ECONNES - Practical Nesing Economics

I envision that this thread will have two major purposes: (1) to provide essential information and insights on economics, for both the players and moderators, that is relevant and practical for the purposes of nesing; and (2) to provide me with a way of understanding how the players and moderators think, feel and interact with economics and how they apply, understand and ultimately what it is they want in a system of nesing economics. This is not a thread to discuss (2) merely a venue for me to dispense some basic economic wisdom as conceptualized and encapsulated in (1) at least for this present moment.

So may be aware that I've been working on an economics model. If not, then I am, have been, and hope eventually to manage to create one that satisfies my own desire to ensure that we have a comprehensive and historically and economically valid model while at the same time satisfying the mods and players desires presumably in terms of usability, understandability and desirability. I have made some measure of progress in the first but little in the second and this seems to be a result of my fundamental uncertainty about what exactly it is people want. Now, undoubtedly some of you can articulate what it is you want but whether or not that is useful to me as a parameter for my model creation is an entirely different matter.

With that in mind I'm going to ask that the asinine comments, about 'neo-Classical' economics or those other bugbears that you think are representative of the profession or of my own personal beliefs, should stay at the door. You have been warned.

Contents:

Insight 1: Barter and coinage
Insight 2: What is money?
Insight 3: What is the Law of One Price and how does it apply to nesing?
Insight 4: In which Masada reveals that what steak from Outback Steakhouse really contains.
Insight 4: The effect of time on prices.

To be answered

North King said:

As in, I already know that the value varied massively. How do we model that? Simply as another commodity, ignoring the fact that it's currency?

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Immaculate said:

Is there a different set of costs or benefits that inform us about why the medieval experience with tariffs seems to differ so substantially from the modern experience. If the first question is accurate (and it is) how do I model this accurately?

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Kentharu's Wall of Text said:

Now that a basic understanding of currency/money has been established, how can we accurately calculate how much gold/talents/wealth a given nation has inside a NES. This is especially difficult for pre-industrial times. Pre-industrial economic history, and economic mechanics represent a massive period of time where I, and I suspect many others, don't even have basic knowledge. Considering many, if not most NESes occur in this Pre-industrial era (Colonial Imperialism, Bronze, Iron, Medival Age and so forth) how can we accurately, or at least some what accurately, simulate the economies of these era's?

Keep in mind that any system would, understandably, be a simplification of the principles that influenced the economies in any given era. One can't expect NESers to bust out a page long equation to figure out how much gold to spend on building a temple to the Llama gods every time they need to. Also NEsers are lazy, so by necessity we require a simple, or simplish system or the mod will probably lose interest.

Perhaps an equation isn't neccessary. Perhaps a list of factors (positive and negative) could be compiled that would influence the economies in each given era (although era divisions is arbitrary it is required for this to make any sense). At which point the mod would decide how badly, or how well, a nation's economy will do via going through that list, and adjusting income accordingly. This I think would also work well with the ruleset you intend to use, since you would essentially be categorizing "every economic action possible" in a sense.

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I'm willing to take suggestions. I'm tempted to tackle markets and specialization, next.

Insight 1: Barter and coinage.

The fundamental reason for why money is used in preference to barter is this: it allows for specialization and trade at a greater level of intensity than is otherwise possible. This would seem not to follow intuitively for many people, and I full-well understand why that might be the case -- simply put, we are so used to money and the effects it has on our life that most of us have never need to deal extensively in a system without its benefits. For those who have: I apologize. Even so, I still believe that the occasional use of barter doesn't necessarily equivocate to a full understanding of its benefits.

Now, imagine you are a member of a barter economy where each individual specializes in the production of a specific good. Like most you would produce more than you could otherwise use for your own purposes. A cobbler might be able to produce hundreds of shoes but might only wear a few pairs a year, at most, for instance. This cobblers surplus would then have to be exchanged for other goods. If the cobbler desires to eat, he must trade with the farmer and if he desires leather he must trade with the tanner. In order to barter for those goods he must first find someone who sells what he desires and then he must see if that person will accept his goods in payment. The five farmers at the market that day might be willing to trade food but not for shoes. While the tanner is not willing to trade his leather for shoes either. In these circumstances with finite number of buyers and sellers the cobbler would just have to go home hungry and without leather for more shoes. Barter may therefore be said to be a system which requires a coincidence of wants such that both parties have something that the other party desires.

At this point you might ask, surely the cobbler might be able to find someone who wants his shoes and has goods which the farmers and tanner desires but he might only have a fixed amount with which to trade which would still force the cobbler to make choices between the two. Again, you might suggest that the cobbler could find someone who is willing to accept his shoes in exchange for food even though that person doesn't really need them. Yes, its certainly possible. But inconvenient for that person because not only are they stuck with the first problem of finding people with a coincidence of wants to their own they're stuck with storing the goods until that happens.

It becomes apparent that the cobbler if he is faced with such fundamental uncertainty regarding the essentials of living and of his livelihood might instead opt to work only some of the time as a cobbler. He might instead to opt to become a farmer something for which he has relatively little experience and aptitude. There is an economic cost to the cobbler becoming a farmer in the form of lost shoe production. But for the cobbler it is easier for him to become self sufficient rather than to depend on the wants of others. In sum, the difficulties involved in finding a coincidence of wants in a barter economy tend to discourage specialization and trade.

So how does money get around this problem? Simply put: it eliminates the need for a confluence of wants. The cobbler can purchase the food from the farmers and the leather for the tanner. Those who desire a shoe but don't have anything that the cobbler wants can simply exchange money to get them. Which in turn can be redeemed for still other goods that the cobbler wants. Money need not necessarily be in the form of gold or silver. It doesn't need to have an established form. The only common characteristic of money it that it must be acceptable to all the parties involved. Because money eliminates the requirement for a confluence of wants it becomes possible for the cobbler to specialize solely as a cobbler. Thus, money tends to encourage specialization and trade.

i'm very interested in the application of tariffs during medievel economies. everyone always wants free trade and is quick to sign 'open trade agreements' but historically this wasn't very popular. How can i model trade for these systems in such a way that includes an understanding that tariffs are sometimes necessary and occasionally useful. (if indeed, as i hypothesize, they are)

secondly, what is a good alternative 'substance' to equal 'gold' in a society that doesn't mine gold or have mints. what are taxes collect in? bushels of wheat? and then what? how can the state turn that into new temples, new military units, a pallisade, all the things that players 'buy' with their 'gold'.

In Rome, salt was very valuable. It really depends on the historical and geographical location and context of the civilization in question. On a mineral rich planet, nations would probably trade in the form of different metals, similar to coins or what have you. On a planet without many minerals, but a large amount of surplus foods, commerce would largely deal in the form of plants, et cetera.

I've mentioned this before, but I can envision a NES with a base economic amount of 1000 "points" distributed between nations per their economic output. Will elaborate later.

NESers seem to always want some sort of number with which they can spend in order to do stuff in their nation. Buy troops, build roads, temples, and so forth. However rarely is a currency called the same thing all over a given world, or even in a given region. Gold was used differently in China, versus Gold in Europe, and Gold in the pre-Columbian Americas. A simple way to get around this problem is to name "gold" something that abstractly defines the amount of currency in a nation. Words like "wealth" "economic potential" or simply "spending points" should be used instead so that NESers understand that it is not neccessarily how much of a given medium of trade you have, but what it is worth within your nation. This also includes things that are not currency, such as grain tithes and taxes, in some cases, land, pottery and so forth.

These "spending points" only represent how much of a nation's trade that nation's government controls and can spend. The government could reward army service with a plot of land and some gold coins, instead of a giant bag of gold coins. The government could also give out an allotment of grain/bread/food to a certain section of the population, instead of paying them to go buy it.

This has been a stream of consciousness.

Immaculate said:

i'm very interested in the application of tariffs during medievel economies. everyone always wants free trade and is quick to sign 'open trade agreements' but historically this wasn't very popular. How can i model trade for these systems in such a way that includes an understanding that tariffs are sometimes necessary and occasionally useful. (if indeed, as i hypothesize, they are)

secondly, what is a good alternative 'substance' to equal 'gold' in a society that doesn't mine gold or have mints. what are taxes collect in? bushels of wheat? and then what? how can the state turn that into new temples, new military units, a pallisade, all the things that players 'buy' with their 'gold'.

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Tarriffs are useful in the sense more that it can regulate the amount of wealth entering and leaving the economy . In fact the standard measurement of a national economy (Gross Domestic Product) is found by adding up the total worth of services and goods then subtracting the trade deficit. In modern economies this is rationalized by the arguement that foriegn investors will make up the difference of the trade deficit, however in medievel economies little to no investment took place at all (lending institutions we just staring to appear), much less in other countries. Finally in the high middle ages it was thought that unrenewable resources (gold, iron) should never be traded for renewable resources (crops,livestock), tarriffs would keep the gold at home.
(Do one on Fractional Reserve Banking Next!)

Ahh, very interesting insight, Masada. I'm subscribing to this thread - always can use some economic enrichment now and again. I must confess I never understood the barter vs. currency debate but now I feel a little more informed. Thanks!

Immaculate said:

i'm very interested in the application of tariffs during medievel economies. everyone always wants free trade and is quick to sign 'open trade agreements' but historically this wasn't very popular. How can i model trade for these systems in such a way that includes an understanding that tariffs are sometimes necessary and occasionally useful. (if indeed, as i hypothesize, they are)

secondly, what is a good alternative 'substance' to equal 'gold' in a society that doesn't mine gold or have mints. what are taxes collect in? bushels of wheat? and then what? how can the state turn that into new temples, new military units, a pallisade, all the things that players 'buy' with their 'gold'.

Click to expand...

I think that this is one occasion where, even if tariffs are not as profitable as open trade on the whole in reality, it should be the case that tariffs actually benefit revenues in NESes, in order to have the players behave just like mediaeval rulers. In the same way, computer games about the classical world regularly have gods wandering around blessing and cursing your empire, because this is the only real way to get the player to build temples.


On the subject of spending points, one should be careful not to neglect the fact that governments in the middle ages did keep revenues in metal. Therefore, it might be better to have a stat for each country for gold-per-turn, but also a stat for how much 1 gold is worth on the international market, and also a stat for how many "spending points" 1 gold is worth internally, within the player's nation.

On the subject of spending points, one should be careful not to neglect the fact that governments in the middle ages did keep revenues in metal. Therefore, it might be better to have a stat for each country for gold-per-turn, but also a stat for how much 1 gold is worth on the international market, and also a stat for how many "spending points" 1 gold is worth internally, within the player's nation.

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Having two separate stats for "spending points" and gold (or precious metals) would be redundant and pointless since "spending points" would simply refer to al resources a government can use to do physical things (aka not laws and policy).

On a side note, "spending points" should not be large things like say EP in EQ's NES or EP in das' NES. Instead "spending points" should be represented in small quantities as in Dachs' NES (where players have thousands of talents). This is mainly to allow players much more flexibility in spending. Where they can spend 100 "SP" on doing something little but in most cases will have to spend thousands of "SP" on raising armies, building roads and so forth. Often times I have been frustrated by the huge nature of EP and other spending systems. I don't want to spend billions of dollars on build a single or even two schools. I don't even want to spend millions.

Immaculate said:

i'm very interested in the application of tariffs during medievel economies. everyone always wants free trade and is quick to sign 'open trade agreements' but historically this wasn't very popular. How can i model trade for these systems in such a way that includes an understanding that tariffs are sometimes necessary and occasionally useful. (if indeed, as i hypothesize, they are)

Click to expand...

So we have two questions here. I'll summarize the first as this: Is there a different set of costs or benefits that inform us about why the medieval experience with tariffs seems to differ so substantially from the modern experience. While the second question can summed up thus: If the first question is accurate (and it is) how do I model this accurately?

Immaculate said:

secondly, what is a good alternative 'substance' to equal 'gold' in a society that doesn't mine gold or have mints.

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There has already had some input on this. So I'll deal with it in my next insight suffice to say that everyone here has shown a fundamental misapprehension about what money actually is.

Kentharu said:

Having two separate stats for "spending points" and gold (or precious metals) would be redundant and pointless since "spending points" would simply refer to al resources a government can use to do physical things (aka not laws and policy).

On a side note, "spending points" should not be large things like say EP in EQ's NES or EP in das' NES. Instead "spending points" should be represented in small quantities as in Dachs' NES (where players have thousands of talents). This is mainly to allow players much more flexibility in spending. Where they can spend 100 "SP" on doing something little but in most cases will have to spend thousands of "SP" on raising armies, building roads and so forth. Often times I have been frustrated by the huge nature of EP and other spending systems. I don't want to spend billions of dollars on build a single or even two schools. I don't even want to spend millions.

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Whats the point in spending trivial amounts?

This isn't a venue for discussing that. Please take it elsewhere.

Lord of Elves said:

In Rome, salt was very valuable. It really depends on the historical and geographical location and context of the civilization in question. On a mineral rich planet, nations would probably trade in the form of different metals, similar to coins or what have you. On a planet without many minerals, but a large amount of surplus foods, commerce would largely deal in the form of plants, et cetera.

Click to expand...

Wouldn't it actually be the opposite? Gold was originally used as currency because it was pretty and there wasn't that much of it. Currency in my mind is something valuable, not plentiful.

As to what currency exactly is, isn't it just assigning a universally agreed upon value on to something arbitrary (but preferably with a controllable source) to use in exchange for goods or services of actual tangible value?

I apologize in advance if my comment isn't on the desired track of the thread

Tyrs said:

Wouldn't it actually be the opposite? Gold was originally used as currency because it was pretty and there wasn't that much of it. Currency in my mind is something valuable, not plentiful.

As to what currency exactly is, isn't it just assigning a universally agreed upon value on to something arbitrary (but preferably with a controllable source) to use in exchange for goods or services of actual tangible value?

I apologize in advance if my comment isn't on the desired track of the thread

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The definition of currency is "the physical aspect of a nation's money supply". The money supply is the total of credit available, such as checks and bonds, currency is just the lowly dollar bill. In the modern world currency makes little difference seeing complex exchange methods such as Checking.
In simple economy is much more important, if it is a crop (some cultures used wheat) it would be too unstable, gold and silver were by no means controllable sources either. During the Great Deflation, a lode of silver was found, and the dollar spiked in value due to the huge increase in the supply of silver. So it is hard to find a stable way to base a currency.

Masada said:

So we have two questions here. I'll summarize the first as this: Is there a different set of costs or benefits that inform us about why the medieval experience with tariffs seems to differ so substantially from the modern experience. While the second question can summed up thus: If the first question is accurate (and it is) how do I model this accurately?

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I'd like to know the answer to these questions, too!

Masada said:

There has already had some input on this. So I'll deal with it in my next insight suffice to say that everyone here has shown a fundamental misapprehension about what money actually is.

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Sounds good! I'll stay tuned. But going off of your first insight, isn't money simply the agreed-upon item that can be exchanged for all different sorts of goods and services? Or have I the wrong idea?

Insight 2: What is money?

Money has three key characteristics:

The first, is that it must be a medium of exchange. Basically, if something eliminates the confluence of wants I mentioned in my first insight: Barter and coinage it has this characteristic. Thus, the existence of money eliminates the need for a confluence of wants.

Secondly, money must be a unit of account. I framed this question to the darling yesterday: If she wanted a haircut how many pizzas with the lot, of her own creation, would she willing to value it in? She suggested that a haircut might be worth two pizzas. I then asked her how much she would value a good haircut in terms of cooked breakfasts (bacon, eggs, hash-browns, tomatoes and black-pudding) and she said: Well perhaps four. Finally, I asked how much she would value a pizza in terms of cooked breakfasts. At this point she just gave up. Not only did she need to account for the different costs of each good to prepare but she had to account for the different values she attributed to them. We also hadn't taken into account the fact that the hairdresser might not like pizzas or cooked breakfasts.

Money makes this far easier: a normal haircut might be valued at $15 and a good hair cut at $50. We can work everything else out at that point rather easily. Each pizza and cooked breakfast is worth $7.50 and $12.50 respectively which isn't to far from the mark here. Money thus provides a common unit of account for expressing the values of goods and services. This serves to reduce time and effort required to make an informed economic decision. This allows for more time for other productive activities. (Anyone faced with the options that are available when it comes to purchasing an expensive TV will intuitively understand this point. Imagine if the complexity of that occurred with every single transaction you did!)

Thirdly, money must be a store of value. We could use cars as a currency if we really wanted to there's not compelling methodological reason why they couldn't become a medium of exchange and a unit of account. As long as everyone was willing to accept them in payment and as long as prices were denominated in them there wouldn't be a problem you might say. Sure, I agree. But it would fail as money precisely because cars are a poor store of value. Everyone should know that the moment we drive a car out of the lot or it changes hands it loses value. It follows that if the whole country were to adopt cars as currency we would all effectively be accepting that every-time our 'money' changed hands it would lose value. You can see the problem with that. It therefore pays for money to be liquid.

For a resource to be liquid ideally it shouldn't degrade over time, it should be relatively uniform, it should be relatively scarce, portable and with low transaction costs. Cars fail on all most of these. Cars degrade over time. They aren't uniform. While they are scare they're probably to scare and expensive to be much use in all but the largest transaction: How do you buy a single pencil in terms of a car? They certainly aren't all that portable: you can't carry them around in your pocket. They also have high transaction costs in the form of advertising, stamp duty, brokerage fees and the time and effort required to find a buyer. Thus cars can be said to be illiquid.

So what is liquid? Gold is liquid. So is cash. Stocks. Bonds. Demand Deposits. And so forth. Basically if something can be converted into something else in a short period of time without significant fiduciary loss it may be considered to be liquid.

Immaculate said:

secondly, what is a good alternative 'substance' to equal 'gold' in a society that doesn't mine gold or have mints. what are taxes collect in? bushels of wheat? and then what? how can the state turn that into new temples, new military units, a pallisade, all the things that players 'buy' with their 'gold'.

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Sure you could use bushels of wheat as a substitute for money. It won't actually be money but that's not really all that important considering the time-frame and the subjective nature of the judgments involved.

Lord of Elves said:

In Rome, salt was very valuable. It really depends on the historical and geographical location and context of the civilization in question.

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Salt simply doesn't make for good money. It degrades and it has a limited lifespan. You also can't reliably denominate it. Guaranteeing purity is also difficult. It falls into the same status as wheat.

Lord of Elves said:

On a mineral rich planet, nations would probably trade in the form of different metals, similar to coins or what have you. On a planet without many minerals, but a large amount of surplus foods, commerce would largely deal in the form of plants, et cetera.

Click to expand...

These seem counter-intuitive. In the first instance, currency has been historically concentrated in metals which were comparatively rare. There's no compelling reason why we didn't have a steel standard: except for the weight and impracticality of lugging three tonnes of steel around when a single small gold coin might suffice. Similarly, plants also fail for this same reason since it makes comparatively little sense to have a currency in something which a large surplus. Furthermore, plants make for a poor type of currency. Not only are they weighty relative to their value (and especially so in your scenario) most degrade rapidly over-time even in optimal storage conditions. I certainly understand what your saying in the non-technical sense but if you think about it there are compelling reasons why M&Ms are not used as money.

spryllino said:

On the subject of spending points, one should be careful not to neglect the fact that governments in the middle ages did keep revenues in metal. Therefore, it might be better to have a stat for each country for gold-per-turn, but also a stat for how much 1 gold is worth on the international market, and also a stat for how many "spending points" 1 gold is worth internally, within the player's nation.

Click to expand...

Gold is the poster child for the Law of One Price. If there was a substantial deviation in the value of gold from nation A to nation B I could simply take gold from A to B and pocket the difference. You don't even need an efficient market for it. History confirms that gold arbitrage opportunities were few and far between. That invalidates the need for an international gold market.

Tyrs said:

Wouldn't it actually be the opposite? Gold was originally used as currency because it was pretty and there wasn't that much of it. Currency in my mind is something valuable, not plentiful.

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You have a point here. But I don't think its prettiness had much to do with anything. Gold does seem to correlate beautifully with its relative plenitude viz. a viz. silver.

Tyrs said:

As to what currency exactly is, isn't it just assigning a universally agreed upon value on to something arbitrary (but preferably with a controllable source) to use in exchange for goods or services of actual tangible value?

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Its more than that as I hope I've shown. Your partially correct in that money's face value doesn't necessarily reflect its actual value. But then neither does a bank balance held in a 15th century Italian bank. Both are still good to redeem in exchange for goods and services up to their face value.

1stcitizen said:

The definition of currency is "the physical aspect of a nation's money supply". The money supply is the total of credit available, such as checks and bonds, currency is just the lowly dollar bill. In the modern world currency makes little difference seeing complex exchange methods such as Checking.

Click to expand...

You and Tyrs have confused currency with money.

1stcitizen said:

In simple economy is much more important, if it is a crop (some cultures used wheat) it would be too unstable, gold and silver were by no means controllable sources either. During the Great Deflation, a lode of silver was found, and the dollar spiked in value due to the huge increase in the supply of silver. So it is hard to find a stable way to base a currency.

Click to expand...

There's a number of things wrong with this statement. I might go over them at a late date when I have time.