By Karl Smith, Contributor I have come to know and respect Matt Yglesias as one the most cogent economics writers on the web. His original insights are too numerous to list. I would embarrass myself in the attempt. Yet, on the economics of the Westeroi Crisis in general and the relative wealth of Houses Lannister and Tyrell, in particular, I fear he misses the mark. Yglesias writes: Imagine a scenario in which the Westerlands are out of food, and the Reach is out of gold. The Tyrells and their bannermen will need to curtail their consumption of luxury goods until they can manage to sell food for gold, but the austerity will be survivable if a bit unpleasant. The Lannisters, by contrast, are going to find that if they try to trade a whole big pile of gold for a whole big pile of food that the price of food will skyrocket. The illusion of Lannister wealthy is based on the idea that we can take the marginal price of an ounce of gold, then multiply that by the total quantity of the Lannister gold supply, and then conclude that the Lannisters are hyper-wealthy. In reality, any effort to mobilize all that metallic wealth will lead to inflation rather than the ability to mobilize vast quantities of real resources. Let set aside some hidden assumption about the stock of gold, the relative crop yield needed to feed the Westerlands and the availability of imports from Essos. By assumption Westeros has been struck by crisis. Unless the crisis was completely foreseeable – which brings to bear an entirely different set of issues – uncertainty is rising. The increase in uncertainty will raise liquidity demand, which in turn will raise the relative price of gold. Or, to put in terms more congruent with the Westeroi currency regime, crisis is deflationary. To see this follow the chain in Yglesias’s example: The Tyrells and their bannermen will need to curtail their consumption of luxury goods until they can manage to sell food for gold, but the austerity will be survivable if a bit unpleasant. And, during that period what will the merchants of luxury goods do? Facing declining demand they are likely to attempt to 1) Consumption smooth by borrowing 2) Increase their stock of liquid assets by cutting real inventory 3) Forgo investments in capital and maintenance 4) Take on no new apprentices 5) Slowly and reluctantly lower prices. (1) Will must be facilitated by borrowing  or selling real The first drives up the interest rate. The second drives down asset prices. Remember, however, in Westeros gold is money. The interest rate is simply a gold futures contract and asset prices are all denominated in gold. So, the effect of both actions is upward pressure on the relative price of gold, or again in Westeroi terms, deflation. (2) and (3) will decrease demand throughout the rest of the luxury goods supply chain, leading to further borrowing and selling of assets. (4) will have a chain of effects

From: http://www.forbes.com/sites/modeledbehavior/2013/04/19/daenerys-targaryen-and-the-classics/