Edgar Allan Poe and the Horrid Laws of Political Economy

So by way of introduction, I have to mention a fun little research project I’ve been working on, something I’m titling “Miskatonik Economics: The Political Economy of H.P. Lovecraft”. In addition to the thematically significant references to economic issues in Lovecraft’s weird tales, I’ve found that he actually held quite definitive views on economics that never made it into his stories, but were shared in letters, articles, and essays. Since Lovecraft has generally been approached either from a literary or a philosophical angle, these economic insights haven’t gotten very thorough treatment – which is what I’m trying to remedy. His thoughts are fascinating. A lot of it is borderline (when not explicitly) fascist. A lot of it is based on the idea of “technological unemployment”. He has interesting theories of inequality and property as well that all weave together. And finally, a some of it foreshadows what Keynes had to say. All in all, there’s a lot of material to work with, and even where it is distasteful it is clearly something he thought through in a methodical way, which is interesting coming from a horror writer.

Lovecraft’s single most important literary influence was obviously Edgar Allan Poe, so I was curious about whether Poe had ever written anything on the economy. Classical political economy had been very firmly established by Poe’s heyday, and he was a very well educated guy, so it seemed quite plausible. Lovecraft never mentions Poe’s economic, social, or political thought in his writing on those issues, and I doubt it was an explicit influence, but it still seemed like anything that I could find would be nice to add.

Poe is famous for allegedly sketching out the basic idea of the Big Bang eighty years before scientists had zeroed in on it. It seems like he may also have struck on the fundamental insight of the Marginal Revolution in economics thirty years before the marginalists!

The context is the so called “paradox of value”. A diamond has virtually no utility, but water has a great deal of utility. Why, then, does a diamond cost so much more than water? It seems like a paradox. Prices and values seem to be all out of whack! The early economists, including Adam Smith, “solved” the paradox by appealing to the labor theory of value. Value derives from the work that it takes to produce a product. It takes more work to produce a diamond than water, so it costs more.

Decades later, the marginalists corrected this view and instead argued that it was the marginal benefit and marginal cost of an extra unit of a good that determined its price. They demonstrated that when marginal benefit and marginal cost were set equal to each other with the price, utility would be optimized. It turns out Poe stumbled on the idea in a discussion of the value of water three decades earlier, in a review of one of Dickens’ works*. He writes:

“The brilliancies on any one page of Lalla Rookh would have sufficed to establish that very reputation which has been in a great measure self-dimmed by the galaxied lustre of the entire book. It seems that the horrid laws of political economy cannot be evaded even by the inspired, and that a perfect versification, a vigorous style, and a never-tiring fancy, may, like the water we drink and die without, yet despise, be so plentifully set forth as to be absolutely of no value at all.”

In other words: Dickens is a great writer, but there is a diminishing marginal return in literature and he writes too damned much! The point is not whether a given unit of Charles Dickens is a benefit or not – the point is the marginal benefit of another unit of Charles Dickens! Marginalism!

I honestly know 20th century history of economic thought better than I know 19th century history of economic thought. Maybe the fundamental points of marginalism were made by 1841. Does anyone know? And really, this doesn’t amount to marginalism strictly speaking anyway. Supply and demand were certainly understood long before the marginalist, even if marginal cost and marginal benefit wasn’t. Either way, it was a very interesting passage to come across, and it clearly avoids the more common "solution" of the labor theory of value.

By the way – there’s a good reason (from an economist’s perspective) why Dickens wrote such long books. Despite Poe’s complaints, Dickens was most definitely responding to market forces. I’m sure many of you know what I’m referring to – feel free to share in the comment section.

* - I'm actually not exactly clear on this. From what I can gather, Lalla Rookh was a romance which was not authored by Dickens, but this passage is identified as being from a review of Dickens. It's possible Poe is comparing a shorter work to Dickens' longer works? It's not clear to me - it doesn't change the fundamental point, though.