To cope with the isolation and the long, dark winters, the country evolved a rich storytelling tradition. Written in the Middle Ages, and still widely read today, the Icelandic Sagas turned Iceland's early history into a rip-roaring yarn of epic battles, pagan gods, magic spells, and ax-wielding Vikings. The same blend of fact and fantasy underpins the many folk stories about hidden beings. Over time, the line between enjoying the ancient tales and believing them seems to have blurred.
"Stories about elves and hidden people are part of our heritage, but I also like to think some of them are true," says one university student. "It's fun to believe in something you can't explain, and anyway, it's hard to be 100 percent scientific in a country as weird as ours."
Iceland, which is about the same size as Kentucky, has a strange, primordial beauty - geysers spray boiling water high into the air, earthquakes shake the ground underfoot, the sea crashes against a jagged coastline of bays and fjords. Much of the island is a treeless moonscape of vast craters, mountains, volcanoes, glaciers, hot springs, waterfalls, and fields of twisted lava rock. The topography is so lunarlike that the Apollo 11 crew trained here in the 1960s.
In this bizarre, Tolkien-esque world, the supernatural seems almost natural. With a straight face, Icelanders tell you that certain buildings in Reykjavik are jinxed, which is why shops never last long in them. Or they chat about the ghosts that live in their homes, offices, and factories. The media regularly reports on encounters with hidden beings.
Icelanders sprinkle their everyday speech with references to supernatural fauna. When a key or wallet gets mislaid, they blame the trolls. Someone who is lost or confused is said to look like an elf that has just come out of the hills.
Modern Icelandic art, music, and literature all have a whiff of the otherworldly about them - what one critic calls a "weird David Lynch ambience."
Just look at Björk, the pop world's surrealist-in-chief and a firm believer in elves. Or at chart-topping band Sigur Rós, which makes music full of ethereal wailing and moaning. "When you listen to it, you can hear the stones talking," one fan says. "It's like a dialogue with the elves."
Inevitably, the Icelandic love affair with the supernatural has a commercial side, too. Shops sell miniature statues of elves, dwarves, and other hidden beings. Towns peddle maps and tours of their invisible homes. Reykjavik even has an official Icelandic Elf School.
Opened in 1991 and housed in a drab office block, the school is stuffed with books about folklore and spirit traditions, as well as a small army of ceramic elves and gnomes. More than 9,000 people, most of them foreigners, have paid about $60 to attend a one-day course on the hidden beings. Local children also come here on field trips.
Magnus Skarphedinsson, the historian who runs the school, estimates that Iceland is home to up to 20,000 hidden beings. Most are benign creatures, he says, who live in harmony with nature. If provoked, though, they will strike back.
Skarphedinsson believes similar hidden beings exist around the world, which is why the drawings made by Icelandic psychics resemble images from other folkloric traditions. The dwarves in the Elfschool Studybook look very much like those in Snow White - short, bearded, and dressed in jaunty jackets and pants. Icelandic gnomes are not so different from the ceramic statuettes sold in every American garden center.
"Perhaps these beings are more visible in Iceland because we are more open-minded," Skarphedinsson says. "We also live very close to nature, which is their home."
The hidden people, on the other hand, may be unique to Iceland. Skarphedinsson describes them as gregarious beings who look human, wear colorful, old-fashioned clothes, and can see into the future. They build invisible farmhouses and live to well over 100. Sometimes they materialize in our world to rescue a human lost in the snow or just to invite one home for coffee and pancakes. Skarphedinsson, who has never seen a spirit-being himself, claims three humans have actually married hidden people and vanished into their world.
Why these creatures eat pancakes and occasionally fall in love with mere mortals is anybody's guess. "There are thousands and thousands of unanswered questions," Skarphedinsson sighs.