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This is one of my favorites short stories. O. Henry uses irony to great effect in the "Gift of the Magi." A brief explanation of the main point will show this nicely.
The two main characters, Della and Jim, are described as poor. The opening sentence, which describes how much money Della possessed says it all. "One dollar and eighty-seven cents." Even in their poverty, they are rich in generosity. Della, in order to buy Jim a present, cuts and sells her hair. Jim, on the other hand, sells his most prized possession, a pocket watch to buy combs for Della beautiful hair. So, the first irony is that in poverty, the couple is rich in giving.
The most ironic part of the story is the exchange of gifts. Della sells her hair to buy Jim a chain for his watch and Jim sell his watch to get combs for Della's hair. In the end they have useless gifts, but these gifts are the greatest, because they express sacrificial love.
We can even say, in a sense, the exchange of gifts is foolish, because there is no use for them, but their hearts show that they are wise. As O. Henry says at the end:
"The magi, as you know, were wise men--wonderfully wise men--who brought gifts to the Babe in the manger. They invented the art of giving Christmas presents. Being wise, their gifts were no doubt wise ones, possibly bearing the privilege of exchange in case of duplication. And here I have lamely related to you the uneventful chronicle of two foolish children in a flat who most unwisely sacrificed for each other the greatest treasures of their house. But in a last word to the wise of these days let it be said that of all who give gifts these two were the wisest. O all who give and receive gifts, such as they are wisest. Everywhere they are wisest. They are the magi."
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