If I got to call substrings of Finnegans Wake when writing a computer program that generated War and Peace, I can see how that would make it shorter. Every time they shared a phrase longer than the call to Finnegans Wake, I could just call Finnegan's wake, for example. But it wouldn't save very much, I'd think.

On the other hand, a program that spat out both books could be much shorter than two programs for one book each, by some amount related to how much repetition there was.

Yes, definitely. A simple example: one tool that will be useful to compress FW is just a dictionary (or index) of English words. Instead of encoding the letters of a word, you encode the index of the word in the list, and save bits by doing so. You have to pay an up-front cost to encode the dictionary itself, but it should still be worthwhile overall, even for a single novel. Now when you compress two novels together, you get the benefit of the dictionary for the second novel without having to repay the upfront cost.