A LETTER-WRITER and a commenter have kindly pointed out that vibrant markets exist for the pollination services of bees. This is contrary to the claim in last week's Free Exchange column on inclusive wealth. It also spoils a nice allegory used by Sir James Meade in 1952 to illustrate external economies. I feel suitably disabused. Next you'll be telling me that private enterprise can provide profitable lighthouses, that used-car buyers often know as much as sellers, that the Dvorak keyboard is no faster than QWERTY and that Betamax was no better than VHS. Oh. All of these cherished examples of market failure have been contested by later authors. In a book called "Famous Fables in Economics", Daniel Spulber warns about the intellectual harm such anecdotes can do. They circulate for the obvious reason that instances of markets failing are more intriguing than examples of markets working just as textbooks suggest they should. The proliferation of such stories, Mr Spulber argues, erodes faith in markets and emboldens governments to intervene. But anecdotes do not have a left-wing bias. There are also cherished fables of government failure. In his book "Losing Ground", Charles Murray created a fictional couple called Harold and Phyllis to show that welfare paid better than work (at least for a poor unmarried couple with a child on the way). Harold and Phyllis were fictional, and presented as such. But the calculation of their household budgets was supposedly based on real welfare rules. A subsequent article by Robert Greenstein in The New Republic cast doubt on how representative those rules were. (It seems welfare paid better than work for Harold and Phyllis if they lived in Pennsylvania in 1970, but not if they lived in most other parts of the nation at most other times. See a response from Mr Murray here.)

But I don't think that all fables are damaging. Some anecdotes motivate explanations, others merely illustrate them. An economist might set out to explain a peculiar empirical pattern or anomaly, such as why an inferior technology catches on. If that fact turns out to be false, the explanation loses much of its force. But theorists like Meade and John Stuart Mill were not trying to explain beekeeping or lighthouses. They were trying to illuminate the concepts of externalities and non-excludable goods. They were describing essences, of which their examples were only hypothetical instances.

As such, their theories do not stand or fall by the anecdotes they chose to illustrate them. In his original 1970 lemons paper, Mr Akerlof was quite clear on the epistemological status of used cars:

The automobile market is used as a finger exercise to illustrate and develop these thoughts. It should be emphasized that this market is chosen for its concreteness and ease in understanding rather than for its importance or realism.

Concrete examples are powerful because of their specificity. They are of their time and place--that is their point. But that is also their limitation. They are contingent and circumstantial. Thus debunking one example, in one time and place, does not disprove all examples in every place. Suppose lemons do not exist in used-car markets, they may still exist in the market for horses, baseball players or even New Orleans slaves.

For this reason, fables can come back from the dead. Mill wrote about lighthouses in 1848; Paul Samuelson underscored the point about a hundred years later. Ronald Coase then famously debunked Mill's account in 1974, inspiring a small industry of fable-busting. But that was not the end of it. Coase's argument was heavily qualified by David von Zandt in 1993, who showed that privately-owned, profit-seeking lighthouses required lots of government help. (The government would grant them monopolies over a location, fix prices and help collect "light dues". See also Daniel Davies's blogtastic excursion into the history of British lighthouses here.) William Barnett and Walter Block then offered their own caveats in 2007, arguing that profit-making lighthouses could have existed in mid-19th century Britain, even if they didn't in reality. The debate goes on even now.