Economic Fairy Tales

Books on economics have become far more popular in recent years, with Freakonomics being one example. Fantasy books are also rising in popularity, with my beloved Harry Potter books leading the charge.

It is perhaps not surprising that someone would try to weave these two strands of literature together. Daniel Abraham‘s novelette The Cambist and Lord Iron: A Fairytale of Economics was a finalist in this year’s Hugo Awards. You can read it online here.

Without giving away too much of the story, let me just say that the protagonist is asked to solve three difficult economic questions.

I would be curious to hear what other economists think of it. I found the first answer to be the “right” one economically. But honestly, I couldn’t make much economic sense of the second and third answers.

(Hat tip: Petrea Mitchell)


TT

I agree 100%. I thought we would learn something about the difference between a man with a soul and a man without on the margin, or something like that, but instead the last 2 answers were just fairytale stories, no economic lessons.

-Economics B.A., now trader

travis ormsby

It's interesting that the author used markets to determine the price of the exotic bills in the first instance, but didn't look to markets for answers the 2nd or 3rd time.

I guess economics just doesn't make a compelling story. Pretty soon "the markets did it" starts to sound like just another version of the hackneyed "a wizard did it." A good writer needs a more satisfying (if less accurate) plot engine.

-my brain hurts

There is no "fair" price for a man's soul, but it can be traded for that of another man's. Put in another's position, how would you live your life?

Had the king's soul been in that of the man who killed his own brother, would he have killed? If Bernard Madoff was a University of Chicago professor, would his soul compel him to reveal the hidden side of everything and had Levitt created an investment house that became a Ponzi scheme would he reveal the hidden side of the business or simply flee to the Caribbean?

Ben

The second one is a very easy question for markets; all he had to do was ask people how many days they would be willing to live in the prison for one day as the King.

I'd be interested to hear a market based approach to the third one; it would appear that there are significant barriers to liquidity.

misterb

If you want a more in-depth fantasy about economics, read the "System of the World" trilogy by Neal Stephenson. Again, there's a lot of "entertainment" content, but Stephenson gives us an insightful view on the founding of the capitalist system.

Reading these books takes quite an "investment" though as it must be close to 2000 pages all told.

Craig

@#5, misterb, Per Amazon.com the three volumes together are 2,668 pages (960 + 816 + 892).

* http://www.amazon.com/Quicksilver-Baroque-Cycle-Vol-1/dp/0060593083/
* http://www.amazon.com/Confusion-Baroque-Cycle-Vol/dp/B0009K765I/
* http://www.amazon.com/System-World-Baroque-Cycle-Vol/dp/B0009K76DA/

When they were first released in hardback, they weren't worth purchasing (to me) because of their size (I have so many books that I prefer to purchase paperback because I can store 6-8 paperbacks in the space of a single hardback). For Christmas, my wife managed to reserve all 3 books from the library so that I could read them consecutively. I then spent the next several weeks hauling them back and forth to work, reading them on the bus and train and while waiting for connections. The books certainly made for better use of that otherwise wasted time, but pointed out the inefficiencies of mass transit. Shortly after finishing The System of the World, I quit using public transit and went back to driving, and found other uses for the extra 1-2 hours in my day.

Once the trilogy was released in paperback, I purchased them for my collection. I've been meaning to re-read them; thank you for the reminder.

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doc

This is a fairytale. A traditional literary form which wraps a lesson in some fantastical story. Misdirection is the watchword, and here rather than teaching us lessons in economics, perhaps we should listen to the lesson about economics.

The central character can be said to have a very sharp economic mind. The first challenge is essentially a straightforward application of what he knows. The second is a trick. The implied question--is the life of a king worth more than that of a prisoner--cannot be answered by economic principles. The variables are to great and the value judgments impossible to make with any degree of accuracy or impartiality. Instead, he answers the literal question. Economics can tell you how many days you will live, but not how much you will enjoy it.

For the third dilemma, the protagonist does not even try to apply economic principles. The question cannot be answered with facts and figures being correctly tallied and applied with neutral, careful, and impartial consideration.

So, the lesson seems to be that though economics is a powerful tool and can be used in many novel ways, it is not capable of answering all of life's questions. And, as a caveat, not every economic answer will be useful in the desired.

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DB

I strongly second misterb in recommending Neal Stephenson's Baroque Cycle (The System of the World is the third book in the trilogy). The books are not only amazingly detailed and dryly funny- they actually weave in a great deal of historical and scientific, and to a lesser extent economic, information. This summer, I waded through all ~2700 pages, and I can honestly say I haven't enjoyed a series that much in quite a long time.

AaronS

I enjoyed the story. I thought the first question was solved nicely, and that the third question, with it's revelation about what Lord Iron was up to, was very nicely done (even if I'm not sure of the actual solution given).

I would have thought that Jesus' parable would have been the solution--the one in which He said of a man, "What shall it profit a man if he gain the whole world and lose his own soul?"

That would at least let us know a few things:

1) The worth of a soul is worth more to it's owner--whether he knows it or not--than then whole world. That is, the world is not enough to allow him to "profit" by exchanging his soul for it.

2) It implies that there are things that can be done (or left undone) to cause one to lose one's soul...and, conversely, things can be done or undone that can cause one to not lose one's soul. From a Christian point of view, it is, of course, the acceptance of Christ...but there seems to be more involved. That is, the man who lost his soul was not addressed about failing to accept Christ. Rather, it seems his failure had to do with his desire to build bigger barns to hold his crops, his decision to let his soul "take it's ease," and the such. Perhaps it is implied that he lvied only for himself....

A wonderful story, Steven--thank you so much for sharing it!

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Matt

It seems to me all three questions were answered with economics. With regards to the third question, the value of the soul is the life of excess Lord Iron lived. That is the price he 'lost' his soul for, and it is the price Olaf sold his for.

Johnni

This morning I determined to give up on Stephenson's Baroque cycle, after making it through the first volume, giving up, returning to the second volume a year later, and getting halfway through it. This time I'm putting it away for good.

As much as I love the descriptions of 17th century Germany and the Netherlands, and as fun as the bits of economics are, his characters only fall in to two categories: Men, who are bumbling nerds at best and nefarious evildoers at worst, and Women, who are vastly intelligent superwomen at best and mildly interesting angels at worst.

It sounds strange but after reading so many of his novels, I just feel like I'm seeing the same two characters on every page of every book. Not to mention the amount of graphic sexual violence against men portrayed as humorous that takes place in the System of the World books. (Both of the main male characters in the first book undergo some form of castration or mutilation, and literally dozens more such occurrences are related in the second book with humorous intent.)

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Wendi

The economics of the third vignette was simple just like the first. It all comes down to the trade. Your soul is worth whatever you're willing to trade for it.

Jamus

I think that the reason why the second and third answers are unsatisfactory (from an economic standpoint) is because the exchanges do not occur at the margin (although it is debatable whether the third one actually does). The second uses economics to the extent that it relies on the principle of revealed preference; however, the actual rate of exchange relies on the revealed valuation of each individual rather than what the market is willing to bear. It may well be the case that the exchange is worth much more, as implied by poster Ben. The third uses the notion of welfare enhancing trade; however, the trade involved a market of only two individuals. But one could as easily argue that informational asymmetries and individual preferences may have precluded a thicker market, and so the exchange was actually socially efficient.