Why Goethe Should Have Won the Nobel Prize in Economics
A long-standing prejudice in modern and contemporary thought holds – sometimes explicitly, sometimes implicitly – that economics is one thing, while life, society, culture and everything else are quite another. In other words, to look at human existence through an economic lens is to confine it to measurable, arithmetic, “accounting” aspects that supposedly reveal nothing but the “greed” that drives people toward “profit.”
It is perhaps no coincidence that this view has grown stronger ever since classical economics – humanistic by its very nature – gave way to macroeconomics and econometrics, disciplines concerned not with praxeology – the science of “human action” –, but with defining and measuring abstract concepts such as GDP and aggregate demand. In other words, economics itself is not inhuman; rather, economists are the ones who have stripped it of its humanity.
Yet what makes economics possible is precisely the same thing that gives rise to poetry and art in general: the finitude of human existence, the impossibility of abundance, the scarcity of all goods, the limits of resources and time, and the incompatibility between infinite mental horizons and fragile physical realities.
Another common prejudice, closely related to the first, is that all artists are incapable of economic calculation and financial discipline. With their heads in the clouds, they are either deceived by shrewd managers and agents or become greedy beyond reason. Most of the time, they are penniless, unable to secure a living, and when they do come into money, they spend it quickly, recklessly, lavishly – because, ultimately, they supposedly despise the “superficial” and “filthy” aspects of life such as finance.
But great artists often serve to dismantle prejudices. And among those who proved they understood economics both theoretically and practically, Johann Wolfgang von Goethe stands out. In his time, writers were paid “per sheet,” at a fixed rate per printed folio – roughly equivalent to sixteen modern book pages – without any consideration for sales volume, unlike today’s royalty system for successful authors. The legal concept of “intellectual property” did not yet exist.
In 1797, Goethe was looking for a publisher for his epic poem Hermann and Dorothea. He wrote to the Berlin publisher Vieweg and proposed a method for setting the price. The author (Goethe) would write down the sum he demanded, seal it in an envelope, and entrust it to a trusted third party. Without knowing Goethe’s demand, the publisher would make his own offer. If Vieweg’s offer turned out to be lower than the amount in the sealed envelope, negotiations would end – the offer simply did not meet the author’s price. More importantly, if Vieweg’s offer exceeded Goethe’s secret sum, Goethe committed to accepting the deal at the price written in the envelope.
Vieweg agreed to the rules, and the unexpected outcome was that, by extraordinary coincidence, the publisher offered exactly the amount Goethe had written in the sealed envelope: 68 thalers per sheet, or 1,000 thalers in total. With that payment, Vieweg published and sold multiple editions of Hermann and Dorothea for more than thirty years, and the poem became a bestseller.
What Goethe achieved through this system was to encourage the publisher to make an “authentic” offer – one that reflected both his own honest assessment and the market’s assessment of the manuscript’s value, without fear of “overpaying,” that is, offering more than the author’s expectations. The publisher also benefited from the advice of Böttiger, the trusted custodian of the sealed envelope, who warned him that, based on information from other publishers, he could not offer less than 1,000 thalers.
Goethe’s approach can also be seen as a way of countering what he perceived as an “information asymmetry” in his relationship with the publisher – an experienced businessman and keen observer of the market. In this way, the artist learned how the market valued his work, something he would not have discovered had he revealed his own expectations. And that information served him well in future negotiations throughout his life.
Thus, Goethe accomplished something the prejudice we began with would never have credited him for: he set aside personal ego – often accused of inflating self‑worth and dismissing public taste – and engaged in the economic process of price discovery, a process that aggregates the preferences and information of countless individuals, essentially of society as a whole.
Moreover, through his entire approach, Goethe anticipated a theory that would earn a Nobel Prize in Economics at the end of the twentieth century. This theory, known as the Vickrey auction, or second-price sealed-bid auction, was developed in the 1960s by economist and professor William Vickrey. The system had already been used in the nineteenth century by stamp collectors.
In a Vickrey auction – described by its creator as “anti‑speculative” – participants each submit a written bid without knowing the others’ offers. The winner is the highest bidder, but the price paid is the amount of the second‑highest bid.
Vickrey showed that this type of auction leads to the “correct” price, a conclusion later reinforced by the game-theoretic work of another Nobel laureate, John Nash.
Photo source: PxHere.com.
