Frank Capra’s 1946 classic film, It’s a Wonderful Life, stars Jimmy Stewart as George Bailey, the-salt-of-the earth head of a small town building and loan bank. At one point late in the movie, as a result of some devilry by a competitor, the soundness of Bailey’s bank comes to be questioned. The result? A classic run on the bank, shown in the movie by a mob trying to get their deposits back at the bank window. Stewart’s explanation to his depositors could be straight out of an economics textbook. “I don’t have your money here,” he tells them. “Your money is being used to build your neighbor’s new house.” Just like the goldsmiths of yore, George Bailey’s banks lent out their deposits, creating money. Bailey’s defense against the bank run was easier in a time when people knew their bankers. “What we need now,” Bailey assured us with Jimmy Stewart’s earnest acting, “is faith in each other.” In today’s market, faith in the government is the more typical defense against a bank run.

Another cinematic look at bank runs, by the way, comes in Mary Poppins when Tommy, one of Poppins’ two young charges, loudly insists in the middle of the bank where his father works that he wants his tuppence back and the bank won’t give it to him. The result? Another bank run, British style!

Finally, there is Wyatt Earp, in this case a true story. Earp in 1909, near the end of his colorful life, was hired by a bank in Los Angeles. Rumors were out that the bank had loaned more money than it had gold in its vaults. Depositors, we assume not understanding that this is common, were storming the bank to get their money out. Earp was hired to calm things down. His response was different from George Bailey’s. He took empty money sacks from the bank, hired a wagon and driver, drove to a nearby iron works, and filled the sacks with iron slugs about the size of $20 gold pieces. He drove back to the bank, where police were holding back the mob. He announced that he had about a million dollars in the wagon and began unloading the bars into the bank. He told the police to tell the crowd that “any gent who thinks he can find a better Wyatt Earp and some of his buddies were members of the Dodge City Peace Commission in 1883. From left to right (top row): William h. Harris, Luke Short, William Bat Masterson, bank to put his money into to go and find it. But he’d better be damned careful he doesn’t get hit over the head and robbed while he’s doing it.” As the bars were being loaded into the bank, the crowd dispersed.

Question

How do Earp’s remarks illustrate the advantages of paper money over gold?

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