Posted 9:48 pm Wednesday, January 09, 2013
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Middle Earth and monetary policy
In a hole in the ground, there lived an economist. Not a nasty, dirty, wet hole, filled with the ends of worms and an oozy smell, nor yet a dry, bare, sandy hole with nothing in it to sit down on or to eat: it was an economist-hole, and that means debate.
Astute readers will recognize those lines, slightly altered, from “The Hobbit,” the J.R.R. Tolkien masterpiece that is now dominating the box office in cinematic form.
Perhaps it’s just the time of the year, or perhaps lots of economists took their children to see the movie, but in any case, the hottest debate in economic theory today is the monetary policy of Middle Earth, as represented by Smaug, the dragon.
Frances Woolley of Carlton University started off the discussion with an observation on the flow of money, once the dragon had seized the dwarves’ city.
“Smaug the dragon is typically viewed as a fiscal phenomenon, depressing economic activity by burning woods and fields, killing warriors, eating young maidens, and creating general waste and destruction,” she writes. “Yet peoples — whether elvish, dwarvish, or human — have considerable capacity to rebuild. Why did the coming of Smaug lead to a prolonged downturn in economic activity, rather than a short downturn followed by a period of rebuilding and growth? The full economic impact of Smaug can only be understood by recognizing that the dragon’s arrival resulted in a severe monetary shock.”
It’s a fascinating discussion (no, really) with Keynesians and other types of economists chiming in. Smaug could be viewed as a tight Federal Reserve policy — he’s sitting on the money (literally) and that depresses markets and prices. When he is defeated, the money begins to flow again, benefitting the entire world.
Astute readers will recognize those lines, slightly altered, from “The Hobbit,” the J.R.R. Tolkien masterpiece that is now dominating the box office in cinematic form.
Perhaps it’s just the time of the year, or perhaps lots of economists took their children to see the movie, but in any case, the hottest debate in economic theory today is the monetary policy of Middle Earth, as represented by Smaug, the dragon.
Frances Woolley of Carlton University started off the discussion with an observation on the flow of money, once the dragon had seized the dwarves’ city.
“Smaug the dragon is typically viewed as a fiscal phenomenon, depressing economic activity by burning woods and fields, killing warriors, eating young maidens, and creating general waste and destruction,” she writes. “Yet peoples — whether elvish, dwarvish, or human — have considerable capacity to rebuild. Why did the coming of Smaug lead to a prolonged downturn in economic activity, rather than a short downturn followed by a period of rebuilding and growth? The full economic impact of Smaug can only be understood by recognizing that the dragon’s arrival resulted in a severe monetary shock.”
It’s a fascinating discussion (no, really) with Keynesians and other types of economists chiming in. Smaug could be viewed as a tight Federal Reserve policy — he’s sitting on the money (literally) and that depresses markets and prices. When he is defeated, the money begins to flow again, benefitting the entire world.
Other economists say Smaug could be viewed as a reason to develop fiat (paper) currency. Reliance on gold leaves societies open to such disasters, they say. The peoples of Middle Earth could instead develop scrips to exchange for goods. (One dissenter points out that paper catches fire pretty easily, however.)
But so far, none of the economists has pointed out the obvious. “The Hobbit” is a tale of risk and reward — of entrepreneurship.
There is a mountain full of gold — and, incidentally, a dragon. Bilbo Baggins, a hobbit with an inborn streak of adventurism, weighs the risks against the rewards, and he sets out to help win back the gold. He’s well aware of the dangers (the dwarves mention incineration as a possible, even likely outcome). But with full knowledge, he set out with the company to pursue financial gain.
Isn’t that what an entrepreneur does? In our own world, they may not risk life and limb, but they certainly risk their livelihoods and the economic stability of a paycheck from someone else to venture forth and start a business of their own.
As Bilbo shows in “The Hobbit,” it’s not about greed, either. In the end, he accepts only a couple of small casks of gold.
They call economics the “dismal science.” But here, “The Hobbit” brings a little magic to it.
But so far, none of the economists has pointed out the obvious. “The Hobbit” is a tale of risk and reward — of entrepreneurship.
There is a mountain full of gold — and, incidentally, a dragon. Bilbo Baggins, a hobbit with an inborn streak of adventurism, weighs the risks against the rewards, and he sets out to help win back the gold. He’s well aware of the dangers (the dwarves mention incineration as a possible, even likely outcome). But with full knowledge, he set out with the company to pursue financial gain.
Isn’t that what an entrepreneur does? In our own world, they may not risk life and limb, but they certainly risk their livelihoods and the economic stability of a paycheck from someone else to venture forth and start a business of their own.
As Bilbo shows in “The Hobbit,” it’s not about greed, either. In the end, he accepts only a couple of small casks of gold.
They call economics the “dismal science.” But here, “The Hobbit” brings a little magic to it.
