Today, I’m going to use economics to dissect “The Fairy’s Mistake” by Gail Carson Levine: 87 short pages that can be read in an hour. Levine writes charming fairy tales. “Ella Enchanted”, probably her most famous, is about how the use of power leads to unintended consequences, and why liberty is to be desired above all else but requires hard work and bravery to attain. (That’s the book. I haven’t seen the movie and can’t vouch for it.) “The Fairy’s Mistake” is also about unintended consequences.
[Spoiler Alert: I will discuss the full plot including the end of the book.]
In the classic fairy tale, the naturally good, sweet young maiden freely provides some service to an old hag who turns out to be a powerful being in disguise and rewards the maiden’s service handsomely. An envious sister hears of the maiden’s good fortune and tries to duplicate the feat, but her natural selfishness botches the job and she receives her comeuppance. In Levine’s version of the tale, the fairy attempts to reward the first sister, Rosella, with unlimited riches. Every time she speaks, random precious and semi-precious gemstones fall out of her mouth. The twin sister, Myrtle, is rewarded with foulness. Every time she speaks, disreputable creatures crawl out of her mouth: spiders, snakes, frogs, insects, and worms. Unfortunately, the fairy’s gifts do not have the consequences that she intended.
The good sister cares nothing for the jewels (which end up being like a resource curse to her). She lets them fall carelessly to the ground as she sings while tending to her garden. This demonstrates that the jewels have no inherent value. (Neither does any other form of money or goods, including gold.) Unfortunately, Rosella’s careful attention does not bode well for her garden as her mother later uproots all of the plants in order to sift through the dirt for fallen gemstones. This demonstrates subjective valuation. Rosella valued the garden and its produce more highly than the pretty rocks, but Rosella’s mother placed the value of the gemstones (and what she could trade them for) above that of the plants.
A passing prince who cares nothing for Rosella’s goodness or her beautiful voice notices the jewels and immediately offers to marry her. The prince and Rosella’s mother are both careful to provide Rosella with a cup or a bag to catch any gems that she drops while speaking to them; and when she arrives at the prince’s castle, he even provides guards to stand around her bed and catch any gems that she may drop while talking in her sleep.
Rosella’s ladies-in-waiting are supposed to help her dress, but they ignore her unless she speaks. When she speaks, they fight each other to obtain possession of the jewels and end up destroying all of the fine clothes provided in Rosella’s wardrobe. Rosella is left to wear burlap. I am going to call this one a dramatic example of rent seeking. The ladies-in-waiting use their position to their own advantage, spending time and energy arguing and fighting over the division of the spoils rather than in producing value. Rosella would have been happy to reward them with the jewels, but because she did not assert a property right over the gemstones they were seen as a common good to be snatched by the fastest comer. The attempt to secure this common good as a private rent caused a considerable waste and destruction of resources.
After the engagement ceremony, all of the prince’s subjects stand in a receiving line to meet the new princess. They all bring bags and cups and buckets to catch whatever bounty may fall to them as Rosella speaks to each one in turn. Rosella wanted to give diamonds to the poor woman who needed a warm winter coat because she wanted that woman to be able to afford the warmest beaver coat, but giving her a fistful of diamonds did not trap an extra beaver, nor cause it to be made into a coat. If giving the woman a diamond meant that she could buy a beaver coat, it was only because someone else had to forgo buying that coat because the new money in circulation has bid up the price of the coat. This woman is better off and the furrier is better off because he can get a better price, but the other prospective buyer is worse off because she cannot buy a coat.
The same goes for the farmer who needed a new plow. Rosella was happy to give people money in order to relieve their suffering, but giving the farmer money to buy a new plow did not create a new plow. If the farmer uses his gift to buy a new plow, then the blacksmith who makes the plow will not have time to build the wagon wheels that he would have spent his time on. If a hundred farmers each need a new plow and show up at the blacksmith’s shop with new jewels, the blacksmith will not be able to accommodate them. The price of the plow will be bid up by all of the farmers who thought they were now wealthy enough to buy new plows. The gentleman who wants his carriage will also compete for the blacksmith’s time. All prices will be bid up, but not at the same rate. The luxuries that the people now think they can afford will be bid up first, shifting production towards these luxuries and away from other goods. Our blacksmith may hire an assistant away from a farmer or a carpenter who will now be able to produce less. When shortages develop in staples due to that shift in production then prices of staples will be bid up until the people realize that they can’t afford the luxuries and production shifts back to normal. Those that can shift into and out of luxury production the fastest will be the beneficiaries of the distorted economy. More will be made somewhat worse off. Wealth is shifted to the people who receive the gems not from Rosella but from the people that did not receive her benefaction.
It is completely rational for each of the individual subjects of the prince to stand in line all day in order to receive a fistful of wealth because if they don’t, then their neighbors will benefit at their expense. The farmer who spends his day working will still have to bid for his new plow against the farmer with a pocket full of jewels. He will be much worse off as prices rise. It makes sense individually to forgo work in order to receive the largess, but at the end of the day is the kingdom better off? Every farmer and craftsman who spent the day standing in line has had a day without production. The total output of goods in the kingdom is down by one day’s work. This means that despite the new jewels in their pockets, the kingdom is poorer. No one in the book realizes this. Everyone is happy with his or her gifts.
Meanwhile, our princess listens to all the sob stories of the people in the receiving line and wonders why there is so much poverty. When she asks her betrothed about it, his response was, “Subjects were always poor. ‘I wish they were richer too, cutie pie. Then I could tax them more.’” Taxes are a redistribution of wealth. Wealth is created through industry and trade. Excessive taxes discourage industry and trade and thus less is available to be expropriated by our charming, shortsighted prince.
Rosella is kind hearted and refuses nothing. The prince is completely blithe to the misery of his betrothed. “How could she be unhappy? If I were in her shoes, I’d be delighted. She wouldn’t be a princess today if I hadn’t come along. She gets to wear a crown. She has nice gowns. Royal Ladies-in-Waiting. And me.” This is another demonstration of the subjective theory of value. Every attempt by the prince to please Rosella results in more misery because he never bothers to hear what she wants. He just gives her what he thinks he would want. Just because he loves wild boar meat, doesn’t mean she can stomach it. Between the stress of constantly talking (and never being heard), lack of sleep (remember the guards around her bed?), and unpalatable food, she is soon desperately ill.
What about the other sister? When the mother realizes that her favorite daughter, Myrtle, was unsuccessful in duplicating Rosella’s blessing she is upset that she let Rosella leave with the prince. When they figure out that Myrtle is cursed, she demands that Myrtle stop talking. Myrtle, while upset at first, soon realizes her power. She walks into the bakery and demonstrates her curse to the horror of the baker. She promises to stop talking in exchange for some muffins. She is soon extorting goods from every shop in town and invites all of the town’s inhabitants to her fourteen-and-six-weeks birthday party. They all bring gifts. Myrtle’s curse was supposed to be a punishment, to regulate her rude tongue. The fact that she was able to quickly turn it to her advantage is analogous to regulatory capture. Later in the book, the fairy asks Myrtle to help her. When Myrtle refuses the fairy threatens to punish her, but Myrtle likes the fairy’s punishments. The ploy that secures Myrtle’s cooperation is threatening to remove the original curse. Deregulation rarely favors the regulated parties.
The grand climax of this book comes when they trick the prince into believing that Myrtle is Rosella. After being stung by a few hornets that come humming out of the mouth of his apparent betrothed, he starts to listen to her for the first time. Rosella then asserts a property right over her jewels for the first time. While the jewels have no intrinsic value and low subjective value to her, she sees that their market value is high. She has the power to stop their production by refusing to talk so she asserts a property right as a condition of speech. He thinks that this is very selfish, but agrees when he remembers the hornets. Property rights are meaningless unless backed up by the threat of force. Because of the threat of force backing up her property rights, they are finally able to meet as equals and discuss mutually advantageous terms—not what he thinks she should want, but what she actually wants. Rosella agrees to give him half of the jewels because he has made her into a princess and he is going to be her husband. She finally gets served her quail eggs instead of the hated wild boar meat. The prince and Rosella get married and eventually fall in love and get to live happily ever after. The prince uses his half of the treasure to commission a new palace of marble and a golden coach, and “Rosella was happy talking to her subjects and making sure they had enough plows and winter coats and leather for making shoes.”
After this cute story, Levine ends it with THAT drivel? If Rosella made it rain diamonds, how would this produce one more square foot of leather? Would those diamonds increase the size of the cows or the fertility of the fields? How does she cure poverty and hunger by showering the people with money? They can’t eat the diamonds. If we do not look at the kingdom as a closed system but assume that they trade all jewels to neighboring kingdoms then we are left with the same situation as the farmer who did not attend the receiving line. All of the neighboring kingdoms will accept the jewels in trade at the old price and thus be cheated until they realize that their neighbors are inflating the number of gems. Our princess will indeed be solving poverty in her kingdom by impoverishing its neighbors. This is another form of rent seeking. No wealth is created, but existing wealth (in the form of goods) is transferred out of neighboring kingdoms into this one. The neighboring kingdoms will in turn trade out the jewels (that are falling in value) to their neighbors and the poorest countries will end up being the ones farthest down the trade line. Rosella thinks she is helping, but all she is doing is pushing the poverty further away where she can’t see it. She has done nothing to increase productivity and make the world a better place—and if her prince really uses the increased nominal income of his subjects as an excuse to tax them more then she might as well have given him the jewels in the first place.
So, here we have the twin fourth branches of government. The first is the Federal Reserve, which promises to end our monetary problems and provide prosperity to all; while actually inflating our currency, and distorting our markets—but it’s okay because the plunder is divided between governmental opulence and largess. The second represents the administrative regulatory agencies: agencies that do nothing to produce wealth for society, and that are often hated because of their power to destroy businesses—but the use of power does attract followers. “Myrtle became truly popular, which annoyed her.” The fairy, unlike the fairies in “Ella Enchanted” that eschew ‘big magic’ because of the inevitable unintended consequences, just “grew more careful.” “Nowadays when she punishes people, they stay punished. And when she rewards them, they don’t get sick.” This expresses a lot of faith in big government. I’m sure we’ll get it right this time.
Let me know how that works out for you. You may think you are doing well under this system, but what is unseen is the forgone prosperity due to rent seeking, destroyed resources, lost production, perverse incentives, market distortions, and general unintended consequences.
“And they all lived happily ever after.”