The 18th annual Hay Festival in rural Wales looked like a cross between an upscale country wedding and an unusually clean county fair. Sheep grazed on the hills overlooking a field where well-dressed guests and media photographers mingled amid bright white marquees, casually arranged lawn chairs and carefully groomed rose bushes, while bartenders served wine and Welsh bitters and teenagers in aprons handed out dishes of ice cream. And then there were the literati. By the book festival's close earlier this month, the 10-day affair had featured hundreds of authors and assorted other celebrities, including Philip Pullman, Andrew Lloyd Weber, Temple Grandin, Jane Fonda, Goldie Hawn and Terry Pratchett, and attracted an audience of more than 60,000 people.

While local business owners welcomed the rush with practiced efficiency, the festival scene stands in flashy contrast to everyday life in the quaint little town of Hay-on-Wye, which boasts nearly 40 bookshops for a population that's not quite 1500. Though the town's commerce and the festival both revolve around books, the similarities pretty much end there. The festival is all about frontlist titles and A-list names (literary and otherwise). The town's bookshops, on the other hand, trade mostly in used books, sometimes, it seems, the more obscure and arcane the better.

And so exists this symbiotic and sometimes uneasy blend of old and new, dust and glitz. A visitor might spend a June morning browsing 50-pence titles in the Hay Castle Honesty Book Shop and the afternoon at the festival listening to a household name field questions from an attentive, educated and challenging audience drawn from all over the U.K. (Bill Clinton was famously and somewhat scandalously paid £100,000 for his 2001 appearance).

It's hard to say what's more unlikely—that a bucolic village at the foot of the Black Mountains in a country home to more sheep than people would become the world's first "booktown," or that the same community would play host to one of the world's largest literary festivals. The credit for both developments goes largely to two men, who share little in common except a belief that books—books!—can be a compelling tourist attraction.

The first is Richard Booth, an octogenarian bookseller who has dedicated over 40 years to the preservation, collection and sale of secondhand books, however offbeat, specialized or outdated. Though his speech has slowed somewhat after a stroke, Booth is a man of blustery eloquence and speedy shifts in topic. A man of strong if sometimes contradictory opinions, he's been outspokenly disdainful of bestsellers, literary festivals and the BBC.

The other man is Peter Florence, an ambitious 40-year-old who has spent nearly two decades creating a world-class literary festival by attracting successful, high-profile authors (and some musicians, moviemakers and other creative types while he's at it), as well as all the paying guests and the media coverage such personalities inevitably draw.

The Birth of a Booktown

Hay's narrow, curving streets are a warren of brightly painted storefronts decorated with hanging flower baskets and bunting; above it all, Richard Booth's 13th-century castle looms with a crumbling, half-ruined charm. Hay has the odd butcher shop, pub and bakery, of course, but those businesses are far outnumbered by the bookshops, many of which aim at niche markets. B&K Books features titles on bees and apiculture; Boz Books focuses on Dickens and other 19th-century authors; Rose's Books specializes in rare and out-of-print children's books; and the Poetry Bookshop is the only all-poetry bookstore in the U.K.

Where did they all come from, and why are they here? The details tend to vary a bit according to who's telling the story. But the basic gist is that everything started back in 1961, when, as a young Oxford graduate, Booth opened a secondhand bookstore in what had been the Hay firehouse. He employed his fellow townsmen, who later opened shops of their own, and Hay soon developed a reputation among bibliophiles as well as eccentrics and freethinkers (England's most famous transsexual, April Ashley, lived there for over a decade). In 1977, first as a joke and then as a publicity stunt, Booth proclaimed himself King of Hay, and the town a sovereign republic. He issued new currency, promoted national sausages, and sold novelty peerages to tourists.

Booth occasionally feels the pain of accomplishment. He is ambivalent, for example, about the highly commercial festival that takes over the town every year. At one point he calls the event "ridiculous," an excuse to get "hundreds of very nice, very intelligent people here to talk about themselves," and at another, he says he loves the festival. What seems to particularly bother him is the misconception that the festival spawned the town.

"The big disaster with Hay was that we were successful. We became the best town in Britain," he says. "At that point, we offended the officials in rural regeneration, so they then invented completely a theory of booktowns that deceived even your Bill Clinton. When he came to Hay he said that Hay was created by its festival and its 34 booksellers."

Talking to the Chattering Classes

Just as Booth adamantly points out that the festival did not create the booktown, Florence, who moved to Hay when he was a teenager, insists the town's bookstores did not inspire the festival. "As a young actor I toured a one-man-show about the poet Wilfred Owen. I got taken to lots of festivals around the world and loved the energy and buzz. We thought, let's have one at home," he says. "The idea, then as now, was to celebrate great use and users of language: writers, playwrights, songwriters, screenwriters, comedians, [and] journalists."

Even if Hay's bookshops weren't foremost in his mind when Florence, along with his father and a group of friends, conceived of the festival, they certainly benefit from it. "Since the festival's been going—partly in parallel and partly as a direct result—the annual footfall has multiplied more than five times," Florence says, and he notes that between 12 and 36% of the annual turnover of all the service and tourist related industries in Hay happens during the festival.

The first festival, in 1988, boasted 15 events; this year, there were over 350. Christopher Hitchens was involved in several—often with a cigarette and a single-malt in hand—while Ian McEwan, who took the stage for a discussion with Hitchens, has tried out his new fiction on Hay audiences for 15 years, Florence says. When McEwan was writing his bestselling Atonement, he asked audience members what sort of valuable porcelain might be found in an English country house in the mid-20th century, and thereby met several people so helpful that he declared he no longer researches his books, he just asks audiences at Hay. "We quote that shamelessly," Florence laughs.

Hay's audience members, who at a median age of 41 are rather young for book festivals, are, Florence says, "the chattering classes. They are people who talk and who are media savvy." By his estimation, within a day after an author has debuted successfully at Hay, thousands of people will know about him or her. Arundhati Roy, Yann Martel and DBC Pierre, for example, he says, all appeared at Hay when nobody had every heard of them.

In between lectures and talks, the chattering classes take the short walk into the Hay town center, or lounge on the grass and the novelty lawn chairs (all of which are for sale) or browse at the festival bookshop, which is run by the local new-book bookstore, Pembertons. The temporary shelves are stocked with all the books featured at the festival, and authors sit for signings after their presentations. In what Florence characterizes as a gentleman's agreement, the festival gets 10% of gross sales.

But it's not all about the books. Like the affluent Americans who travel to Aspen in the winter and never touch a ski lift, some guests here are more interested in the parties than in authors' presentations. At the home of Revel Guest, chairwoman of the festival, one glamorous young Londoner, when asked if she would be attending any talks, laughed and confessed that she was only down for a country holiday. If it was hard to imagine her sitting through a debut novelists' panel at the festival, it was even harder to imagine her thumbing through a musty copy of Ivanhoein a little Hay bookshop. Other events drawing crowds included the lavish party hosted by the Guardian and Channel 4, and the so-called Naughty Party, whose invitation promised sex toys and general lasciviousness but which turned out to be an innocuous if boozy gathering of hip out-of-towners at a rented manor house in England's Whitney-on-Wye. No one there, with the exception of Nicole Galland, an American writer who was planning for her talk on A Fool's Tale, her debut novel set in medieval Wales, the following afternoon, had much to say about literature.

Mixing Bucks and Books

Richard Booth, on the other hand, has a lot to say about books. As he portrays it, Hay and the rise of the secondhand book trade itself began in the 1970s, during "the university boom," when bookshops throughout the U.K. began to see the single customer as "a waste of time," preferring to sell large lots to universities. This meant, he says, that bookstores that couldn't make the transition closed, and books that didn't fit into the university market were deemed worthless, leaving lots of stock for a would-be secondhand bookseller to snatch up on the cheap.

Though Booth is an obvious bibliophile, he says he initially saw his project as something more practical. He perceived in Hay a market town struggling economically in the face of encroaching chain stores and shopping malls. The idea was to give a failing town its own specialty. "We needed an economy that would relate to rural pride," he says. "If you have to move hundreds of tons of books with manual labor then you are genuinely an economy of rural pride." And it worked: "The booksellers were local people who'd worked for me. It's easy to make money bookselling because all you have to do is swindle an old lady," Booth says, chuckling. He's joking—sort of.

Derek Addyman began working for Booth stocking shelves; today, with partner Anne Brichto, he runs three bookstores: Addyman Annexe and Addyman Books, which feature modern first editions and classics, and Murder and Mayhem, which focuses on detective fiction, true crime and horror. Brichto calls Booth "a real gonzo bookseller" and notes that he "attracted the right people—the natural-born booksellers. We all had an edge." And if she doesn't mention swindling old ladies, she's still matter-of-fact about her business. "You buy something for one price and you sell it for another," she says. "That's all there is. You don't have to be literary, you don't even have to like to read."

Though the Hay streets are crawling with tourists during the festival, the stores themselves seem only steadily, moderately busy, and a library-like hush prevails. Even so, for Mark Westwood of Westwood Books and the dozens of other booksellers, the festival represents the busiest week of the year—a time to shore up profits for the comparatively lean winter months. David Howard, who owns Outcast Books, calls the festival "brilliant" and appreciates all its "literary chitchat"—but he doesn't often go to its events. "When I've had a busy day in the shop I don't really want to think about books. I'd rather go out and mow the lawn," he admits.

And if Booth doesn't always love the festival, he recognizes the benefits of all those tourists coming to town. So when he poses for portraits on his castle grounds during the festival, and cleans out a storage space to promote a friend's book on organic aquaculture, it's all for the good of the books. And the tourist trade. "The secondhand book should be linked to the tourist industry for the benefit of both," says Booth. For his part, Florence says, "If other people make money [on the festival] I'm happy, but it's secondary to us." Of course, he's got nonprofit status. And anyway, more tourists mean more tickets sales, which in turn means an ever-improving festival. So is Hay about the books or the bucks? It's no doubt both, and it's Booth's and Florence's ability to walk the line between lofty literary aspirations and bottom-line practicality that has enabled them to transform their town.