Santa Claus lives in the Laughing Valley, where stands the big, rambling castle in which his toys are manufactured. His workmen, selected from the ryls, knooks, pixies and fairies, live with him, and every one is as busy as can be from one year’s end to another.

It is called the Laughing Valley because everything there is happy and gay. The brook chuckles to itself as it leaps rollicking between its green banks; the wind whistles merrily in the trees; the sunbeams dance lightly over the soft grass, and the violets and wild flowers look smilingly up from their green nests. To laugh one needs to be happy; to be happy one needs to be content. And throughout the Laughing Valley of Santa Claus contentment reigns supreme.

On one side is the mighty Forest of Burzee. At the other side stands the huge mountain that contains the Caves of the Daemons. And between them the Valley lies smiling and peaceful.

One would think that our good old Santa Claus, who devotes his days to making children happy, would have no enemies on all the earth; and, as a matter of fact, for a long period of time he encountered nothing but love wherever he might go.

But the Daemons who live in the mountain caves grew to hate Santa Claus very much, and all for the simple reason that he made children happy.

The Caves of the Daemons are five in number. A broad pathway leads up to the first cave, which is a finely arched cavern at the foot of the mountain, the entrance being beautifully carved and decorated. In it resides the Daemon of Selfishness. Back of this is another cavern inhabited by the Daemon of Envy. The cave of the Daemon of Hatred is next in order, and through this one passes to the home of the Daemon of Malice — situated in a dark and fearful cave in the very heart of the mountain. I do not know what lies beyond this. Some say there are terrible pitfalls leading to death and destruction, and this may very well be true. However, from each one of the four caves mentioned there is a small, narrow tunnel leading to the fifth cave — a cozy little room occupied by the Daemon of Repentance. And as the rocky floors of these passages are well worn by the track of passing feet, I judge that many wanderers in the Caves of the Daemons have escaped through the tunnels to the abode of the Daemon of Repentance, who is said to be a pleasant sort of fellow who gladly opens for one a little door admitting you into fresh air and sunshine again.