to them" (Tregarthen 5).

Whether he realized it or not, O'Henry touched on the elements of opportunity cost in The Gift of the Magi. All opportunity costs decisions result from scarcity. In the case of Della and Jim no one could deny that a condition of scarcity existed. Jim's income had dropped by one-third. Their rent consumed two-fifths of that income. Expenses had been greater than anticipated. No matter how much she skimped and saved, Della could pull together only one dollar and eight-seven cents to buy Jim a Christmas present. In a cold December, Jim found himself in need of a new coat and had no gloves. Under these circumstances of scarcity, both Jim and Della each driven by love and desire to please the other were forced to make an opportunity cost decision.

Della's opportunity cost was the joy she derived from her perceived beauty. In order to provide her husband with a material expression of her love and devotion, she was willing to give up her cascading body length hair. The result she desired most at Christmas was the happiness of her husband. She was willing to forsake the joy derived from the admiration of others in order to produce that result. Jim's opportunity cost was joy derived from an irreplaceable family heirloom. Like Della his desired result was the happiness of his spouse. He was willing to forsake his prized possession in exchange for her happiness.

Each had made an opportunity cost decision. O'Henry would lead us to believe that in light of the irony of the mutual sacrifice, these had been foolish decisions. But, in economic terms, they achieved their desired results. For even though they had yielded their prized possessions, the sacrifice of those possessions created the desired result by demonstrating just how deep their love was for each other.

At this rough time in our nation's economy, our government leaders are confronted with difficult opportunity cost decisions daily. The closing of a government facility, with the loss of subsequent jobs in order to save tax dollars or to protect other programs, creates an opportunity cost decision every bit as traumatic and emotionally charged as those faced by Jim and Della. Every day of our lives, both individually and as a society, we are confronted with significant opportunity cost decisions loaded with moral, ethical and personal consequences.

O'Henry's "The Gift of the Magi"

The Ultimate Tale of Opportunity Cost


Case, Karl E. and Fair, Ray C. (1989). Principles of Economics. Englewood Cliffs, New Jersey: Prentice-Hall.

Lee, Susan. (1987). Susan Lee's ABZs of Economics. New York: Simon and Schuster.

Porter, William Sydney. (1993). Tales of O'Henry. New York: Barnes and Noble.

Skousen, Mark. (2002). The Making of Modern Economics: The Lives and Ideas of Great Thinkers. New York: M.E. Sharpe.

Tregarthen, Timothy and Rittenberg, Libby. (1996). Macroeconomics, Second Edition. New York: Worth.