Twilight Sparkle kicked open the door to the house Princess Celestia had secured for her and Spike and ran up the stairs levitating two thick bottles. She didn’t even stop to check if anything had disturbed her books since the time she had been out.

Let me repeat: Twilight Sparkle, whose relationships to books in her world bore an unsettling similarity to how lonely human women treat cats in ours, did not stop to check if her books had been disturbed. The last time she hadn’t so much as glanced at her books upon entering her living quarters was when Princess Celestia had promoted her from Junior Assistant to Grand Assistant after Twilight found a single error in five thousand pages of financial records on her day off “Because something about it was bothering me and I couldn’t  sleep.”  The next day Twilight had found on her desk fifty thousand pages of financial records, a new name plate with her new title, and a crystal berry cake. Twilight had invented the term “after-birthday” to describe when the day after your birthday is awesome, and Princess Celestia had turned green and asked Twilight never to say that phrase again.

Twilight burst into the bedroom.

“Spike! Spike! Something amazing happened!”

Spike shot up. “What happened? What’s wrong?”

Twilight levitated the bottles in front of his worried eyes. “I bought shampoo!”

Spike groaned and fell back onto his pillow. “That’s great. Good night.”

“It’s morning. And I bought shampoo! Isn’t that amazing?”

Spike pulled the blanket over his head. “Mggghh.”

Twilight set the bottles down carefully and began to pace.

“Think about it, Spike. This morning I needed shampoo. So I went to the store—a short walk away in a convenient location—and there, waiting on the shelves, was shampoo. Lots of different shampoos, actually, for every different pony and dragon need. Isn’t that incredible?

Had Spike been looking rather than retracing the steps of his life wondering where it had all gone wrong he would have seen his closest friend’s eyes shining with a religious fervor.

"There was the very shampoo that I needed just waiting for me! For me, Spike, and at a very affordable price. And that’s true of so many things! Whatever you need, you can just head on down to a nearby store and buy it. How crazy would it be if we had to make our own shampoo somehow? I hate the practice of shopping, but I think I’m in love with the idea.”

Spike rolled over and clutched the pillow. “You need help, Twilight.”

Twilight oversaw the setup the morning of the festival. Admittedly, there was little to manage, with Twilight’s role being mostly restricted to trotting around Looking Officially At Things (for who could say that the festival was ready until it had been Officially Looked At?), asking questions like “Is this exhibit registered? Have you thought of—oh, you have? Okay, well, make sure to—oh, you’ve done this before. Of course. Sorry. I’ll get out of your way.”

With the Ponyvillians capable in their own hands, Twilight had everything checked off her list by midmorning. She didn’t mind. There was nothing like the sweet scratching sensation of checking things off a list. Sometimes she made lists just so she could check things off of them.

With her time free she checked out the food stands and stalls selling various items like model Banks with small parts a colt or filly could glue together, NGDP-controlling magic horns (Twilight tested one and confirmed it was fake—Princess Celestia didn’t manifest with the burning fire of a thousand suns to snuff out the magic. Princess Celestia’s attitude towards interference with the Bank was far more direct and pointed than in the case of taxation), and other ponies prepared puppet shows, songs and dances, even handed out the usual pamphlets from the Flim Flam Brothers.

That left it at 11:00. The festival was in full swing now. Ponies thronged the field, eating caramel apples, wearing pink party hats and admiring the way Rarity had lined up the stalls so their colors made a series of rainbows throughout the field. Twilight updated her prior somewhat grumpily. She hadn’t thought anyone would care. The petting zoo, on the other hand, was as popular as she expected. Fluttershy introduced all the colts and fillies to the “naturally evolved organisms” and watched them closely as they fed and petted the odd assortment of creatures she had collected. All the animals wore black bands around one of their limbs. Had it been that way yesterday too?

Applejack had deployed a small army of relatives to cook and serve all the food. She raced up and down the stands inspecting things, barking orders to her cousins and exchanging “how-do’s” with the all the hungry ponies. Pinkie Pie was up on stage performing some kind of vaudeville show, and Twilight spotted Rainbow Dash playing cards at a table with several sunglasses-wearing Pegasi. Everything seemed to be in order. It was no NGDP Targeting Festival like they had back in Canterlot, but this one she had managed. Sort of. It mostly seemed to be managing itself.

Spike waddled over to Twilight hefting a bag of apple popcorn almost as big as he was. “Twilight, you can relax now and have some fun. Eat something and play one of the games. Princess Celestia won’t be establishing the new money growth target for another hour.”

“I am going to go inside and read something until noon,” Twilight said.

Spike wrapped his tail around her leg and tugged. “Come on, there are water balloons.”

Twilight allowed Spike to lead her away. “I suppose it can’t hurt to have a little fun every now and then. Admittedly, I’d normally prefer to have a lot of fun by reading something, but….”

Ten minutes later, Twilight discovered that prodigiously magically powered Unicorns who have been trained since a young age by Equestria’s ruler and foremost Alicorn, Princess Celestia, have something of an advantage when it comes to large-scale water balloon fights. Two minutes later, Twilight discovered that large-scale water balloon fights are really, really fun.

“That’s what you get for dog-earing books!” she cackled as she magically fired several dozen water balloons at speeds so fast the rubber shell split open before they even landed on the unfortunate ponies’ skin. She levitated two hundred of the water-bearing battle bombs over the field of victim-players. “Now kneel and submit to your Queen or face a watery doom!”

Time passes fast when you're crushing ponies beneath your hoofs. Spike waved urgently to her. “Twilight, it’s 11:55!”

All thoughts of conquest forgotten, Twilight turned and sprinted for the stage where Rainbow Dash’s screen displayed the economic data, only wincing briefly at the sound of screaming ponies splashed by two hundred water balloons all at once.

Twilight pushed her way to the front of the crowd and gazed up proudly at the screen. Soon her mentor and the greatest pony in the world, Princess Celestia, would use her magic to guarantee economic order for another year. She felt a pang at the knowledge that the princess hadn’t wanted her protege at her side for the festival, but Twilight saw it as a sign of growing trust. One day, Princess Celestia had hinted, Twilight Sparkle herself would be the occasion of the festival. It was only fitting that she should manage one.

The clock ticked at a torturously normal pace. 11:56…11:57…11:58…11:59…12:00…

12:01. Twilight gasped.

12:02. The ponies began to stir.

12:05. Twilight stepped on stage and levitated a microphone to her mouth. “Excuse me, ponies,” she said, trying to sound more confident than she felt. “It appears that Princess Celestia will be delaying the NGDP targeting until this afternoon, so how about that neat puppet show? Uh, Pinkie Pie, has, I believe, uh….”

12:15. Panic broke out.

“We’re all doomed!” A stallion sank to his knees, wailing. “We’re all doo-hoo-hooooomed!”

“No we aren’t!” Twilight shouted above the noise. “Please, if everypony could just stay calm!”

“Yup, we’re doomed,” Applejack said matter-of-factly. “Apple Bloom, get the girls and gather up all the leftover food. Don’t let any go to waste.”

Fluttershy whimpered into the shoulder of one of the black band-wearing cows. “There, there, Fluttershy,” the cow said. “Barter is a more natural mode of economic transaction anyway.”

“I am livid!” Pinkie Pie screamed. “I am the CEO and proprietor of Sugarcube Corner, and I pay more than my share of voluntary defense funds! Princess Celestia owes me an explanation!”

“Sacré bleu!” Rarity swooned and fainted, her arm draped artfully across her forehead. After a minute she got up and did it again.

“Yes!” Rainbow Dash squealed. “I bet a thousand bits at sick odds that Princess Celestia wouldn’t show! I’m rich!”

“Ponies, please be calm!” Twilight struggled to be heard above the noise and pandemonium. “There is nothing to worry about!”

If you’re wondering what the ponies of Ponyville were so worried about, consider an economy in general equilibrium. That’s an important term. Write it down.

An economy is a system where ponies buy and sell goods and services. Producing and selling something on the market is hard work. It’s risky and takes effort, so ponies don’t do it for fun. They only sell goods on the market so that they can buy goods on the market. Pinkie Pie, for example, makes and sells all manner of cakes and pastries in exchange for food, machines for her kitchen, and a hundred other things that she wants. All the ponies that make and sell food, machines, and a hundred other things do so because they themselves have innumerable wants that can only be satisfied on the marketplace. Everypony convinces other ponies to do them favors by doing them favors in return.

What this means is that everything that is sold on the marketplace is sold only in the expectation of being able to purchase some goods. No good is sold on the market without its corresponding purchase-good also being present. Thus there is a balance, a harmony, an equilibrium among all the goods on the market, each of which accounts for and is accounted for by some other good. The economy will always, always find its balance.

In short, everything bought is paid for by everything sold, and particular things bought are paid for by particular things sold.

To simplify, let’s say that Pinkie Pie trades cakes for machines. Now, ponies are not all-knowing, perfect calculators, and sometimes they make mistakes, producing a good for sale in the false expectation its corresponding purchase-good will come into existence. Sometimes, Pinkie Pie makes more cakes than people want to buy—Twilight would call this an excess supply of cakes. But recall that all ponies produce only in the expectation that they can buy! Pinkie Pie produced as much to sell as she wanted to buy, and, not being able to sell all her goods, she will not be able to buy all the things she wants. All this is simply to say that an excess supply in one sector must, must be balanced by an excess demand in another sector.

To see this, imagine that Applejack produces the apples to buy Orange Blossom’s oranges who produces to buy a third pony’s bananas who in turn desires peaches from a fourth. Since Applejack sells her apples to buy oranges, if she cannot sell all her apples, then she cannot buy all the oranges that she wants. Thus an excess supply of apples implies an excess demand for oranges.

Neither Applejack nor Orange Blossom are pleased with this situation. In order to salvage what they can, Applejack will adjust the exchange ratio: she will offer more apples for each orange until all the apples and oranges are sold. Recall that the apples and the oranges both are supplied in the first place only to be sold, and it, ahem, behooves neither Applejack nor Orange Blossom to hold onto any of their fruit. It should be clear why the market for both apples and oranges will clear, that is to say, there will be no fruit left over.

This process is called Say’s Law, named after its discoverer, the famous Unicorn Sunday Sayonara. It shows the impossibility of a general glut in the economy, as a surplus in one sector must be balanced by a shortage in another. This is a good thing. A general glut is one in which all the fruit lies spoiled and uneaten on the ground. The factories are empty. The machines are still. Nopony works the land. Everything is for sale, but nopony is buying….

This process of exchange and calculation in the marketplace until an equilibrium free of gluts is achieved is mediated by money. Money is a fascinating device invented by some long-forgotten Pegasus eons ago. It makes trade so much easier. Remember how Pinkie Pie bakes cakes so she can buy machines? Imagine if she could only buy machines when the machinists were hungry for cakes and if machinists could only buy cakes when Pinkie Pie wanted machines! It would be a very rare double coincidence indeed for any trade to occur. More often, Pinkie Pie wouldn’t get the tools she needs to run her business, and the machinists would go hungry for a bite of her delicious and moist Pinkielicious Party Cake.

The miraculous marvel known as money allows our dear ponies to circumvent this problem. With money, Pinkie Pie can sell her cakes not just to the ponies who have something to sell to her but rather to anypony who wants them. In turn, Pinkie Pie can take the money and buy from whomever she wants, not just the ponies who are hungry for her cake. For all the trenchant critiques from the radical New Earth Order movement, money is a necessity to any economy larger than a small village.

But money has a hidden downside. Recall again our beautiful general equilibrium, the marketplace where gluts are local and quickly resolved, for one good is always balanced by another. But suppose we take the whole market itself. What can the entire market be balanced against…?

Let’s return to our good friend Applejack trying to sell her apples for oranges on the market. This time, she and all the other smart ponies do their buying and selling with money. In the previous example, Applejack and Orange Blossom dealt with their excess fruit by adjusting the exchange ratio at which they traded their wares. Now they do it by adjusting the prices, measured in bits, at which they sell their goods. Usually this works even better than in the previous situation.

But suppose that there is an excess demand not for apples or oranges but for money. The ponies at the market value their bits so much that they can’t be tempted to buy the goods for sale. What will happen?

Prices fall. As Applejack sold her apples for fewer oranges, all the ponies must sell their goods for fewer bits. But even as this allows them to make the most of their situation, their income is less than what they had expected. The few bits they have become even more precious. The excess demand for money reasserts itself. Prices fall again along with income, and the spiral continues. Now what happens to the products on the market, sold for dirt cheap to ponies who cannot afford to spend their bits at any price?

Nothing. Nothing happens to them. They sit there unnoticed and unused. No one buys them because it’s not worth parting with their money.

And you have a general glut. Or, in colloquial terms, a recession.

Money! Brilliant, terrible money! A general glut, an excess supply of all the goods in a market is impossible in the absence of money. But with money, rare though it is, an excess supply of all goods can be balanced by an excess demand for money.

For a thousand years Princess Celestia has prevented general gluts by adjusting the money supply to match the market’s forecast for its own monetary needs. She uses her magic and wisdom to ensure that the supply of money is high enough that there is no excess demand for it and therefore no excess supply of goods in general on the market.

Only the Alicorns live long enough to remember the time before Princess Celestia and the Bank. To the rest of the population of Equestria, general gluts, the dreaded recessions of yore, are only a distant nightmare….

The mare is the color of the night sky. She is not black unless you mean in the electromagnetic sense, for the color of her skin is the color of the empty, uncaring void that surrounds our small and insignificant planet. Her wings spread out behind her like the the cloak of Death. Her horn is as long and sharp as a dragon’s tooth. On her flank rests the symbol of a crescent moon, and she towers over the equines assembled at the festival exactly like a goddess among ponies.

Twilight’s mind turned to fuzz at the sight of the dread apparition walking across the stage. This was completely impossible, her brain reasoned, and so, its logic went, it wasn’t happening. There. Problem solved.

The dark mare’s hoofs clicked across the stage. Twilight’s brain snapped back into reality. This was happening. The problem was, she couldn’t do a thing about it.

“Hi!” Pinkie Pie waved a hoof. “My name is Pinkie Pie! Who’re you?”

The Alicorn faced the crowd of ponies.

“I am the Mare in the Moon. I am the legend mothers whisper to their colts and fillies to scare them into bed. I am the darkness, the night, the glut to end all gluts. I am the Defeater of Discord, the Moon-Raiser, the Imprisoned Sister, the Betrayed and Forgotten, but I never forgot, for I AM NIGHTMARE MOON!” With this last declaration came a burst of power that amplified her voice a hundred fold. Ponies reared back in shock and fright.

“Neat!” Pinkie Pie said. “Want to bake cupmmph!”

Applejack withdrew her hoof from the pink pony’s mouth. “Not right now, Pinkie.”

Nightmare Moon regarded the crowd. “I seek your economist, mortal ponies.”

“I’m right here,” Twilight said as bravely as she could. “What have you done to Princess Celestia?”

“Only the same she did to me,” Nightmare Moon said. “I locked her in the sun for a thousand years. What can I say? I’ve always looked up to my big sister as a role model.”

Twilight stamped the ground. “Give her back.”

“No. Oh, that reminds me. I believe your dear princess was supposed to do something about the money supply? Well, I’ve decided to tighten it.” She held a hoof to her chest. “I’m simply worried about inflation.” Her voice oozed with mocking self-righteousness.

“The economy needs more money, not less,” Twilight gasped. “If you shrink the money supply too much you’ll create a recession…oops.”

Nightmare Moon smiled.

“What’s a recession?” one pony asked.

“It means no pony can buy anything because no pony can sell anything because no pony can buy anything,” Applejack said.

“Uh. Is that bad?”

“Eeyup.”

The ponies panicked.

“Silence,” Nightmare Moon spake.

The ponies were silence.

The dark Alicorn turned to Twilight. “Princess Celestia hid you well. It took me almost twenty minutes to find you since she scrubbed you from all the magical records. Still, even I eventually stooped to simply asking a pony on the street. They were all too quick to betray you.”

“I…didn’t make many friends,” Twilight said.

“Economists don’t need them.” Nightmare Moon walked toward her and past, circling Twilight like a hawk stalking a mouse. “But where are your wings? Ha! Only a Unicorn? My sister wanted six of us, and it looks like she only managed three and a half!”

“I’m proud to be only a Unicorn,” Twilight said. “What do you want?”

“To destroy everything my sister created and rule over the vast emptiness for eternity.” Nighmare Moon walked back to the center of the stage. “And that means ending the last of the economists.”

Twilight concentrated. A magical glow surrounded her horn. “Try me.”

Nightmare Moon laughed. It was the sound of a scythe running across a whetstone on Nightmare Night. “I defeated Celestia. An Alicorn. What can you do?”

“I can teleport.”

"What—"

Twilight vanished in a flash of light and reappeared on the other side of the crowd of ponies. She sprinted away as fast as a terrified pony can, which is pretty fast, but Nightmare Moon sent only her laughter in chase.

Twilight ran and ran through the dirt roads of Ponyville. She wasn’t thinking about where she was going, and so her legs took her home. Her brain had more important things to worry about, like the imprisonment of Celestia, the return of Nightmare Moon, and the prospect of a thousand years of bad monetary policy.

She needed help. She needed someone she could turn to for trust, guidance and aid.

That person had always been Princess Celestia. Twilight couldn’t run as fast for some reason when she was thinking about her teacher. New plan. What did she turn to when the princess was busy?

Books. And by some coincidence, she had ended up back at the tree-shaped house Princess Celestia had acquired for her and Spike. Good job, legs.

Twilight burst inside and summoned a hundred books to her with her horn. The answer had to be here somewhere. Alchian, Coase, Arrow, Samuelson, Knight, Walras, Malthus, all this power and none of it was useful. She thrust wildly aside an exposition on Banking by Princess Celestia—she couldn’t stop, couldn’t think—

Stop. Think. What was the threat Nightmare Moon posed? Disharmony, disorder, an evil economic equilibrium of doom. Twilight just needed to find a way to create a better equilibrium. And how did equilibrium come about? What were the…

“The Elements of Equilibrium!” Twilight shouted. “Of course!” She summoned the entire ‘E’ section to her, hoping, praying—

“You bore me,” said the voice of Nightmare Moon. Twilight jumped, nearly losing hold of the storm of books that surrounded her as she turned to face the monstrous mare.

“It’s impolite to enter without knocking,” Twilight said. She needed to stall for time while her search spell found the reference.

“You were muttering, ‘Princess princess princess,’ under your breath,” Nightmare Moon said. “You’re pathetic. My sister was only ever a tyrant.”

“You’re wrong,” Twilight said. Just a little longer. “Princess Celestia used the Bank for the good of all.”

“Yes, and so will I.”

“Liar.”

“Yes. Now die.”

Twilight teleported outside and charged blindly forward, levitating the book she needed. She ran right into Nightmare Moon’s leg and stumbled back, dazed.

“Why would I let you do that twice?” Nightmare Moon seemed bemused. “I hate economists. They never give up.”

“No they don’t!” A physical rainbow hit Twilight from the side, carrying her down the street.

“I’ve got you,” Rainbow Dash said. “You’re an economist, right? You can fix this?”

Twilight tried not to think about how fast her body was currently moving. “I-I think so!”

“Good, because I’m filthy rich and I need there to be an economy for me to lord over!”

A dark glow surrounded the both of them. Nightmare Moon didn’t even seem bothered as she pulled them toward her. They struggled helplessly against her magic.

Nightmare Moon set them down before her and released her spell. Twilight concentrated magic in her horn to teleport again, but Nightmare Moon spoke. “What’s this about being able to stop me?” She sounded amused.

“Twilight Sprinkle is going to kick your butt so I can be rich!” Rainbow Dash said.

“It’s Twilight Sparkle, and there’s one thing you’ve forgotten, Mare in the Moon. Princess Cadance will stop you!”

“I put Celestia in the sun.” Nightmare Moon sounded like she was talking to a child. “What do you not understand about this? No, that was not your plan.” She levitated the book out of Twilight’s grasp effortlessly. The pages opened and turned before her impossibly fast.

“Ah,” Nightmare Moon said after too short a time. “The Elements of Equilibrium. Of course. That might do it. Thank you for warning me.”

Twilight tried to smile. “Princess Celestia knew we would use the Elements to stop you. She left us a weapon so that we could defeat you even after she was gone!”

“Actually, it says here that the elements are kept in her castle.” Nightmare Moon laughed. “My poor sister must be growing senile to have sent her best economist halfway across the land and far away from her precious Elements of Equilibrium!”

“That’s what you think,” Twilight said. All she could do was bluff. “But Princess Celestia knew this day would come, and she has a plan to save Equestria even now.”

Nightmare Moon sighed. “For an economist, you don’t seem to understand self-interest at all. Grovel before me, and I might spare your life.”

Twilight lifted her chin. “There is more to life than economics.” Internally, she winced. Had she really just said that?

“Indeed,” the horrible horse mused. “Like utterly crushing your sister’s dreams. Very well!” Her voice clapped like a thunderbolt as her power fomented. A whirlwind of darkness and cold surrounded them. It howled like a hungry wolf gazing at the moon.

“What’s going on, Twilight?” Rainbow Dash cried, clutching at the Unicorn.

“I-I don’t know!” Twilight shouted, tactfully trying to free herself from the Pegasus’s grasp.

The power faded. “I have summoned the elements here,” Nightmare Moon said. “As the money supply tightens like a noose around Equestria, I will test thee. Five tests I offer thee, one for each Element of Equilibrium! Each will destroy an aspect of thy pathetic economics, each will break thee as I have broken my sister. Thy mind in pieces and thy heart full of hope thee will crawl into the chamber of my castle, hoping for the elements, for the return of thy savior, and thee will find that they no longer work for thee.”

“I accept,” Twilight said. It was clearly a better deal than dying and letting Equestria be forever doomed. Adding a choice to her choice set could only make her better off…right?

“It is done. Face your fate in the Everfree Forest if you dare! HA HA HA HA HA!” With a clap of thunder and a flash of darkness, Nightmare Moon vanished along with the book, leaving only her laughter.

“Whoa.” Rainbow Dash wiped the sweat off her brow. “Glad she’s gone.”

“Rainbow Dash! Twilight Sparkle!” Pinkie Pie, Applejack with Spike on her back, Rarity, and Fluttershy appeared around the corner, running full tilt.

“You can’t fly ahead so fast, Rainbow Dash,” Applejack panted when they got near. “Who knows what that Nightmare Moon could have done?”

“Yeah, we’ve got to beat her up together,” Pinkie Pie snarled. “No one threatens our friendship and gets away with it.”

“She’s after the economy,” Twilight said.

“That’s what I said.”

Twilight facehoofed. “I don’t have time for this. I have to stop Nightmare Moon and save Equestria!”

“And we’re going with you,” Rarity said in a regal voice that brooked no disagreement.

Fluttershy nodded. “If there’s no money left, how will I take care of all my animal friends?”

“No use sharing our secret apple-baking methods with all our friends if Sweet Apple Acres don’t run no more,” Applejack said.

“I can’t impress my friends will the latest fashion if I can’t afford new clothes,” Rarity said.

“How will I make all my friends smile with cake and balloons if there’s no market for them?” Pinkie Pie asked.

“And I can’t make friends with the whole world if there’s no stock exchange to play with them all,” Rainbow Dash said.

“See?” Pinkie Pie hopped in a circle. “It is about friendship after all!”

Twilight sighed. “Fine, you can come. I might need help anyway. Economists never turn down a division of the labor, especially when the opponent is a magically super powerful Alicorn nightmare who’s about to destroy the economy. That’s in one of my books. Well. The first part is.”

“I’ll come too.” Spike jumped off of Applejack’s back. “Nightmare Moon is actually messing with my friend.”

“No, Spike.” Twilight sank to her haunches, bringing her eyes level with his. “I need you to stay here and guard the library. If I don’t come back, you will be Equestria’s economist.”

“What about Trixie?”

“DON’T TALK TO ME ABOUT THAT MARE! She was probably the one who ratted me out to Nightmare Moon. Or it was Twinkleshine, that—"

“Let’s defeat Nightmare Moon and become filthy rich!” Rainbow Dash stuck her hoof out. One by one the other ponies placed their hoofs on top of hers. They looked at Twilight expectantly.

“Nope,” Twilight said. “Nuh-uh.” Next Chapter: Applejack's Test: Trust Estimated time remaining: 1 Hour, 37 Minutes