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Dear Readers,

Welcome, as always!

Recently, when we discussed the economics of Middle-earth, Tolkien told us that he was not entirely ignorant about such matters, saying “…the situations are so devised that economic likelihood is there and could be worked out”. LT, 296

So that’s what we’ve set out to do in this posting, working out something of those economics in a modest way.

The Hobbit, as everyone knows, began as a story for his children, set in a fairytale world of elves, goblins, dwarves, and a dragon—the sorts of things which, in Tolkien’s essay “On Fairy Stories”, are derived from fantasy, which is “a natural human activity. It certainly does not destroy or even insult Reason,” but enhances it, lest fantasy become mere “Morbid Delusion” (which, later in the essay, Tolkien links with a work like Alice in Wonderland).

But something begins to happen, even early on, when Bilbo signs a contract before setting out for his adventure—an odd start for a fairytale hero who, traditionally, has to prove himself.  The story proceeds for some time in fairy tale mode, but then, when the party loses everything in Mirkwood, it’s necessary for Bilbo and Company to resupply and here the story moves seriously from a fairytale world to capitalism, as the fairy tale quest evolves into a commercial venture.

To replace lost materiel, the company turns to the people of Laketown,


who provide it–and clearly do so on speculation, since the Dwarves have nothing to offer but promises.

The fairytale then seems to resume.  The party reaches the mountain, gets in, the dragon wakes–but then things go very wrong, at least for the investors, as Smaug, easily putting together that two and two equal Laketown, sets off to destroy it and is destroyed himself, in the process.  And then the fairy tale comes apart completely in a potential war over economic resources and compensation for damage caused during the investment:  Laketowners versus Dwarves, which escalates when Elves stake a claim and then Dwarves come to reenforce Dwarves and then, just to keep things in flux, a goblin army arrives. One almost wonders whether the Eagles, when they arrived, have invested in Laketown bonds and are expecting to cash them in, with interest!

When all of this is resolved, we might think that we’ve returned to the fairy tale world once more:  Bilbo, with his share of the hoard, sets off for home, where happily ever after lies–or does it?


In The Odyssey, Odysseus comes home to find his house in the hands of suitors, and must deal with them with the help of a goddess—very much a folktale. Bilbo comes home to find that his house and goods have just been auctioned off, and has to retrieve his happy ending by buying back his own things. That initial contract seems to have haunted the story, even to this moment.

Fantasy for Tolkien was, “founded on the harsh recognition that things are so in the world as they appear under the sun”—one of those things was economics, something which Bilbo may have found almost as unavoidable as a vengeful dragon.

What do you think, dear readers?

As always, thank you for reading,