1 November 2019

JRR Tolkien and the economics of Middle Earth


I recently raced one of my friends to see which of us could read The Lord of the Rings fastest. Sadly, I was pretty comprehensively trounced. But it got me thinking. As a hugely popular work of fantasy, it’s easy just to see the epic trilogy as a glorious exercise in escapism. But that is to ignore the backdrop against which it was written – peek beneath the surface and you’ll find a sophisticated critique of socialism, totalitarianism and the functioning of the market. Fundamentally, it’s a trilogy that offers great insight into how prosperity is generated and destroyed.

Take, for instance, the kingdom of Gondor, once so resplendent, now slowly waning. For hundreds of years there has been constant war with the forces of Sauron. This has drained the resources of Gondor, not only in terms of money and capital, but more importantly in sheer numbers of fighting men. By the time Sauron’s war reaches its climax, when his forces besiege Minas Tirith, there are barely enough soldiers to defend the city.

Meanwhile the areas of Gondor that Sauron conquers are left enveloped in a dark cloud of deprivation, slavery, and the sort of centralised planning of the hard left’s wildest dreams. It’s clear from the dialogue of the Orcs that their every action is centrally directed and there is a clear dearth of decentralised decision making: It’s the orcs on the ground that have the local knowledge, but without the approval of the Politburo (or in this case, Sauron and his lieutenants, such as the Nazgul) no one can use their initiative, and make independent decisions. The War of the Ring might have gone very differently if Sauron had only got his hands on the works of FA Hayek and learnt how much information centrally planned systems miss out on compared to the decentralised free market.

This is only one of the clear similarities that Mordor shares with the Soviet Union. In a sense this is unsurprising – after all, Tolkien was strongly opposed to both socialism and central planning in general and was writing the Lord of the Rings in the 1930’s and 40’s, the same time as Communism was near the height of its power. The Soviet authorities’ fear of the anti-socialist ‘hidden allegory’ meant that it wasn’t until the fall of the USSR that a full translation could officially be made (And for those who throw accusations of racism at Tolkien, he was also a clear opponent of the race policies of Nazi Germany).

Sauron’s Soviet-style kingdom is in direct contrast to the free peoples of the West. While kingdoms such as Gondor, Rohan, or Lothlorien, couldn’t be described as paragons of liberty, there is nonetheless a large degree of freedom. People have duties to fulfil, and must ride to the aid of their king or chief if they are called (as the Rohirrim are by King Theoden). But apart from that people seem to mostly follow a ‘live and let live’ philosophy, at least with regard to their own communities. This is epitomised in the land of the Shire, where hobbits live mostly quiet lives of petit bourgeois domesticity, drinking beer, cultivating gardens, and telling each other tales of lore and legend.

While the Shire does have a Mayor and a Thain, it has little other forms of official authority, and is mostly a voluntarily ordered society. In many ways it epitomises the minarchist fantasy state, with the only government services being a post office, the Bounders (a sort of unofficial border control), and 12 ‘Shirrifs’ who act as a quasi-police force (but mostly spend their time rounding up stray livestock rather than chasing hardened crims). Not so much a Night-watchman state then, as a heavily sedated, emasculated, can’t-really-be-bothered Night-watchman state.

Of course, a good dose of social liberalism would do wonders for reinvigorating these kingdoms, especially in regard to the role of women. As the example of Eowyn and Arwen shows, women (apparently the terms men and women can also be used for elves) could easily play a greater role in the defence of their realms, but are largely prevented from doing so. The free peoples of the West would have found fighting Sauron much less difficult if they had only allowed women and individuals generally the freedom to choose for themselves what role they wanted, and thereby truly fulfilled their potential.

It’s not just in the direct cost of constant war that the free peoples are harmed. There are also indirect costs, such as Sauron’s forces disrupting the lucrative trade networks across Middle-earth. From the giant spiders and forces of Dol Guldur making travel on the Old Forest road through Mirkwood hazardous. To the Great East Road, and the Greenway near Bree falling into disrepair. Traders no longer travel in the numbers or regularity that they once did.

Kingdoms like the Shire rarely interact or trade with those outside. This is despite the fact, that the Shire produces pipe weed (and appears to be a monopoly supplier), a clearly valuable and desirable commodity. In a more interconnected ‘globalised’ economy, where the roads were safe and secure, pipe weed could be sold by hobbits in the Shire, and the money used to purchase commodities that they lacked. For example, an enterprising hobbit could travel to the Iron Hills, or to Erebor, and trade pipe weed with the dwarves for gold. Or get the dwarves to use their estimable skill to craft bejewelled gold buttons, to go on his waistcoat.

Property plays a key role in the works of Tolkien, not only in terms of the epic fight for ownership of the ring, but also in terms of Aragorn’s claim to the throne, and the tension this creates with the Steward of Gondor. Property rights are pretty well developed, and legal contracts exist to protect the rights of property owners. So, despite the Shire being a mostly voluntary society, with little official authority, hobbits respect the rule of law, and the property rights of other hobbits. This is why Bilbo can safely transfer his property to Frodo, and the only way the Sackville-Bagginses can get their hands on Bag End is to buy it.

In fact, you could even read the story as a defence of intellectual property rights. It was after all the elves who originally developed the art of making rings of power. Sauron deceived them into showing him this secret craft, and then went about secretly constructing a supreme ring. If this isn’t a clear case of industrial espionage, I don’t know what is. Furthermore, the fact that the Ring of Power can control and subjugate the other rings of power and their wearers, is clearly the Middle-earth equivalent of an aggressive computer malware infection. If only the Elves had had access to a version of McAffee anti-virus, the whole imbroglio of the Ring might have been avoided.

In comparison to the wizarding world of Harry Potter there is much less authoritative scholarship on the economy of Middle-earth. However, we can still draw inferences from some of the events in Tolkien’s works. For example, in The Hobbit, Smaug’s attack on Dale and Erebor and seizure of its vast treasure hoard would have had a devastating economic impact. The destruction of property and people in the attack would severely depress demand, as people cut back expenditure to replace lost necessities such as housing and food. Many businesses would have been destroyed, as well as a vast amount of accumulated capital. This hit to supply would take years to recover from.

However, perhaps the most damaging impact of Smaug’s attack would be the severe monetary tightening that would occur. Clearly there is no advanced international currency markets upon which the dwarves could allow their currency to depreciate. And with the destruction of so many businesses and goods, there would be little way to trade with the outside world and import currency into the local economy.

It wouldn’t be quite so bad if Smaug was willing to buy stuff with the gold, since this would be a monetary injection and would provide coinage to lubricate trade. But sadly, as a rational ‘draco economicus’, Smaug maximises his utility by hoarding the gold and going to sleep. While they have nothing to sell, and no money to buy goods, trade with the woodland elves would dry up. The Elves would thus have to switch to alternative providers, who presumably would supply goods that are lower quality, or more expensive, or both. While these suppliers would obviously be better off, the Elves and the people of Dale would definitely not be. And it would be a big hit to the overall welfare of Middle-earth.

Of course, a dwarvish central bank, with paper currency could simply print money, which would help to ensure that trade flows continued. However given the greed of the dwarves, runaway printing of money and hyperinflation might well result from this, as the dwarves print more and more money to try and acquire more and more treasure. For all its downsides, having a gold specie standard does at least ensure that you can’t simply try and print (or quantitatively ease) your way out of trouble. And the only way to expand the economy and raise living standards is to become more productive with the resources you have.

It is interesting to contrast the works of Tolkien with that other epic work of fantasy about an all-powerful ring: Richard Wagner’s Der Ring des Nibelungen. Both revolve around a cursed magical ring that corrupts all who possess it, and tempts all who do not. Both deal with the question of who the ring belongs to and how the world will only be made better once it’s destroyed. But whereas Wagner’s work is an explicitly socialist allegory, condemning what he saw as the exploitation of mankind by a capitalist class consumed by greed. Tolkien’s story is fundamentally an anti-socialist tale, criticising greed yes, but not property or the Bourgeoisie.

It’s a tale which says that what the world needs is not to be remade in violent revolution, as Wagner implies, but for each of us as individuals and communities to build incrementally on what we already have. It’s a tale which argues that societies will only flourish when power is limited not arbitrary, when each individual can be secure in their property, and when even the humblest of hobbits, like Sam, has the freedom to build a life for themselves free from tyranny and coercion. So, if you’re in favour of freedom, property and against untrammelled government power and looking for a story that embodies these values, put down that copy of the Fountainhead, or Atlas Shrugged and pick up some Tolkien instead.

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Jethro Elsden is a Data Analyst at the Centre for Policy Studies