Dragons and wealth inequality

I’m sure this must have been discussed before but I’m too lazy to look on a cold morning.

Dragons of the Smaug-Tolkien variety must have some interesting economic impacts. Smaug hoards gold and jewels in vast quantities. Notably, Smaug (and presumably other gold obsessed dragons) know specifically what they have hoarded. When Bilbo steals one of Smaug’s treasures, the dragon notices that it is gone. So Smaug’s lair isn’t like Scrooge McDuck’s vault full of coins – the dragon is hoarding possessions rather than coinage or more abstract tokens of wealth. That’s not to say some of a dragon’s gold isn’t in the form of coins but clearly, the dragon wants the coins for their own sake and not as a unit of currency. Each piece of the dragon’s hoard is uninterchangeable. Furthermore, a dragon has nothing to spend his wealth on – there aren’t dragon shops and the dragon’s interaction with other species is one of eating them or burning them to a crisp.

So when a dragon hoards gold, the gold is removed from the economy. The dragon doesn’t spend any of it and hobbits-with-rings-of-power aside, none of its gold is removed. Assuming gold and silver are important units of exchange in fake-medieval fantasy worlds, this hoarding by dragons would have a deflationary impact. The dragon’s hoard is a reduction in the money supply and the value of gold increases as a result. An increase in the value of gold amounts to a reduction in the relative value of, say, beetroot. That is bad news for farmers who also have to contend with their livestock being eaten by the dragon.

According to this website, the total above-ground stocks of gold by the end of 2017 was 190,040,000 kilograms. The density of gold is 0.01932 kilograms per cubic centimetre which gives 9,836,438,923.395445134575569 cubic centimetres of gold. That sounds like a lot but it is just under 10 thousand cubic metres, which still sounds like a lot but 10 thousand cubic metres is basically a cube 21.5 metres along each dimension. About 300 shipping containers would carry the lot (assuming they can take the weight).

Here’s Tolkien’s picture of Smaug with his hoard:


Now, I don’t know how densely packed that pile of gold is. I assume there’s a lot of jewels in there and gold cups, vases or boxes that would take up some extra volume. Even so, that is a LOT of gold. Say…about 10 shipping containers full? Let’s say, all those goblets and jewels etc fluff up the pile to twice the size they would be if it was pure gold and call it 5 shipping containers of gold and presumably there’s even more gold we can’t see in the picture.

The point being, when I say a dragon’s hoard would have an economic impact, it would be a significant economic impact. Smaug’s hoard would be a significant chunk of the current world’s gold reserves.

When a dragon dies (courtesy of heroes equipped with a black arrow and advice from birds or from natural causes like a bad case of dragon-flu) the economy would be flooded with gold. Massive inflation would result as the price of gold plummets relative to the price of beetroots.

Now let’s say you are a monarch. If you are a feudal monarch then a decrease in the value of your gold due to a dead dragon would not be good but the price of the beets (turnips, mangel-wurzels etc) grown by your serfs would increase so maybe it would all balance out. If your kingdom is mainly independent farmers (as depicted in the Shire) then your wealth declines sharply as it is mainly gold and property. Property values are also decreasing as more land becomes safe to inhabit without a dragon flying by occasionally and burning everybody to death. So the monarch’s wealth declines relative to that of the free peasantry.

The Shire’s post-feudal class structure would have a similar dynamic. The wealthier hobbit families would have some of their wealth in the form of gold coinage. Poorer farmers would have few savings and their fortunes would be tied to each year’s crops. The flood of gold post a dragon’s death would make the value of crops increase as the value of gold decreased – reducing wealth inequality in the Shire (at least for a period of time).

Kill enough dragons and a dragon-slaying hero would seriously destabilise the economy but in the direction of reduced wealth inequality. Put another way, dragon-slaying would be a revolutionary act.

[ETA: On Twitter, Chris Neill pointed me to this article that covers much of the same ground http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/the-macroeco.html by Frances Woolley ]



  1. greghullender

    All kidding aside, it does make for a decent illustration of why the gold standard was such a problem. The very wealthiest individuals, who get their income in return from investments (e.g. rent paid on properties) accumulate gold, especially when they can’t find suitable investments. This causes deflation, crushing the poor people and (eventually) even the middle class. Unrest leads to wars and revolutions, which lead to taxes and confiscations, dumping the gold back into the economy.

    Switching to paper money largely ended the boom-bust cycle, particularly when a) governments figured out they should issue bonds to cover deficits, not merely print money and b) central banks got the hang of controlling the money supply (computers helped).

    I think the affection some people have for gold is like the love they have for trains. Trains don’t require a lot of active management. If something goes wrong, it’ll usually coast to a stop. The passengers might starve to death, but the train itself doesn’t usually kill them. Planes, on the other hand, require a lot of management (aka piloting) or else everyone dies. Likewise gold doesn’t require a central bank or monetary policy. A gold-based economy gradually strangles over time, but it doesn’t really collapse (although it’s responsible for the unrest around it). A paper-money system, though, requires active management or it collapses. Before the 1930s, I don’t think anyone ever made one that worked for longer than 5 years or so. So it’s easy to see how moving from gold to paper made a lot of people nervous. So did moving from trains to planes.

    Liked by 3 people

    • dann665

      That’s an interesting analogy that does a lot of lifting for me.

      We not only want an economic “pilot” that knows how to fly, but they also have to want to get us to the desired destination in one piece. And there are too many folks with either an insufficient acquaintance with aeronautic economics and/or an insufficient motivation to get us where we want to go without ending in a crash at the end of the trip.

      Freedom works…each and every time it is tried.*

      *random, but fortuitous

      Liked by 1 person

  2. Jessica

    Now you’ve done it. The King-Dragon alliance has been exposed. Now they’ll have no choice but to hunt you down and punish you for exposing them. It’s nothing personal, you understand.

    Liked by 2 people

  3. Jenora Feuer

    When Bilbo steals one of Smaug’s treasures, the dragon notices that it is gone. So Smaug’s lair isn’t like Scrooge McDuck’s vault full of coins […]

    They’re closer than you think: Scrooge McDuck had memorized the serial numbers on every bill in his vault. In one old story, he discovers the Beagle Brothers have been stealing from his vault (by running a really long vacuum cleaner hose through an air vent, it turns out) because he got given in change a bill with a serial number he recognized.

    Liked by 3 people

      • Jenora Feuer

        The Beagle Boys get caught (despite having learned from almost being caught the first time that they need to do something to tweak the serial numbers on the bills) because the Junior Woodchucks had previously accidentally invented a glue that only seemed to be good at gluing people to other things, and they’d painted several of Uncle Scrooge’s bills with that glue, so when the Beagles steal the next batch, they end up caught literally stuck with the money.

        Yeah, the old stories were kind of silly.

        Liked by 2 people

  4. Micael Gustavsson

    According to Gloins conversation with Frodo in Rivendell, the area experience an economic boom couple with repopulation of both dwarves and men. I assume the dragons hoard was used to jumpstart that. Then, with so many new persons present, the value of gold decreased again; there was again less gold per capita.

    Liked by 3 people

    • Lurkertype

      The boom and bust Spain went through was the extreme one, although of course it involved the whole continent and led to all sorts of wars we learned about in school.

      Of course, that also led to the economy and who owned what bit of all of North and South America. The shrinking of Spain’s economy is why we’re typing all this in English.

      Liked by 2 people

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